New vs renewal commission, producer splits, contingent bonuses, and how commission revenue turns into agency value.
Carriers pay agencies a percentage of each policy’s premium. Rates differ by line, carrier and whether the policy is new or renewal. Fees, surplus lines taxes and other charges are normally not commissionable.
On agency-billed policies, the agency collects the full premium and remits the net — premium minus commission — to the carrier. On direct-billed policies, the carrier collects and pays commission to the agency.
Producers usually receive a share of the agency’s commission on the accounts they write. A common structure pays a higher share on new business and a lower share on renewals, recognizing that the agency services the account after the first year.
Many carriers pay an annual bonus when an agency’s book with them is profitable, growing and large enough. The bonus is usually a percentage of earned premium set by a loss-ratio grid. It is not guaranteed and can change year to year.
Because renewal commission recurs, a book of business has lasting value. Buyers price agencies on a multiple of recurring revenue or EBITDA, so retention and profitability translate directly into what the agency is worth.