A former insurance producer, Laura understands that education is key when it comes to buying insurance. She has happily dedicated many hours to helping her clients understand how the insurance marketplace works so they can find the best car, home, and life insurance products for their needs.

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Leslie Kasperowicz holds a BA in Social Sciences from the University of Winnipeg. She spent several years as a Farmers Insurance CSR, gaining a solid understanding of insurance products, including home, life, auto, and commercial, and working directly with insurance customers to understand their needs. She has since used that knowledge in her more than ten years as a writer, mainly in the insuranc...

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Reviewed by Leslie Kasperowicz
Farmers Insurance CSR 4 Years

UPDATED: Oct 19, 2021

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Here's what you need to know...

  • Insurance companies calculate commission based on your premium and an agreed amount
  • Average commission rates drive what most insurance agents get paid for your policy
  • Captive and independent agents are two of the most common types of agents in the market
  • The more commission your agent is charging, the more premium your auto insurance policy will have

As a consumer, it is very important for you to have an awareness of everything that you are paying for when you purchase an auto insurance policy.

The reality is that when you buy an auto insurance policy, you are not only buying the coverage and the policy itself, you are also paying for the commission of your agent. This is nothing new in the insurance industry, but it is a fact that few consumers give the credence to that they probably should.

Understanding the average commission that an agent gets, how it is paid, and the impact it has on your policy premium can help you better price comparison shop to get the most value.

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How is an agent’s commission calculated?

The commission that you get as an agent selling a consumer auto insurance is directly based off of the direct written premium of said policy.

That means that if you sell a $1,500 auto insurance policy, and the agreed commission on that policy is 10 percent, then the commission that the agent gets out of that is $150.

Though the real formula for how the commission gets calculated seems simple, things can get intricate when you are talking about the role an agent plays. An agent wants to sell you an insurance policy, but at the same time they are looking out for their own interest as well.

When they comparison shop as an independent agent, they may be more inclined to push policies that offer them a higher commission rate. It is important to be aware of this as you shop for auto insurance.

Keep in mind that agents earn commission differently based on what type of insurance they sell. For instance, a health insurance agent earns a high commission upon selling a policy with a smaller commission later when the policy is renewed.

Life insurance agents and auto insurance agents are generally paid a lower commission for the initial sale of the life or auto policy with higher commissions upon renewal.

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What are average commission rates?

The average commission rates that are out there range from 5 to 20 percent currently. Very few auto insurance agents get up to 20 percent, and most are going to fall around a 10 percent commission, as we estimated above in our sample calculation. Different companies have different commission structures.

The commission that an insurance agent gets for a new business policy versus a renewal can vary as well.

Typically more commission is paid when an agent sells a brand new piece of business. When the policy comes up for renewal, they will get another commission for the renewal direct written premium, but usually, this is lower than the initial commission.

According to the Bureau of Labor Statistics, the average auto insurance agent earns a median salary of around $50,000 per year. Salary satisfaction for insurance agents nationwide hovers around 45%.

Salaries vary, though, depending on the company and the individual agent’s skills.

What are the different types of agents?

The two most common types of insurance agents that you are going to run into are independent insurance agents and captive insurance agents. They are very different and important to think about when you’re comparison shopping for insurance.

Captive agents are exclusive to a single insurance company. That means if you are a captive agent, you are contracted with just a single provider, selling only that provider’s insurance policies to potential customers.

An independent agent can sell policies from any insurance company in the market. As a consumer, an independent agent is going to be able to better comparison shop for you among the various insurance companies and the policies that they are offering. The term insurance broker is also used to describe this position. An independent insurance or insurance broker works for you, not the insurance company.

Independent agents often earn a percentage of the first-year premium as commission on an insurance policy.

An independent broker or agent can also help you with insurance claims, and you’ll know they have your best interests in mind, not the insurance provider’s.

Why should consumers care about insurance commissions?

So why should you as a consumer even pay attention to the commission rate on an insurance policy? The reason is it will have an impact on the direct written premium that you are paying for that policy.

If the insurance agent that you are working with is asking for a 15 percent commission from all the insurance carriers he or she is getting quotes from, those premium quotes are going to be on the higher end across the board.

You need to essentially comparison shop agents just as you would an insurance company and policy.

When you have two insurance agents, with one asking for a 10 percent commission and the other a 15 percent commission, chances are when they go to comparison shop for policies, one is going to come back with quotes that are about five percent less than the other will.

This can lead to more value from your insurance policy and lower premiums.

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What’s the bottom line?

The world of insurance is an intricate one to navigate for all consumers. You do your best to pay attention to everything from the coverage you are buying, to the deductibles, while still always being focused on the actual premium you are paying for that product.

Commission throws a whole new wrinkle into the game, but it is one that if you give proper attention to, can help you get more value out of your insurance policy from day one and on as it renews annually.

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References:

  1. http://www.insure.com/car-insurance/insurance-agent-commissions.html
  2. http://www.investopedia.com/terms/c/captive-agent.asp