Knowledge of commission structure and how it works is a must for any person involved in the finance and insurance sector. Such knowledge equips them to understand the aspirations of the personnel and balance them with the company’s objectives.
Here are some of the most common questions that people in the industry raise:
1. Why do insurance companies pay commissions?
Insurance companies pay commissions because they want to motivate agents to sell more products.
2. How often do insurance companies pay commissions?
The frequency with which an insurance company pays commissions varies from company to company. Some insurance companies pay monthly, others quarterly, and some annually.
This disparity is due to the rate at which policy premiums are paid. For instance, some policies are paid monthly because of their low aggregate premiums; others may only be quarterly or annually because of their high aggregate value.
3. How are insurance brokers paid commission?
The most common way to compensate insurance brokers for their efforts is through commission. Brokers receive a percentage of the premium for each policy sold.
Most brokers are paid in cash in the agents’ local currency, but future-ready companies look at options like cryptocurrencies.
4. What is a renewal commission?
A renewal commission is the percentage of the annual bonus that an agent earns when a policyholder renews their insurance.
The amount of renewal commission varies from carrier to carrier, as well as by product type. For example, home and auto policies have different levels of renewal commissions due to the differing risk potential for the insurer (i.e., based on which one is riskier than the other).
If you are familiar with retention and bonus commissions, you may wonder how they differ. Retention commissions are paid at claims-free intervals (usually annually), while bonus commissions are generally paid when the insurer meets specific financial targets or has an outstanding loss ratio below a certain threshold (i.e., 10%).
5. Are all commissions the same?
No, not at all. Some companies pay higher commissions than others, while some pay low. Many have no standard commission rate. The mix of high and low commissions can vary from company to company, even within the same industry.
There are many reasons for this commission structure variation, like the deals' complexity, collaboration, time, and experience.
6. Do all licensed agents get the same commission rates?
No. Each insurance company has its dynamic commission structure. What you earn in commissions varies depending on the product, the type of sale, and whether you work for an independent agent or a brokerage firm.
The same holds for brokerages as well. They have different commission rates for different products. A company might pay more commission on one policy than another (for example, umbrella coverage) or to agents who have achieved specific sales goals (like selling $1 million products).
7. How can commissions be split fairly?
Whether you are a commissioned employee or a self-employed salesperson, your commission structure must be fair. The most common determiner of commissions is the amount of work each person puts in, their contribution to the sale, and their performance.
8. Which insurance companies are best when it comes to paying commissions?
While there are no “good” or “bad” insurance companies, there are some that pay higher commissions. There are also some which pay more often and have an excellent commission-tracking platform. Other things to look for include an automation system and incentive programs. However, the final call depends on whether the company meets your business needs and goals.
Manage all your commission payments in a centralized and automated platform
Managing commissions has always been challenging for the insurance sector. The possibility of errors in manual calculation can complicate sales compensation management and payments in the insurance industry.
Insurance companies should re-imagine how they work. They should move away from tedious processes and provide their teams with an amazing experience to drive growth.
Ensure efficiency by implementing a platform that automates processes and consolidates all your information in one place, connecting seamlessly with your legacy systems and existing tools.
Blitz is a commission management platform that supports decision-making with real-time data and boosts insurance companies’ growth.
With Blitz, users will be able to:
- Eliminate manual errors
- Keep track of your sales comp plans in real time
- Attract and retain top performers