Tiered Commission Rates Examples
Overview of Tiered Commission Rates
The Commission Rates screen of the Reference Tables menu allows the bond administrator to define and maintain the tiered commission rates calculated against the bond's penalty.
For example, a commission table might define the commission structure for the first $500,000 in penalty to use a 30% commission rate, the second $200,000 to use a rate of 20%, and anything in excess of $700,000 in penalty to use a 15% commission rate. The commission rate at each tier will be multiplied against the premium calculated for each tier, including any rate type modifier and/or rate factor configured for the account. A commission table can also consist of a single tier, which therefore calculates no differently from a flat or fixed rate.
A Working Example of a Tiered Commission
This example was created to model the penalty amounts given above. The -1 in the number of units column for the third tier indicates that any penalty amount over 700 units (or $700,000 in this case, a unit equals $1,000 for this example carrier) will follow the third level of the tier. This setup would look as follows:
This tiered commission can be assigned to any Agency at the bottom of the Agency's Edit page. For more on that go to the Creating and Editing an Agency guide.
Once at the section of the Agency's Edit page with the 'Default Commissions' header, click the 'Use Tiered Commissions' checkbox.
A Tiered Commission can be used in any of the four premium bearing events an Agency may participate in. These are labeled as : 'Purchase Rate', 'Renewal Rate', 'SureLynx™ Purchase Rate', and 'SureLynx™ Renewal Rate'.
The First Tier
To show how the first tier in the example works, a bond with a $500,000 Penalty is purchased. After the purchase, the Show Details button is clicked to get the details of the calculations. (see the screenshot below)
The Commission Rate is calculated in this manner.
Penalty Amount = $500,000
Base (Premium) Rate = 0.025 (2.5%)
This Tier's Commission Rate = 0.30 (30%)
The commission for the first tier is calculated as: $500,000 X 0.025 X 0.30 = $3,750
The Secondary Tier
To show the calculation for the second tier of this commission structure, a bond with a $600,000.00 Penalty was purchased. After the purchase, the Show Details button was clicked to get the details of the calculations.
This is calculated in this manner:
Total Penalty Amount = $600,000
Primary Penalty = $500,000
Secondary Penalty = $100,000
Base (Premium) Rate = 0.025 (2.5%)
First Tier's Commission Rate = 0.30 (30%)
This Tier's Commission Rate = 0.20 (20%)
The commission for the first tier is calculated as: $500,000 X 0.025 X 0.30 = $3,750
The commission for the second tier is calculated as: $100,000 X 0.025 X 0.20 = $500
Then total the two commission amounts for this bond to get the total commission: $3750 + $500 = $4250
The Tertiary Tier
To show the calculation for the third tier of this commission structure, a bond with an $800,000.00 Penalty was purchased. After the purchase, the Show Details button was clicked to get the details of the calculations.
This is calculated in this manner:
Total Penalty Amount = $800,000
Primary Penalty = $500,000
Secondary Penalty = $200,000
This tier's Penalty = $100,000
Base (Premium) Rate = 0.025 (2.5%)
First Tier's Commission Rate = 0.30 (30%)
Second Tier's Commission Rate = 0.20 (20%)
This Tier's Commission Rate = 0.15 (15%)
The commission for the first tier is calculated as: $500,000 X 0.025 X 0.30 = $3,750
The commission for the second tier is calculated as: $200,000 X 0.025 X 0.20 = $1,000
The commission for the third tier is calculated as: $100,000 X 0.025 X 0.15 = $375
Then total the three commission amounts for this bond to get the total commission: $3750 + $1,000 + $375 = $5,125
NOTE: A new feature was added when a Commission Rate is changed and how it will remain static for the Life Cycle of a Current Bond Term.
When a bond is purchased, the commission rate set at the beginning of the bond’s term will not update with any changes made to the commission rate designation for that bond configuration and/or agency default commissions during additional actions on that bond term.
The commission rate will update at the time of renewal to include any changes made to the commission rate designation.