Historically, producer compensation was simple. The manufacturer received 50% of the agency`s commission, and the Agency received the remaining 50% for each transaction. Unfortunately, the longest soft market in our history has made this simple formula impossible to pursue if the agency wants to remain profitable. When the market deteriorated in the late 1980s, airlines began to reduce commissions and this trend continues to this day. The soft market has also run a 10-year run with lower premiums, doubling the effect of the reduction in commissions on the agency`s revenues. A $30,000 bonus with a 20% commission became a $10,000 bonus over 10 years, with a commission of 12% to 15%. This means that a commission of $6,000 will be reduced to $1200 to $1,500 for the same account. Not only did the producer lose money (even at 50% commission), but the agency also had to offer the same or greater level of service that it had provided for 3,000 10 years earlier for $600-750 at the end of the soft market. It`s really a ticket/ticket situation.
Manufacturers found themselves in remarketing accounts each year to save them from competitors who, each year, under-reported prices. The agency also had to provide more services for an increasingly reduced return of commissions. An unsatisfactory situation developed, in which manufacturers and the agency found that they worked harder each year for less money. Producers were naturally occupied by their own ability to pay, so they were dissatisfied and dissatisfied with what appeared to be mistreatment by their employers. At the same time, agents saw their incomes eroded as producers spent all their time saving overtime toward lower premiums. While accounts withheld were less paid to agencies, their overheads continued to increase by an average of 4% per year. Clearly, the profits and agencies that were trying to continue to sell, serve and process, as they did in 1985, are either merged with other agencies or strive to meet wage and spending needs every month. Periods of large surpluses and double-digit profits appeared to be disappearing. Here are the ranges for standard commissions that Chubb pays to independent brokers and agents for certain types of insurance products. Standard commission data reflects standard premiums and commissions for policies Chubb has booked in 2019.