If you work in an agency, you might be asking yourself how much money you could make as an independent agent versus an insurance agency producer. Or, perhaps you are thinking about getting into the insurance sales field as an independent.
Regardless, the answer could depend on how you respond to these two questions:
Let’s look at how commissions work in these scenarios and why becoming an independent producer might be your best path to a better commission structure.
Let’s break down a typical insurance agent commission structure:
An insurance agency receives a commission on every policy sold. For home, car and business insurance, the commission is almost always paid on new business and each time the policy renews.
With most insurance companies, the new business commission is a bit higher than the renewal commission to offset the cost of finding and writing new customers. However, new business commissions are not where the real money is.
Despite being a bit lower, the real money and potential in an insurance agency is in those renewals. If your customers are happy and stay with you, you’ll get paid year after year.
When you’re a producer for an agency, your compensation is usually a portion (or split) of the total commission.
So, how much should a producer receive? That depends on various factors, including the value that each producer and agency bring to the situation.
As a producer in this type of arrangement, you are mostly an order-taker. You’re not pressured to find leads or do the service. You can expect to receive a smaller portion of the new business commission and little or no renewal commission (as the CSRs are doing the service work).
In this arrangement, the agency provides very little—but they do offer one very valuable thing: The carriers you need to write your policies.
In the second, independent agent scenario, the producer should receive the majority of the new business commission. If they’re doing most of the service, they might get a large portion of renewal commission, too.
Of course, most arrangements are somewhere in-between these two extremes. Your percentage of the total commission will depend on the above factors, along with the overhead costs that the agency needs to cover and the profit it needs to make.
You don’t have to be a mathematician to know that the higher the commission split you get, the more money you’ll make on each sale. But the other important question is: How many sales will you make?
Having more carriers to quote is the key to winning more sales. Here are two things to consider:
Agents who work for a single company have fewer options to win potential customers. In a small independent agency, you might have 3-5 carriers to write through. In a larger agency, you might have more. Those extra carriers should help you win more sales, and each additional sale means more commissions.
Independent Carriers pay higher commissions than captive carriers. Commissions can vary widely, but it’s common for independent carriers to pay 12% to 15% on new business and 10% to 12% on renewals. So, being independent and working with more insurance carriers will almost always mean you’ll make more money.
Additionally, captive carriers might pay 8% to 12% on new business and 4% to 10% on renewals, which is far less compared to independent carriers.
These factors are important to know if you’re considering producing for an agency. You could have two agencies both offering you a 50% commission split, but if one is captive and one is independent, you’re very likely to make more money with the independent agency.
Unless you get a lot of value from a captive agent, producing for an independent is a more fruitful route.
Being an insurance producer can be the start of a great insurance career. Like any job, it has its pros and cons. Here are a few things you should carefully consider before making a change:
1. No matter the commission split, the agency should have good accounting systems to pay you quickly and accurately.
You should understand, in advance, which system they have, how it works, when you will be paid, and what your commission statements will look like. You don’t want an agency to be learning how to do these things with you as the guinea pig.
2. Contracts matter and every producer should have one in writing.
Verbal agreements are a recipe for future conflict. Ensure that you have a clear, written contract that outlines your commission split and payment schedule.
3. You should know what the gross commissions are and if they are going to change in the future.
For example, we know of one captive carrier that pays a 40% new business commission when an agent begins with them. Yes, that’s huge, but it doesn’t last for long. The new business commission gets reduced on a schedule, and renewal commissions go down to 7% (and even 4% on some policies). You don’t want that kind of information to come as a surprise later.
4. You need to feel comfortable and confident about the people you’re working with.
Working relationships are key in this industry. Choose people you trust and align with.
Starting an independent insurance agency of your own could be the solution to a more prosperous future but, are you ready? The answer depends on your experience, skills, and strengths.
If you have the right experience and capability, starting your own insurance agency could be your next step. If you align more closely with the second set of factors, It’s probably best for you to produce for an agency until you build up your skills.
Are you intrigued by the potential of higher commission income as an insurance agency owner? You might be a great candidate for the independent agency lifestyle.
Learn more about what it takes to succeed by exploring our Learning Center, created just for potential independent agents like you.
To get more details about how you could start your own insurance agency, download our guide and review these other resources:
Looking to hear about a real agent’s experience? Check out our Freedom Friday videos on YouTube. Each one is an interview with a former insurance producer who started their own agency with Firefly.
We’re here to help you succeed! Contact Firefly with your questions. We’d love to help you become your own boss and grow a successful agency.
