Back to the basics: What to know about commissions

January 4, 2022

Commissions seem basic: You sell an insurance policy to a client and you get a commission. However—as with all things insurance—it’s never quite that simple. There are laws and regulations regarding commissions, service fees, referral fees and rebating for insurance agents and brokers. And, not following these rules and regulations can land an insurance producer in a heap of trouble.

Licensed vs. unlicensed employees. As you know, there are actions that a licensed employee in your office can perform that an unlicensed individual cannot. You need to make sure that all your employees know their job descriptions and approved responsibilities, and specifically what they can’t do. It’s nice when an employee takes initiative to help a client out, but not if the action is going to get you in trouble with your state’s insurance department.

Brokerage fees. By law, insurance brokers can charge fees for certain actions; however, there are limits to those fees. There also are rules regarding how a broker can handle commissions in addition to fees. Are you familiar with these rules?

Referral fees and rebating. Each state handles referral fees and rebating differently, and you need to follow the rules of the state in which you are doing business. These rules can affect how you approach prospects in your marketing materials, to how you announce your latest updates on social media.

Splitting commissions (including wholesalers). When you add a new factor into your operations, it also can affect your commissions. Do you know the rules and the requirements for splitting commissions with the wholesalers with which you do business?

Earnings. Agency earnings need to be factored for unlicensed agency owners, unlicensed employees, and you should know the exceptions for unlicensed individuals with temporary licenses who are earning commissions.

You can learn more

Are you looking for a quick refresher on commissions, service fees, referral fees and rebating for insurance agents and brokers? Attend Commissions and Service Fees Refresh, taught by PIA Northeast Government Affairs Counsel Clare Irvine, Esq., on Wednesday, Jan. 12, 2022, from 10-11 a.m.

This online course is an opportunity for all PIA members to learn about personal-lines cancellations. It has been approved for continuing-education credits in New York, and submitted for approval in Connecticut and New Jersey.

For more information, or to register for the class, log on to the PIA Northeast education schedule.

About the author…

Clare Irvine, Esq.

Clare Irvine, Esq., joined the PIA Government & Industry Affairs team in 2018 as government affairs counsel. She serves as in-house counsel, responsible for managing public affairs agendas in multiple states, tracking legislation, regulations, significant case-law developments and drafting position statements and testimony. She graduated from Fordham University School of Law and Arizona State University.

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