Most agency commissions are 8 to 16 percent of your insurance payment. The amount you pay for insurance directly affects how much your agent is paid.
Let’s break this down: if your car insurance cost $1000 for 12 months’ worth of coverage, the agency that sold you the insurance would receive $80-$160 (8-16 percent) as compensation for the sale. This compensation is typically a one-time payout at the beginning of the policy period. However, when your policy renews, the insurance agency is paid again. This time, the commission payment is based on your renewal premium. If your renewal payment changes, lets say to $1100 for 12 months’ worth of coverage, the agency commission goes up to $88-$176 (8-16 percent).
Agencies can also be paid a yearly bonus from insurance companies if they send a lot of business. This bonus is typically paid to the agency based on two factors:
- The amount of business they have with the company.
- The amount of claims paid out to that agency’s customers.
If an agency is placing a lot of business with a company, and that company is not paying a lot of claims, it increases the amount of profit. As a result, the company will share some of that profit by paying a bonus to the agencies that help them achieve this.
Why is this important for you to know?
The more you pay, the more your agency gets paid. This creates a natural conflict of interest for any insurance agency. It is a common practice for insurance agents to sell customers a policy that is not the lowest offering to help increase the amount paid from the sale. In addition, the less you make claims, the more your agency gets paid in bonus. This creates another conflict of interest as the agency/agent is now incentivized to talk you out of filing claims or using your insurance.
It is important to have an insurance agency looking out for your interest above their own.
Here are a few ways you can protect yourself:
1. Always use an independent insurance agency. Sure, the State Farms, Farmers, Geicos, and Allstates are good companies. However, they can only offer you insurance from one company—their own. Those agencies are holding you captive by the one company that supports them. An independent agent can offer you insurance from multiple companies. This gives you numerous options and price protection.
2. Ask to see quotes from all the insurance companies with whom your independent agent is affiliated. This will ensure the agent is quoting all the companies, not just the ones with higher rates of commission.
3. Work with a proactive independent insurance agency. Make sure your insurance agent re-quotes your insurance needs with all the companies they are affiliated with prior to your policy renewal. Re-quoting your insurance each year is a lot of work for the agency, especially when you compare it to letting your policy automatically renew. However, this proactive approach will ensure you have the most competitively priced insurance each time.
Make your insurance agent earn your business every year.
Here’s the good news—Stewardship Insurance provides a custom proposal process showing you ALL your options. Plus, we automatically perform an “insurance check-up” every year before your renewal.