Glossary · Insurance agency commissions
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.
What it means
The terms are used in more than one way. In other contexts, net premium can mean premium after returns, or after reinsurance; on an agency’s statements it almost always means gross minus commission. Check how each carrier labels its columns before comparing figures.
Taxes and fees complicate both. Policy fees, inspection fees, surplus lines taxes and similar charges are often not commissionable, so commission should be calculated on the premium only. Which items are commissionable depends on the carrier, the program and the state.
How it shows on a commission statement
Agency bill statements usually show gross premium, commission and net due in separate columns. Some direct bill statements show only one premium column; it is worth confirming whether that column is gross or net before recomputing the rate.
Example
- Gross premium
- $4,000.00
- Policy fee, not commissionable
- $150.00
- Commission at 12.5% on premium only
- −$500.00
- Net due to carrier (premium plus fee, less commission)
- $3,650.00
Common mistakes to check
- Commission calculated on fees or taxes.
- Recomputing a rate from a net premium column as if it were gross.
- Remitting gross instead of net, or net at the wrong rate.