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contingent commission

Contingent commissions are paid by an insurer or reinsurer to an insurance intermediary and are based on the profitability of the business that the intermediary placed with the insurer or reinsurer.

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In other words, these programs reward intermediaries for placing a large volume of business likely to suffer lower than average losses with the insurer (and maintaining that business). The purpose of contingent commissions is to provide an incentive to place a substantial book of business with the insurer or reinsurer and provide the insurer or reinsurer with "frontline" underwriting, administration, and risk control assistance for that book of business. As they may conflict with representing the best interests of policyholders, the practice of accepting contingent commissions by insurance brokers is somewhat controversial. Contingent commissions are not considered illegal or, given proper disclosure, unethical.

Related Terms

A placement service agreement (PSA) is an agreement between an insurance intermediary and an...