Ensuring Transparency

When you purchase insurance for your business, how much of the money you spend actually goes to insure your company against fires, lawsuits, and car crashes? Has your insurance broker done the research necessary to find you the best possible worker’s compensation coverage? Or has he simply chosen the insurer that will reward his firm’s employees with a new set of golf clubs?

If you are conscientious, you’ve probably found a broker you can trust—one who gets you the best coverage for your dollar and anticipates where your greatest risks might lie. But most of us don’t know exactly how our insurance agent gets paid.

Agents fall into two groups. A few are captive, meaning that they work only for one insurance company, usually full time. But the majority of agents are independent and sell policies for any of several companies on their agency’s roster. Some independent agents may work for one or two insurers; others may work for dozens.

Agencies that deal primarily with business-related insurance are sometimes called brokerages and may choose to contract with their larger clients on a fee or retainer basis. No matter what policies they write, or what insurance companies they write them with, their payment is specified upfront.

More often, however, agents and brokers work on a commission basis, usually in the neighborhood of 10 to 20 percent of the price of a policy. The percentage varies based on the type of insurance that’s sold. Worker’s compensation insurance, for example, often garners a very low commission because the premiums themselves tend to be so high.

Some insurance companies sweeten the pot for their agents by paying something called contingent compensation, or profit sharing. “You’ll hear it called both things,” says VeNita Schnebele, former area president at Arthur J. Gallagher & Company, a business insurance brokerage with offices in Eden Prairie. “It’s a system that’s been going on for decades, where the more you write with a specific insurance company, and the more profitable that business is, the bigger percentage is paid back to your agency. It can be quite lucrative. The profit-sharing is based on volume, growth, and loss ratio. The intent is for you to give them your best business.”

“Most of the [insurance] companies pay a base commission and then some sort of a performance program based on premium volume,” says Ted Dyste, president of Dyste Williams, a Minneapolis insurance brokerage. “It’s based on how much you’ve grown your block of business with that carrier, plus retention—how much stays on the books.”

There can be other perks, too. Dyste says sometimes insurance carriers will share the cost of print ads on the condition that the ads contain their logo. And Schnebele says some of the insurance companies offer their top-selling agents spectacular vacations. “I don’t mean just going skiing or to Arizona,” she says. “I’m talking serious trips to the English countryside. Trips to Australia, Hawaii, Switzerland.”