Compensation Disclosure

Compensation Disclosure

The Leavitt Group agency with which you do business is part of the American Independent Agency system (Independent Agents), which consists of some 40,000 insurance agencies nationwide. Most small and medium sized businesses in the United States purchase insurance through independent agents. In addition, around 35% of personal insurance in the United States is placed through independent agents.

Each Leavitt Group agency owes duties to and seeks to well serve the insurers we represent, the wholesalers through which we place business, and the agency's employees, shareholders and regulators. In addition, each agency has a duty to be fair, honest and professional in dealing with its customers. We earnestly seek to serve these various duties. We will typically place coverage first with an insurer for which we are agent, and go to the wholesale market as a broker only when coverage cannot be reasonably obtained through one of the companies we represent.

Independent agents represent several, sometimes numerous, insurance companies, none with exactly identical compensation arrangements. We want our clients to understand how we earn our revenue, and the sources of that revenue. We believe this knowledge helps customers make sound insurance buying decisions, and helps assure we have the same expectations and assumptions as do our customers. We will swiftly answer any question you might have as to our agency's compensation on your transaction.

  1. Regular Commissions: Most revenue comes from regular commissions paid on policies placed through the agency. Varying by product and insurer, these commissions range from 5% to 20% of each policy period's premium as to products other than life insurance and surety bonds. Policies with larger premiums tend to have a smaller commission percentage. Policies that are particularly expensive to administer tend to have higher commission rates. Surety bonds typically generate a commission of 20% to 30% of premium. Life insurance commissions vary greatly, but are typically between 55% and 80% of first year's premium, with residuals, if any, of typically 2% in subsequent policy years. This agency's average commission rate on all business it writes for insurers it represents as an agent is approximately 12.5% of total premiums.
  2. Contingent Commissions: Most of the insurers that our agency represents also grant the agency the opportunity to earn an annual contingent commission. Unlike regular commissions, these annual contingent commissions are not tied to a specific policy, but rather are tied to results realized by the insurers we represent on the total business we place with those insurers during the prior year. These contingent commissions are typically based on the agency's collective volume of business with the insurer, and also upon the loss experience (profitability) the insurance carrier had on the business placed by the agency. Essentially, most insurance companies do not pay independent agents their full compensation at the time of sale, but pay part of the compensation only if the agent produces policies which in total are profitable for the insurer. The insurer uses contingent commissions as incentive for independent agents to be honest and accurate in submitting applications for insurance, and skillful in helping the insurer select good risks. Failure to earn a contingent commission is a typical consequence if an agent's business does not meet the insurer's quality or quantity expectations. Our agency has no contingent commission arrangements with insurance companies with which it does not have a direct agency relationship. Also, as is typical in many industries, insurers have incentive based contests where they reward agencies for achieving sales objectives. Typical of these rewards are invitations to the company's sales convention or other incentive trip. Some insurance companies also provide agencies with modest sales support services such as marketing leads, marketing materials, etc.
  3. Policy Fees: In a minority of circumstances, usually with larger or difficult to place risks, insurers provide a policy quote that does not include agent's commissions. In these instances, a separate fee is negotiated with the insured. In such instances, fees are disclosed and itemized on billings to the insured. In some instances, where the commission paid by the insurer is inadequate to cover the cost for the service, a separate disclosed and itemized fee is charged. In such instances, our agency will itemize and disclose the revenue it receives via policy commissions, and that portion it receives via itemized fees. Also, our agency charges and is paid fees for services other than policy placement. These other services include risk management, engineering, or premium financing. Premium financing fees are typically paid directly by the premium finance company. Other such fees are separately itemized and billed to the customer.
  4. Interest and Countersignature Income: In instances where customers pay for insurance policies through the agency (instead of by direct payment to the insurer which issued the policy), the agency may receive a modest amount of income from interest accruing on amounts held for payment to insurers. In addition, the agency charges interest on past-due receivables from these agency-bill customers. In increasingly rare instances, state law requires a resident agent to receive a commission for countersigning a policy issued by an agent from another state.
  5. Other Income: Our agency is a member of Leavitt Group Agency Association (LGAA). LGAA provides a variety of services to its member agencies, such as automation, training, payroll, accounting, and website services. In addition, LGAA owns facilities to assist member agencies in placing insurance coverage on behalf of clients. LGAA owns a premium finance company that assists in the financing of commercial insurance policies issued through member agencies. The profits or losses of LGAA are allocated among member agencies on an equitable basis as outlined in the LGAA Operating Agreement. In addition, some LGAA member agencies own an interest in PacWest Captive Insurance Company (PacWest). PacWest is an Arizona-domiciled reinsurer of selected workers compensation policies issued by The Hartford Insurance Company. The Hartford's standard rate structure applies as to business PacWest reinsures.

Independent agents, including our agency, operate in highly competitive environments. Independent agents and other sellers of insurance compete with each other based on price, product, service, and the financial stability of the underlying insurance carrier. We work hard to serve our customers. We hope that providing this information is helpful. Thank you for your business, and please let us know whenever we can be of service.