Incentive Compensation and the Use of Contingent Commissions by Smaller Distribution Channel Members

Abstract

Insurers operate in a complex market in which many firms compete for business. In this context, we examine the use of contingent commission compensation arrangements for independent agents and we explore whether the use of contingent commission compensation arrangements is justified for this segment of the distribution channel. We find that the various types of producers, distribution systems, and compensation structures, including contingent commission compensation, are a natural development of the competitive insurance marketplace that helps to make insurance available and affordable to millions of insurance consumers.