Lockhart’s Insurance Services Commission & Compensation FAQs
Lockhart’s Insurance Services has always had a policy of total transparency and complete disclosure to our clients concerning how it is compensated. In light of the recent publicity about several large insurance brokers Lockhart’s Insurance Services has developed the following questions and responses about how it is compensated:
Q: What is the basis upon which Lockhart’s Insurance Services is compensated by insurance providers with whom it deals?
A: In most instances, our company receives a commission on the premium charged to the insured by the insurance provider at the time of the placement of the policy. The basis for these commissions is a contract between Lockhart’s Insurance Services and the provider. These contracts are subject to modification by the insurer only; the terms are not negotiated, and are standard for all independent agencies. None of these agreements are unique or special to Lockhart’s Insurance Services. In a few instances, Lockhart’s Insurance Services may negotiate with a client to place its insurance for a set fee. In those instances Lockhart’s Insurance Services does not receive a commission.
Q: Please describe any incentives or contingent commissions offered by any insurance firms with which Lockhart’s Insurance Services deals, and whether you restrict your universe of providers in any way based upon compensation considerations.
A: Lockhart’s Insurance Services does not restrict its universe of providers in any way based upon compensation agreements. Lockhart’s Insurance Services primarily places insurance for our specialized customers in highly restricted markets. With a few of our carriers, as part of the standard contract discussed above, there are provisions that provide for the possibility of an increased commission on all of the business placed with that carrier based on goals set by the insurer in a particular year. These goals typically include loss experience, overall production and increased production, as well as other factors set by each insurer and offered to all agents. None of these agreements are market placement agreements. These contingent agreements are not unique to Lockhart’s Insurance Services. We have been and continue to be more than willing to provide copies of these agreements to our clients if they desire. Some insurers require that an agent place a certain volume of insurance with during a year or be dropped by the company. Again, Lockhart’s Insurance Services does not or ever has based its recommendations or universe based on these agreements.
Q: What is the difference between a market placement agreement and a contingent commission?
A: A market placement agreement is up-front, volume-based bonus compensation. Lockhart’s Insurance Services does not have any market placement agreements with the insurance companies it represents. A contingency agreement is based on goals set by the insurer including loss experience; overall production, and increased production as well as other factors set by each insurer and offered to all agents. Whether an agency qualifies for a contingent commission is highly speculative and cannot be quantified up front. It also represents a very small percentage of an agencies’ compensation. They are utilized by insurance companies to reward agents who work with their clients in areas such as loss prevention. We have been and continue to be more than willing to provide copies of these agreements to our clients if they desire. Lockhart’s Insurance Services does not or ever has based its recommendations or universe based on these agreements.
Q: Please describe the process through which insurance companies are selected for invitation to submit proposals for the insurance coverages, which you broker for your clients.
A: Our approach to evaluating insurance companies and coverages is the following, in descending order:
- Claim Paying Ability, Insurer Financial Ratings
- Scope of Coverage
- Services to be provided by Insurer, Broker, and Insured
- Reasonably anticipated net cost – premium.
Other factors include previous experience with the company, continuity, expertise, and reputation. Lockhart’s Insurance Services does not include Commission or Compensation arrangements in its selection for invitation or recommendations. We are happy to disclose to any of our clients our commission structure on any policy we recommend or not. Lockhart’s Insurance Service has been dedicated to providing, first and foremost, excellent and ethical service to each and every one of its clients. We welcome the opportunity to discuss this further at any time and we appreciate your business.