Commission chargeback calculator for mid-term cancellations

How the chargeback is worked out

In P&C, commission is generally earned on premium the insured keeps paying for. When a policy cancels before expiration, the carrier returns the unearned premium to the insured and takes back the commission on it. So the expected chargeback is two numbers multiplied together: the return premium, and the rate the commission was originally paid at.

return premium = term premium − premium earned
expected chargeback = return premium × original commission rate

Both halves can go wrong on a statement. The return premium might not match the cancellation, and the rate might not be the one the commission went out at. A policy paid at 12% shouldn’t come back at 15%.

Pro rata

Pro rata returns premium in proportion to the time left in the term. In the starting example, a $1,200 policy runs from January 1 to January 1 and cancels on May 1: 120 days in force out of 365. The carrier keeps $394.52, returns $805.48, and at 15% the commission coming back is $120.82. The agency keeps $59.18 for the months the policy was in force.

Short rate

Under a short-rate cancellation the carrier keeps more than the pro rata share, usually when the insured asks to cancel. Less premium goes back, so less commission is charged back. Short rates are expressed in two common ways, and the calculator takes either:

• A penalty on the unearned premium, for example 10% of what pro rata would return is kept by the carrier.
• A percentage of the term premium earned, read from the carrier’s short-rate table for the number of days in force.

We don’t include a short-rate table, and we haven’t built in state rules. Tables and penalties vary by carrier, policy form and state, and a wrong table would give you a confident wrong number. If the cancellation notice shows the return premium, check it against what the calculator shows.

Checking the line on the statement

Enter the amount the carrier charged back in the optional field and the calculator shows the difference. A chargeback can also arrive months after the cancellation, or twice across two statements, so look at more than the current month. Our guide to commission chargebacks covers the other causes: endorsements, audits, rewrites and reversed duplicates. Reconciling real statements across carriers is the hard part: dozens of formats, PDFs, policy numbers that don’t match, and chargebacks that land months later. This calculator covers one cancellation. Lapidar, which we’re building for the full job, is in development and not available yet. Join the early-access list.

Illustrative only. General information, not accounting, legal or tax advice. Your agency agreement and the policy govern.

Questions

How is a commission chargeback calculated on a cancelled policy?

Usually as the premium returned to the insured times the commission rate the policy was originally paid at. If $805.48 of a $1,200 premium is returned and commission was paid at 15%, the expected chargeback is $120.82. Your agency agreement sets the actual rule.

What is the difference between pro rata and short rate cancellation?

Pro rata returns the unearned premium in proportion to the days left in the term. Short rate returns less, because the carrier keeps a penalty, often when the insured asks to cancel. Less premium returned means less commission charged back.

Why doesn’t this calculator include state short-rate tables?

Short-rate tables and penalties differ by carrier, policy form and state, and we won’t publish a table we can’t vouch for. Enter the percentage from the policy, the carrier’s table or the cancellation notice. If you have the return premium itself, compare it with the result here.

Does this calculator store or send my numbers?

No. The calculation runs in your browser. Nothing is uploaded, saved or tracked, and the page makes no network requests after it loads.