Glossary · Insurance agency commissions
Flat cancellation
A flat cancellation cancels a policy effective on its original inception date, so the carrier treats it as never in force, returns the full premium and normally takes back all of the commission paid.
What it means
It differs from an ordinary cancellation, where premium is earned for the time the policy was in force. Typical reasons are a policy replaced before it started, an issuing error, or a down payment that failed. Whether a given cancellation is flat is the carrier’s decision, and the record in your system may say otherwise.
The effect on commission is the full reversal, not a partial one, so the chargeback is large relative to a normal mid-term cancellation.
How it shows on a commission statement
Look for a negative line at the full original premium and the full original commission, often months after the original payment. Compare it with the cancellation you have on file and its effective date.
Example
- Premium
- $2,000.00
- Commission paid at 15%
- $300.00
- Chargeback on flat cancellation
- −$300.00
- Commission kept
- $0.00
Common mistakes to check
- Expecting a prorated chargeback when the carrier treated the cancellation as flat.
- Not checking the effective date the carrier used against your records.
- Passing the commission to the producer before the flat cancellation window has passed.
- Missing that the policy was replaced elsewhere and the new commission is a separate matter.
Lapidar is commission reconciliation software for independent insurance agencies, in development. Related: commission chargeback calculator.