Contingent commissions

A contingent commission is a bonus a carrier pays an agency on top of its standard commission, if the agency meets the targets in its agreement with that carrier. You may also hear them called contingencies, profit-sharing commissions or bonus commissions.

What the targets are

Each carrier sets different targets, and most agreements combine several of these.

Premium minimum

The written premium an agency must place with the carrier before any bonus is payable.

Loss ratio

Claims as a share of premium. Carriers usually pay less as the ratio rises and stop paying above a set limit.

Growth

An extra rate for growing premium over the prior year, often in tiers.

Retention

Some carriers also pay more for keeping business at renewal.

A simple example

Say a carrier pays 2% of eligible written premium, rising to 3% once premium reaches 110% of the prior year.

Prior-year premium

$1,200,000

Projected premium this year

$1,284,000

Estimated commission at 2%

$25,680

Premium needed for the next tier

$1,320,000

Commission at that tier, at 3%

$39,600

The agency is $36,000 short of the next tier. Writing that premium would add $13,920 to its bonus. Real formulas vary by carrier and are often more complex.

When they are paid

The carrier calculates the final figure after the measurement period closes. Payment often comes in the first months of the following year, though some programs take longer. By then, the agency can no longer change the result, so the time to act is during the year.

How agencies track them

An agency has to check each carrier's agreement against its monthly production and loss reports, which come in different layouts. Parsewise tracks contingent commissions for each carrier and links every figure to its source.