A contingent commission is extra money a carrier pays an agency after the year closes, on top of the regular commission on each policy. Whether the agency earns it, and how much, depends on targets in the carrier’s profit-sharing agreement. Typical measures are the loss ratio on the agency’s book with that carrier, premium growth, total written premium and retention. Most agreements set a minimum premium volume before the agency qualifies at all.
How it shows up in an agency
An agency writes $2.1 million with one regional carrier. The agreement pays 2% of earned premium if the agency’s loss ratio is under 50% and written premium grew at least 5%. One bad fire loss pushes the loss ratio to 61%, and the bonus drops to zero for the year. That’s why agency owners watch loss ratio by carrier, and why consolidating business with fewer carriers can matter. Carriers often pay contingents in the first or second quarter of the following year.
For many independent agencies, contingents are a meaningful share of revenue, so they show up in agency valuations and in decisions about which carriers to grow with.
Common confusion
- It isn’t guaranteed. Contingents are, by definition, contingent. A strong year can be followed by nothing. Budget conservatively.
- Disclosure rules exist. After investigations into broker compensation in 2004, regulators and the NAIC took up disclosure of contingent compensation. Rules vary by state; some require disclosure on request or for certain accounts. Check your state’s producer compensation rules.
- Not the same as base commission. Base commission is a percentage of each policy’s premium, paid as premium is collected. Our commission calculator handles base commission and splits.