Commission is important in the insurance industry as many insurance salespeople rely on it. As a result, commission splits are an important aspect of the industry as they determine how much commission earned goes to the agency and how much goes to the producers.
To succeed in the insurance industry, commission splits play a crucial role. Low commission splits mean a lower income, while high splits can lead to better earnings. Aspiring insurance agents must inquire about commission splits at potential carriers to determine their paycheck.
As a licensed insurance agent, I can tell you that commission is a highly important aspect of the insurance industry and commission splits aren’t as uncommon as you may think. Just make sure whoever you are working with for the split is also licensed (otherwise you cannot share commissions legally).
In this article, we will explain how commission splits work, discuss the different types, advantages and disadvantages, and go over how to negotiate commission splits. Let’s get started!
Table of contents
How Commission Splits Work?
Throughout my career as an insurance broker, I feel like commission splits generally aren’t widely talked about. Seeing as commission is an important aspect in the insurance industry on multiple levels, I think it is important that agencies and salespeople understand how commission splits work. But to do that, we first need to understand what a commission split is.
| Commission Model | Description |
|---|---|
| Residual | Agents receive commission when a sale is closed, and again when the policy is renewed, although at a lower percentage rate. |
| UpfrontAgents earn an average of 15% of the premium price for car and home insurance and up to 110% for life insurance products. | |
| Regenerations | Pays agents a percentage of the premium when a client renews a policy. This model typically pays 2 to 5% of the premium, although agents who have a lot of high-priced policy regenerations can earn much more. |
A commission split determines how much of the commission earned on a policy goes to the insurance agency, and how much of it is given to the producers. Commission splits are typically expressed as a percentage, with the agency retaining a certain percentage of the commission and the producer receiving the remaining percentage.
There are several factors that may impact commission splits, including the type of insurance policy being sold, the company offering the policy, and the producer’s level of experience and sales record. Commission splits may also vary based on the terms of the producer’s contract with the agency.
Types Of Commission Splits
There are several different types of commission splits that may be used in the insurance industry.
As an insurance professional, I can tell you that each type is different and assigns different responsibility to the insurance agency, so it’s important to understand the different types.
| Commission Splits | Description |
|---|---|
| Gross Commission Split | Agents keep a percentage of the gross commission paid by the insurance carrier. For example, if the carrier pays 80% of the premium as commission, the agent might keep 50-60% of that 80% or 40-48% of the premium. |
| Net Commission Split | Agents keep a percentage of the commission after the carrier deducts expenses, such as rent and administrative costs. The net commission is usually lower than the gross commission, so agents typically receive a higher percentage of the net commission. |
| Hybrid Commission Split | This model combines elements of the gross and net commission splits. For example, agents might receive a higher percentage of the gross commission for certain products or services, and a higher percentage of the net commission for others. |
| 100% Commission | Agents keep 100% of the commission but must pay a monthly fee or desk rent to the brokerage for administrative support and other services. This model is suitable for experienced agents with established client bases who don’t need much support. |
| Salary Plus Commission | Agents receive a base salary plus a commission for each sale. The salary is usually lower than the average agent’s income but provides a reliable income stream. This model is suitable for new or part-time agents who need financial stability. |
Some Of The Most Common Types Of Commission Splits Include:
- Agency-Based Splits: In an agency-based commission split, the insurance agency retains a certain percentage of the commission earned on a policy and pays the producer the remaining percentage. This type of split is common in traditional insurance agencies.
- Independent Contractor Splits: In an independent contractor commission split, the producer is treated as an independent contractor rather than an employee of the insurance agency. The producer is typically responsible for paying their own expenses and may receive a higher commission split in exchange.
- Split Commission Agreements: In a split commission agreement, the insurance agency and producer agree to split the commission earned on a policy in a specific way. This may be based on a set percentage or may be negotiated on a case-by-case basis.
- Profit-Sharing Arrangements: In a profit-sharing arrangement, the insurance agency and producer share the profits earned on a policy. This type of arrangement may be based on a set percentage or may be negotiated on a case-by-case basis.
Advantages And Disadvantages Of Different Commission Splits
As an insurance broker, I believe that you also need to understand the advantages and disadvantages of these different commission splits to make sure you determine which works best for your insurance agency. It’s important to carefully consider the pros and cons of different commission splits when determining which option is best for your insurance agency.
| Commission Split Type | Advantages | Disadvantages |
|---|---|---|
| High Commission Splits | Provides high potential earnings for top performers | Requires consistent high sales performance, may not be sustainable for all agents |
| Low Commission Splits | Provides more stable income, less pressure to sell aggressively | Limits earning potential for high-performing agents |
| Graduated Commission Splits | Rewards improvement in sales performance with higher commission rates | May discourage agents from maintaining high sales performance after reaching the highest commission tier |
| Equal Commission Splits | Encourages teamwork and collaboration | May create tension or resentment if one agent feels they are contributing more than others |
| Residual Commission Splits | Provides ongoing income from renewals | Initial commission earnings may be lower than other split types |
It’s important to note that the advantages and disadvantages of different commission splits can vary depending on the specific needs and circumstances of the agent and the agency.
Here is a look at the advantages and disadvantages of some of the most common types of commission splits:
- Agency-Based Splits: Advantages of agency-based splits include stability and predictability for both the agency and the producer. Disadvantages may include a lower commission split for producers and less flexibility for both the agency and the producer.
- Independent Contractor Splits: Advantages of independent contractor splits include a higher commission split for producers and greater flexibility for both the agency and the producer. Disadvantages may include increased responsibilities and expenses for producers and less stability and predictability for both the agency and the producer.
- Split Commission Agreements: Advantages of split commission agreements include the ability to negotiate a commission split that works for both the agency and the producer. Disadvantages may include the need for ongoing negotiation and the possibility of conflict if the parties disagree on the terms of the split.
- Profit-Sharing Arrangements: Advantages of profit-sharing arrangements include the alignment of incentives between the agency and the producer and the potential for increased profits for both parties. Disadvantages may include the need for ongoing negotiation and the possibility of conflict if the parties disagree on the terms of the profit-sharing arrangement.
Negotiating Commission Splits
As an independent insurance broker who owns my own agency, I can tell you that it is important to negotiate commission splits. It’s important to carefully consider the needs and expectations of both parties and aim for a mutually beneficial agreement.
Here are some tips for negotiating commission splits which I’ve learned along the way!
- Clearly Communicate Expectations: Make sure to clearly communicate your expectations and the terms of the commission split to clients and producers. This will help ensure that everyone is on the same page and minimize misunderstandings.
- Be Open To Negotiation: Be open to negotiating the terms of the commission split. It’s important to be flexible and willing to compromise in order to reach a mutually beneficial agreement.
- Consider The Needs Of Both Parties: When negotiating a commission split, it’s important to consider the needs and expectations of both parties. Aim for a split that is fair and equitable for both the agency and the producer.
- Get Everything In Writing: Make sure to get the terms of the commission split in writing, whether it’s a formal contract or a simple email outlining the agreement. This will help ensure that everyone is clear on the terms of the split and minimize the risk of misunderstandings or disputes.
Conclusion
As an independent insurance broker and an insurance agency owner, I fully understand how important commission splits are to the insurance industry. When choosing a commission split for your insurance agency, make sure you understand the different types of commission splits as well as the needs and expectations of the agency and producer. Don’t forget to check out our tips for negotiating commission splits to make sure you get the best split for your agency.
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