Commission sounds simple: premium times a rate. On a real MGA’s book it rarely is. Here is one sample general liability policy, followed through a year, with every number shown. It’s the kind of policy that gets flagged “check this” every month, whether the math lives in a billing system, a spreadsheet or someone’s head.
The agreement
- Annual premium of $18,400, bound January 1, at a 15% commission rate.
- Two producers split the commission 60/40. A sub-agent takes 25% of Producer A’s share.
- The managing agency earns a 2% override on premium, paid on top.
- In April, an endorsement adds a location for the remaining nine months: $1,200 of additional premium.
- The policy cancels with four months left. Unearned premium is returned pro rata.
At bind
Commission is 15% of $18,400, or $2,760. Producer A’s 60% is $1,656, but a quarter of that belongs to the sub-agent, so A keeps $1,242 and the sub-agent gets $414. Producer B takes $1,104. The override is separate: 2% of premium, $368.
The endorsement
The $1,200 endorsement earns $180 of commission, split the same way: $81 to A, $27 to the sub-agent and $72 to B, plus a $24 override. Simple enough, but the endorsement only covers nine months. That matters later.
The cancellation
With four months left, the unearned premium isn’t simply a third of $19,600. It is four twelfths of the original premium ($6,133.33) plus four ninths of the endorsement ($533.33), because the endorsement started later. The return is $6,666.67, and every commission share comes back pro rata: $1,000 of commission and $133.33 of override.
| Event | Commission | Producer A | Sub-agent | Producer B |
|---|---|---|---|---|
| Bind, $18,400 at 15% | $2,760.00 | $1,242.00 | $414.00 | $1,104.00 |
| Endorsement, $1,200 at 15% | $180.00 | $81.00 | $27.00 | $72.00 |
| Cancellation, $6,666.67 returned | −$1,000.00 | −$450.00 | −$150.00 | −$400.00 |
| Net for the policy | $1,940.00 | $873.00 | $291.00 | $776.00 |
Where the math breaks
- Shares of shares. The sub-agent’s 25% is of Producer A’s share, not of the commission. Apply it to the wrong base and every line is off.
- Different terms. The endorsement and the policy earn over different periods, so one cancellation date produces two pro-rata fractions.
- Timing. The chargebacks land months after the commission was paid, usually netted against a later statement where nobody remembers the original policy.
- Rounding. Four twelfths and four ninths don’t come out even. Round each payee separately and the totals stop agreeing with the return premium.
- Volume. Multiply this by every policy, endorsement and cancellation in a month, across programs with different agreements.
It gets worse in wholesale
That was one policy with one bind. Wholesale programs rarely look like that. A single policy often carries many binds, and they come and go on their own schedule through the insured’s lifecycle:
- Many binds, one policy. Coverages, locations or carrier participations are bound separately, each from its own effective date.
- Added and removed at any time. A bind added in April and another removed in September each earn over a different stretch of the same term.
- Their own terms. Each bind can carry its own rate, and its own split between the wholesale broker and the retail agent.
- Cancellation touches every bind differently. When the policy ends early, every bind still in force comes back for its own remaining time, and binds already removed have their own returns on the books.
- Renewal doesn’t reset the puzzle. Some binds renew, some don’t, and new ones arrive mid-term all over again.
Here is one policy with three binds, cancelled on October 1:
| Bind | Added | Off | Premium | Rate | Unearned | Commission returned |
|---|---|---|---|---|---|---|
| A, general liability | Jan 1 | Oct 1, cancelled | $12,000.00 | 15% | 3 of 12 months | $450.00 |
| B, property | Apr 1 | Oct 1, cancelled | $9,000.00 | 12% | 3 of 9 months | $360.00 |
| C, inland marine | Jun 1 | Sep 1, removed | $3,500.00 | 15% | 4 of 7 months | $300.00 |
| Total returned | $1,110.00 |
Three binds give three different fractions, two rates and two dates on which money comes back. Now split every line between the wholesale broker and the retail agent at each bind’s own terms, and do it for every policy in the program, every month. This is where manual steps and rigid systems stop being slow and start being wrong.
None of this is unusual. It’s an ordinary year for ordinary policies, in ordinary programs. That’s the case for running commission in an engine that applies each rule at the moment it happens, posts it to a ledger, and keeps the shares agreeing to the cent. If your team is working around this today, by hand or around a system that can’t keep up, we’d like to hear about it.
