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Insurance Broker: Override Agreement

When an insurance policy is sold, a large portion of the first year's premium is paid out to various people who were directly or indirectly involved in the sale of that policy. The writing agent receives the bulk of the compensation, and if the agent has an override agreement with a General Agency, the GA is often paid a smaller portion, called an override, for their role in facilitating the sale. The Australian Securities & Investments Commission defines override commissions as "extra commissions paid by participating insurers to the head company [General Agency] when members place specified lines of business with those insurers."

General Agencies

The function of a General Agency is to recruit insurance brokers. By offering various benefits and perks to agents, the GA signs an override agreement with brokers that allows them to utilise existing resources, such as office space, marketing allowances, support staff and technology. In exchange, the agents attempt to sell more policies from those insurance companies offered by the GA. In addition, the GA acts as liaison between insurance companies and contracted agents. General Agencies typically do not sell insurance to the end consumer, but instead focus on training and recruiting brokers.

Broker Commissions

If you are an agent contracted with a GA, any commissions generated from the sale of products offered through the GA's network of insurance companies will be indirectly paid to you. The override agreement stipulates that commission payments go directly from the carrier to the GA, where they will be disseminated based on your contractual arrangements. Commissions earned within a GA override agreement will be less than what you would receive if you were working entirely independently. Every GA contract is different and you must be comfortable with the compensation schedule and benefits of the relationship before you commit to the override agreement.

GA Commission Overrides

A General Agency's primary income source is the override commission earned from products sold by recruited insurance agents. Compensation is paid directly to the GA, and forwarded to brokers after deducting overrides. With the retained portion of commissions earned, the GA provides brokers with office space, computers, telephones and support staff. Most insurance companies do not increase individual policy commissions for GA override agreements, so the retained portion directly reduces brokers' compensation. The GA must justify, and earn, override commission or risk losing brokers.

Volume Benefits

Although the actual policy commissions are unchanged for GA override agreements, many insurance companies pay separate bonuses if the agency achieves certain goals or passes predefined milestones. The ways to increase a GA's volume and achieve these exclusive bonuses are to motivate existing brokers to sell more insurance, or hire additional brokers.

Master General Agencies

A Master General Agency (MGA) is extremely similar to a GA except much larger. A GA recruits, trains and manages a group of insurance brokers and earns override commissions on sold policies. An MGA recruits and manages General Agencies and existing groups of brokers. Compensation comes in the form of override agreements and bonuses resulting from policies sold by brokers at contracted General Agency locations. A Master General Agency's primary function is to oversee and support General Agencies, and interact directly with insurance companies to evaluate, maintain, and negotiate agreements involving compensation and override agreements.