How does an insurance brokerage earn its revenue?

Before you look at a brokerage’s results, it helps to know where the money comes from. Different streams behave differently when ownership changes, and a buyer who sees only a combined total may miss which parts are steady and which are tied to the person selling.

New and renewal commission

Ask how the carrier agreements pay commission on new policies and on renewals. Renewals are what people usually mean by the book of business. Ask for records that separate the two, so you can see how much of the revenue comes from clients who stay and how much from clients added each year.

Contingent and profit-sharing payments

Some insurers pay a brokerage extra based on factors such as volume or the results of the business it places. These payments can vary from year to year, and the terms usually sit in agreements with each insurer. Ask for those agreements, and ask whether they continue to a new owner or whether the insurer decides again.

Fees for services

Where a brokerage charges fees for particular services, they are a separate stream. Ask which services carry a fee, how clients are told, and whether the fee practice continues under new ownership.

What follows the book and what does not

Ask whether renewal commission continues after a sale if clients stay. Also ask whether payments tied to the seller’s own carrier relationships or volume continue. Ask for statements from each insurer, the commission records and the agreements behind them, then have your accountant tie them together. The worth guide and the buying guide cover the next steps.