Contingent Commission

Back in the 1960s, the insurance business was...cutthroat. It was the Mad Men era, after all, and the economy was facing a slew of challenges. At the time, insurance claims were jumping faster than inflation.

So companies just cut their agents’ commissions.

To ensure that the agents didn’t burn the building down, they started offering their agents performance bonuses. These “contingent commissions” would provide the agents with a percentage of the premiums if they met sales quotas and profitability milestones.

Think of it this way: they incentivize their agents to go out and sell insurance to people who don’t need it or won’t use it. Maybe they’re young people whom the agents convince they could die at any minute, or it’s a super conservative business person who is hyper-paranoid about a hurricane destroying his business...in the middle of Nebraska.

This would be funny if it were actually a joke.

The point is that agents are paid on a basis of how profitable a customer is to their business. The less insurance that a client uses, the more profitable those policy holders are to the company.

As a result, the agents receive a small cut of those premiums.