Contingent commission calculator

What this estimator does

A contingent commission, or profit-sharing bonus, is paid on top of ordinary commission when an agency’s whole book with one carrier meets targets in a profit-sharing agreement. Most agreements use a grid: a few levels, each with a loss ratio ceiling, sometimes a growth floor, and a bonus percentage. The estimator checks your numbers against the rows you enter, takes the best row you meet, and shows how far you are from the next one.

estimated bonus = eligible written premium × bonus % of the best row met
premium needed for a growth target = last year’s premium × (1 + target growth)

It does not know any carrier’s formula, and it ships no default tiers. Every carrier writes its own, and one carrier can attach different addendums to the same contract. Our guide to insurance agency profit sharing covers the usual building blocks: minimum premium, loss ratio, growth, retention and the grid.

Worked example

The figures are an invented example agreement, not a real carrier’s terms. The grid pays nothing below $500,000 of eligible premium, then 1% at a loss ratio of 55% or less with no shrinkage, 2% at 50% or less with 5% growth, 3% at 45% or less with 10% growth, and 4% at 40% or less with 15% growth. An agency with $1,200,000 of eligible premium, a 48% loss ratio and 6% growth meets row 2, an estimated $24,000. Row 3 needs the loss ratio 3 points lower and growth 4 points higher. Last year’s premium works out to about $1,132,075, so 10% growth means about $1,245,283, or $45,283 more premium. If both happened, 3% of that would be about $37,358, roughly $13,358 more than today.

What the estimate leaves out

• How the conditions interact. New premium changes the loss ratio too, usually lowering it at first because new policies have had little time to produce claims. The estimator holds the loss ratio where you put it.
• Multi-dimensional grids. Some agreements cross loss ratio with volume rather than growth, or apply retention and product-mix multipliers. Enter each cell of such a grid as its own row, or work the multiplier by hand.
• Stop-loss and caps. A stop-loss limits how much of one large claim counts against the loss ratio, and some agreements cap the bonus. Enter the loss ratio after any stop-loss your agreement applies.
• Bonus base. The estimator applies the bonus to eligible written premium. If your agreement pays on earned premium, or on underwriting profit, enter that base instead and read the result accordingly.

Check it against the carrier’s worksheet

Use the estimate to know roughly what to expect in the spring, and to see where you are close to a boundary, where a small change moves the whole payment. When the carrier’s worksheet arrives, compare its eligible premium, loss figures and the row it applied with your own records. The guide covers what to ask for and how to read it, and booking commission income covers how contingent income sits in your books.

Illustrative only. General information, not accounting, legal or tax advice. Your profit-sharing agreement and its addendums govern.

Questions

How is a contingent commission calculated?

Each carrier sets its own formula in a profit-sharing agreement. Many use a grid: if eligible premium is above a minimum, the loss ratio is under a ceiling and growth is above a floor, a bonus percentage applies to eligible premium. This estimator applies the best row you meet from the grid you enter.

What are typical contingent commission tiers?

We don’t publish any. Grids differ by carrier, by line and by addendum, and a made-up “typical” grid would look like a fact. The example on this page is invented and labelled as such. Use the terms in your own agreement.

How much do I need to improve to reach the next tier?

The estimator shows the loss-ratio points to cut and the growth points to add for the next row up, and turns the growth target into dollars of eligible premium using last year’s premium implied by your growth rate.

Why might the carrier’s figure differ from this estimate?

Definitions: which premium is eligible, how losses are developed or capped by a stop-loss, whether the loss ratio is averaged over years, and multipliers for retention or product mix. Compare the carrier’s worksheet line by line with your records.

Can I put this calculator on my website?

Yes. The page has an embed code for an iframe that keeps a visible Powered by Lapidar link. It runs in the visitor’s browser and sends nothing anywhere.

Does this calculator store or send my numbers?

No. The calculation runs in your browser. Nothing is uploaded, saved or tracked.