Override Commission
An additional commission percentage paid by a carrier on top of the standard commission, typically tied to volume commitments.
What It Is
An override commission is an additional commission percentage paid by a carrier on top of the standard base commission, typically earned by meeting or exceeding premium volume thresholds. Unlike contingency commissions, which are paid as a lump sum based on profitability and growth, override commissions are built into the commission rate on every policy once the volume threshold is met.
For example, a carrier might offer a base commission of 12% on commercial property, with a 2% override that kicks in when the agency's annual property premium exceeds $1M. Once the threshold is met, the agency earns 14% on all property policies with that carrier, including retroactive adjustment on policies already written that year.
Override commissions are commonly offered by carriers seeking to grow their presence in a market and by cluster groups, aggregators, and networks that negotiate higher commission rates on behalf of their member agencies based on the collective premium volume. Agency networks like SIAA, Renaissance Alliance, and Keystone Insurers Group negotiate override commissions that individual agencies could not obtain on their own, which is a primary motivation for agency network membership.
Why It Matters for Brokers
Override commissions directly increase the agency's revenue per policy without any additional cost or effort. Brokers and agency principals should be strategic about premium concentration with carriers offering override structures, ensuring they maximize total compensation while still meeting their duty to place clients with the best carrier for each risk.
Real-World Example
An agency places $800,000 in commercial auto premium with a carrier that offers a 2% override above $750,000. The base commission is 11%, generating $88,000. The $50,000 above the threshold earns 13% ($6,500), and the override is retroactively applied to the first $750,000, adding $15,000 (2% x $750,000). Total commission: $109,500 versus $88,000 without the override, a $21,500 increase for reaching the volume threshold.
Common Mistakes
- 1Not tracking premium volume against override thresholds throughout the year, missing opportunities to concentrate business and reach the next tier.
- 2Ignoring override structures when comparing carrier compensation, focusing only on base commission rates.
How brokerageaudit.com Handles This
brokerageaudit.com's Commission Reconciliation module tracks premium volume against override thresholds for each carrier appointment, alerting brokers when they are close to reaching the next tier. The system calculates the incremental revenue from reaching each threshold, helping agencies make informed business allocation decisions.