Glossary · Insurance agency commissions
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.
What it means
Contingent commissions are set out in a separate profit-sharing agreement or addendum, with its own formula. The formula usually looks at a full calendar year, often requires a minimum premium volume, and combines measures such as loss ratio, premium growth and retention. Payment typically comes once a year, some months after the year closes. Some carriers also pay supplemental commissions, a related arrangement with its own rules.
Contingent pay has drawn regulatory attention in the past, and some states have rules on disclosing agency compensation to clients. What applies to you depends on your state; this entry isn’t legal advice.
How it shows on a commission statement
A contingent commission usually doesn’t appear policy by policy. It arrives as a single line, a separate statement or a separate payment, ideally with a worksheet showing the premium, losses and grid used. Without the worksheet you can’t check it.
Example
- Eligible written premium
- $600,000
- Loss ratio for the year
- 42%
- Grid: loss ratio under 45% pays
- 2.0%
- Contingent commission
- $12,000
Common mistakes to check
- Not asking for the calculation worksheet.
- Premium or loss figures in the worksheet that don’t match your records, for example a large claim booked to the wrong agency code.
- Not knowing whether business placed through an aggregator counts toward your agreement or the aggregator’s.
- Budgeting for it as if it were guaranteed. It depends on results that can change late in the year.