Commission
Commission is the compensation paid by an insurance company to agents, brokers, direct sales staff or independent intermediaries for placing business with the insurance company. It is payment for services rendered on behalf of the insurance company. Commission is also sometimes called a fee.
Commission can be calculated in various ways. Sometimes the calculation is based on a percentage portion of the premium. The actual percentage can differ widely from one insurer to the next and it also depends on the amount of the insurance cover arranged by the agent as well as the marketing methods used.
As commission levels in South Africa are capped by law the maximum commission earned on car insurance premiums is 12.5%. There is currently a debate on the possible removal of capped percentages on commission in favour of disclosure requirements.
Insurance companies obtain most of its business from agents who work on a commission basis only. Some agents sell products from various insurance companies, all on a commission basis. Brokers, on the other hand, represent clients in search of the right insurance; they will also earn commission from the insurance company when they place new business. A contract between the agent or broker and the insurance company will specify details of commission payments.