When you buy your auto insurance it will normally be through:
- an insurance agent (someone who typically works on behalf of an insurance company – they are contractually bound to an insurer or insurers, and they are required to offer the right coverage from within this range)
- an insurance broker (someone who typically works on behalf of the customer – they have no contractual obligations to any particular insurer and can use a range of different means to try and provide the best deal to their client)
- an insurance broker-agent (someone who does have contractual obligations to an insurer or insurers, but is also given some freedom to shop around on behalf of their clients in addition to these obligations)
Whether you buy your policy through an insurance agent, an insurance broker or an insurance broker-agent it is almost certain that they will be paid a commission for your policy by the insurance company.
How much commission will my broker/agent/broker-agent earn?
This varies from policy to policy and from insurance company to insurance company, typical commissions range between 7% and 20% of a first year policy’s value, and this amount may either stay the same or drop (depending on the arrangement) for policy renewals.
Why should my broker/agent/broker-agent earn commission from me?
They earn commissions in order to be able to provide you with a service, most insurance companies do not sell their products direct to the general public. Because there are complex laws regarding the provision of insurance and the paperwork relating to that insurance which vary from state to state, the insurance companies engage various forms of agent so that they can comply with these regulations.
These agents need some form of income, or there would be no incentive for them to sell insurance.
What is contingent commission?
Contingent commissions are paid based on a contingency agreement, so for example if your auto insurance is paid by installments – the contingency for commission payments might be that you have to keep making your payments in order for the broker/agent to get paid their commission.
This is to protect the insurance company from paying out substantial commissions without being able to collect the payments from the insured party. It also means that the broker/agent has an incentive to continue managing your relationship with the insurer so that your obligations under your policy are met in full.