Standards & Guidelines For Appraising Insurance Agencies / Brokerages 2015
Premiums vs. Commission -- Quite often those who are not associated with the industry but who make comments (such as those related to the press and the legal system) incorrectly refer to policy “premiums” when they should be referring to commissions. Premium refers to the cost that a consumer pays for a policy. Commissions are paid by the insurance company to insurance agencies for the sale of policies. Commissions are generally a percentage of the premiums that are paid by the insurance company to insurance agencies for the sale and/or servicing of a policy. Commissions of an agency are appraised and valued; premiums are not.
Property / Casualty Insurance -- Property insurance is primarily concerned with loss or damage to property owned by the insured. Casualty insurance provides coverage for the insured’s legal liability to others. Property and casualty insurance is generally marketed in unison with one another.
Wholesale Broker -- A broker who acts as an intermediary between an agent (often referred to as a “retail agent”) and an insurance company. The insurance company normally does not have any contact with the insured. There are two types of wholesale brokers: managing general agents (MGA’s) and surplus lines brokers. A Managing General Agent normally has underwriting and binding authority from the companies that it represents, while Surplus Lines Brokers work with the “retail agent” and the insurer to obtain coverage for specialized risks; but normally does not have the authority to bind coverage on behalf of the insurer.