Do Insurance Agents Get Commission on Claims?

When you purchase an insurance policy and pay your premiums each month, you know that part of that money goes to compensate the agent who sold you the policy. But what happens when you actually file a claim – does your agent also earn commission when they process your claim?

This is a common question for insurance buyers. There are some misconceptions about how the claims process actually impacts an insurance agent’s income.

In this comprehensive article, we’ll clear up whether insurance agents receive commission for claims, and outline the key factors that determine how agents get paid.

Do Insurance Agents Get Paid for Processing Claims?

The short answer is no – insurance agents do not receive commission simply for processing or assisting with an insurance claim.

An insurance agent’s income comes from compensation on the sale and renewal of policies. They do not earn additional commission when policyholders file claims.

Agents may provide claim support as a value-added service. But the claim itself does not generate income for the agent.

How Do Insurance Agents Earn Commission?

While claims don’t provide commission, new policy sales and renewals are the bread and butter for an insurance agent’s income.

There are two main compensation models:

1. New Policy Commissions

• When an agent sells a new policy, they earn a percentage commission on the total initial premium amount.

• Commission rates vary by insurance product, but often range from 5% to 20% of the first-year premium for policies like auto, home, life, health, etc.

• For example, if an agent sells a home insurance policy with a $1,000 initial annual premium, they may earn $100-$200 commission.

2. Renewal Commissions

• In subsequent years when policies renew, agents also receive commission – although at a lower rate than initial purchases.

• Typical renewal commissions range from 2% to 5% of the premium.

• On that same $1,000 home insurance policy at renewal, the agent would earn around $20-$50.

• This compensates the agent for providing ongoing service and support.

Factors That Determine Agent Commission Rates

While the basic compensation model is commission-based, several factors impact exactly how much an insurance agent earns on a particular policy:

• Type of Insurance Product – Auto, home, life, health, and specialty lines have varying commission rates.

• Captive vs Independent Agent – Independent agents tend to earn higher commissions than captive agents.

• New vs Renewal Policy – First-year policies pay more than renewals.

• Insurer Contracts – Each carrier has own commission schedule negotiated with the agent or agency.

• Policyholder Tenure – Long-time customers may provide higher renewal commissions.

• Production Bonuses – Some insurers offer bonuses to agents who hit certain volume, profit, or growth goals.

Why Don’t Claims Trigger Commission?

There are a few reasons why insurance agents do not receive claims-based commission:

• Claims don’t require a “sale” – The agent already earned commission from the original policy purchase. Extra compensation for claims would be double-dipping.

• No insurer revenue from claims – Insurers make money from premiums and earn investment income. Claims are a cost center – they don’t generate profit to facilitate commissions.

• Potential moral hazard – Paying agents for claims could incentivize them to encourage customers to file claims, rather than paying out-of-pocket for minor losses that fall below the deductible amount. This could lead to fraud.

• Claims are contractual obligations – When an insured loss occurs, the insurer is contractually obligated to cover the claim based on the policy terms. Agents have no bearing on the approval process.

Do Agents Lose Money on Customer Claims?

While agents don’t earn money from customer claims, they also don’t lose income. Policyholder claims do not directly reduce an agent’s compensation.

However, frequent or large claims from an agent’s book of business may indirectly affect them:

• High claims can increase insurer expenses and impact their profitability. This could limit the carrier’s ability to pay bonuses or other supplemental commissions.

• An unprofitable book of business with subpar loss ratios may motivate the insurer to restrict that agent’s authority or contract.

• Excess claims could provoke the carrier to non-renew policies for an agent’s entire portfolio. This would lead to reduced renewals.

So an agent has incentive to keep overall claims down. But an individual claim here or there does not directly reduce their existing income.

Do Agents Receive Any Compensation for Claim Support?

Insurance agents typically do not charge fees or earn specific commissions for claims assistance. However, their overall book of business can benefit when they provide good service during the claims process:

• Customer loyalty – Quickly processing claims and guiding policyholders through difficulties after a loss can improve retention when policies come up for renewal. This benefits the agent.

• Referrals – Satisfied claimants are more likely to refer family and friends to the agent. New business growth expands the agent’s book.

• Carrier reputation – Excellent service reflecting well on the insurer may motivate them to assign more policies to the high-performing agent.

• Premium size – Prompt and effective claims resolution could minimize losses, keeping rate increases lower. This allows the agent’s commissions to remain steady.

So while not a direct money-maker, providing claim support aligns with an agent’s long-term interest in retaining customers and growing their business.

Should You Avoid Agents Who Over-Push Claims?

In most cases, reputable insurance agents will not over-encourage policyholders to file claims. However, that doesn’t mean an unethical agent wouldn’t consider doing so in order to hit sales bonuses or volume incentives.

If an agent frequently seems to push claims – even for losses that are borderline or below your deductible amount – take it as a red flag. They should act as trusted advisors guiding you to make smart financial decisions, not promote claims primarily for their own gain.

You can request an overview of your loss history from both the agent and carrier. If the frequency seems abnormally high compared to industry averages, it may be time to find a new agent.

Key Takeaways

• Insurance agents earn income from new policy sales and subsequent renewals. They do not receive commissions specifically for policyholder claims.

• Factors like product type, agency contract, policy length, and bonuses impact how much an agent earns.

• While claims don’t provide direct revenue, providing good service during the claims process can benefit the agent through increased retention and referrals.

• Unethical agents who over-push claims simply to earn production incentives are rare. But it’s something consumers should watch out for.

Understanding commission structures can help demystify the compensation process for insurance agents. While claims don’t make them money directly, they still have incentive to provide policyholders great service throughout the coverage lifecycle.