An insurance broker earns money through several sources, depending on the type of insurance and the type of brokerage. Commissions, of course, provide the highest percentage of income for a broker. Overrides on sub agents, loss ratio bonus, production volume bonus and fee work contribute to income as well. According to CBSalary, the average insurance broker earns £47,450 per year.
Captive and Independent Brokers
Captive brokers write insurance for companies like State Farm, Nationwide and Allstate. The industry refers to them as direct writers, companies that limit outside contact with other carriers. Independent agencies represent several different insurance companies like Travelers, Safeco or Progressive. Captive companies rely on personal lines like family vehicles and homeowners for their base business. Independent carriers tend to take a mixed book approach, writing many lines of insurance. The captives advertise for and, indeed, write a majority of the personal lines business in the U.S., but the agents take a slightly lower commission for the sales.
Life and Property/Casualty
Agencies and brokers who sell primarily life insurance do add to their income by handling vehicle and homeowners insurance; just as primarily property and casualty agencies dabble in life insurance. Life insurance pays a majority of its commission in the first year, decreasing over the next 10 years until it levels out. Property and casualty agencies receive a level commission over time. The property and casualty business relies on the agency to manage the renewals and stewardship of the accounts.
Property and Casualty Income
In the property and casualty business, commissions average about 12 per cent. That means a broker making £47,450 must manage a book of business of approximately £390,000. However, this broker requires a staff and an office, so the office must handle a book in the £910,000 range. This size represents a nice small town agency with about 1,200 clients. The production bonus might average another .5 per cent or £4,550. The loss ratio bonus averages about 2 per cent. Between the two bonuses, the broker enjoys another £22,750 in cash flow.
Life insurance brokers work on overrides from the production of their sub agents. The brokers receive an average of 20 per cent of their agents' commissions. A broker with 10 to 15 good agents can earn a good living; however, office overhead and training expenses reduce the gross, just like the property and casualty brokers. Life insurance is more sales-oriented than service-oriented like property and casualty, so the commissions are higher, but the renewals are lower. The life insurance broker must constantly broaden his client base.