LAPIDAR

Glossary for independent insurance agencies

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Glossary · Written by the team building Lapidar

Insurance commission terms, in plain English.

24 terms you meet on carrier commission statements, each with a one-line definition, a worked example and what to check. Every figure is labeled example data.

  1. Agency bill

    Agency bill means the agency invoices the insured, collects the premium, keeps its commission and sends the net premium to the carrier.

  2. Agency management system

    An agency management system (AMS) is the software an agency uses as its record of clients, policies, transactions and, often, expected commission.

  3. Audit premium

    Audit premium is the premium adjustment after a carrier audits actual payroll or sales at term end. It can be additional premium or a return.

  4. Book of business

    A book of business is all the policies and clients an agency or producer writes and services, usually measured by premium or commission revenue.

  5. Carrier appointment

    A carrier appointment is the carrier’s authorization for an agent or agency to sell its policies. In many states the carrier files it with the state.

  6. Commission chargeback

    A commission chargeback is commission a carrier takes back, usually after a cancellation, a premium-reducing endorsement or an audit returns premium.

  7. Commission rate

    A commission rate is the percentage of premium a carrier pays an agency on a policy or transaction. It can differ by line, carrier and new vs renewal.

  8. Commission reconciliation

    Commission reconciliation is checking each line of a carrier’s commission statement against your records and schedule for missing or wrong payments.

  9. Commission schedule

    A commission schedule is the carrier’s table of rates it pays your agency, usually by line of business and new vs renewal, sometimes by state or program.

  10. Commission statement

    A commission statement is the carrier’s report, usually monthly, listing each transaction it pays commission on, with premium, rate and commission.

  11. Contingent commission

    A contingent commission is an extra payment from a carrier based on results of your whole book with it, such as loss ratio, growth or volume.

  12. Direct bill

    Direct bill means the carrier invoices and collects premium from the insured, then pays the agency its commission, usually on a monthly statement.

  13. Endorsement

    An endorsement is a change made to a policy during its term, such as adding a vehicle, a driver or a location, that can raise premium, lower it, or leave it unchanged.

  14. Insurance aggregator (cluster)

    An insurance aggregator, often called a cluster or agency network, is an organization through which independent agencies get access to carriers and pool their volume, usually in exchange for a share of commission or a fee.

  15. Net vs gross premium

    Gross premium is the full premium charged to the insured; net premium is what remains after the agency’s commission is deducted, which is the amount an agency remits to the carrier on agency bill.

  16. New business vs renewal commission

    New business commission is paid on a policy’s first term with a carrier, and renewal commission on each term after that; some carriers pay a different rate for each, while others pay the same.

  17. Override commission

    An override commission is an additional commission paid on top of the base commission, typically to a party above the writing agent, such as an agency network, a managing general agent or a sales manager, based on business produced by others.

  18. Premium trust account

    A premium trust account, also called a premium fund or fiduciary account, is a bank account in which an agency holds premium collected on behalf of carriers or insureds, kept apart from the agency’s own money as state rules or agency agreements require.

  19. Pro rata cancellation

    A pro rata cancellation refunds the insured the exact share of premium for the days of coverage remaining, with no penalty.

  20. Producer split

    A producer split is the share of an agency’s commission on a policy that the agency pays to the producer who wrote or services it, as set out in the producer’s agreement.

  21. Return premium

    Return premium is premium a carrier refunds to the insured, most often after a cancellation, an endorsement that reduces coverage, or an audit that finds a smaller exposure than estimated.

  22. Short-rate cancellation

    A short-rate cancellation refunds less than the unused share of premium because the carrier keeps a penalty, and it usually applies when the insured asks to cancel mid-term.

  23. Unearned premium

    Unearned premium is the part of a policy’s premium that covers the time remaining in its term, and that the carrier would generally refund if the policy were cancelled.

  24. Written vs earned premium

    Written premium is the full premium on policies issued or changed in a period, while earned premium is the part of it that corresponds to coverage already provided.

Reconciling statements is the hard part.

Every carrier formats its statements differently, and the lines rarely match your records on the first pass. Lapidar is in development, so there is nothing to log into yet. Join the early-access list and we’ll write once, when the first agencies can upload their statements.

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