Producer compensation and how it affects your business

January 7, 2015

Share on:

Over the years we have noticed two types of Property and Casualty insurance sales organization:

  1. A sales organization that wants every piece of the business regardless of its current profitability. The theory is that you can only improve profitability if you have the customer in the first place.
  2. A sales organization that really only wants businesses that it thinks will be profitable in the near to medium-term future.

Looking more closely at the second type of sales organization, this type of organization only wants to commit service resources to those customers that have the highest return. Whether a book of business is profitable or not can depend on producer compensation. It is always surprising at the number of brokers that do not measure producer profitability; perhaps it is because they already have a pretty good idea of who is profitable and who is not. Regardless of what you suspect, it should be crystal clear who is producing profit within the organization.


For brokerages that are competing for large commercial accounts, direct producer compensation is usually targeted in the range of 27% to 30% of commission. On top of this, the brokerage pays for marketing, promotion, assistant and specialized support services. It is typical to see small to medium-sized brokerages pay 50% of new business and 35% on renewal. A number of brokers are paying 50% to 60% on new business and 35% to 40% on renewal. We regularly see straight commissions in the range of 50% to 60%, which would be at best a break-even for the brokerage.

In our 2014 Property & Casualty Brokerage Report we noted that commercial lines focused retail brokerages were less profitable than those with a more traditional sales mix. It is suspected that producer commission structures influenced this result. It is important to always keep in mind that an analysis of producer contribution is a critical component in the management of any brokerage.

Ask Us a Question

Sign up to receive our newsletter