ACG - Agency Consulting Group


A national monthly newsletter for agency principals dedicated to agency management topic


As we near the end of another year, many of our thoughts turn to our Loss Ratios and the Contingency Income we hope and expect to gain from our underwriting results with our carriers. If you are the only owner of the agency, all you have to decide is whether to “insure” your contingency income or gamble on No December Surprises that might erode them before year-end. But if you are a VIA (Virtual Insurance Agency), multi-entity agency, wholesaler, conglomerator or any other form of multi-owner or multi-location agency, your thoughts automatically turn to the question of “fairness” of simple distribution of contingency by premium volume.

So many times the good or bad loss ratios of one of several entities within a single carrier conglomeration affect the contingency income of ALL of the participants.

Until the advent of the FAIR SHARE™ CONTINGENCY DISTRIBUTION PROGRAM© there was virtually no way to split contingency with both VOLUME and LOSS RATIO considered in the division of contingency credit.

This program can be self-administered for a fee-simple on an annual or lifetime basis or can be administered by Agency Consulting Group, Inc. analysts as the agency chooses.

How It Works

1. Carrier Production & Loss Data by line of business is input into the Program Worksheet for each carrier and for each sub-entity being considered in the contingency split. Obviously this only works when each sub-entity (i.e. location, owner’s book, etc.) is sub-coded and has its own loss ratio report. Most carriers are happy to do this in order to identify the loss ratio quality of business by sub-code.

2. The Program first divides the contingency by volume percentage and then calculates the Loss Ratio Relativity (the Loss Ratio of the sub-entity vs. the combined Loss Ratio of the entire group) of each sub-entity.

3. The baseline contingency distribution by volume for each sub-entity is then adjusted based on the “relativity” of that sub-entity’s loss ratio vs. the average loss ratio of the entire group.

For instance, if the sub-entity’s loss ratio is 25% better than the total loss ratio of the group, they will earn a 25% bonus of the contingency income over their volume distribution amount.

This program is meant to reward the strong underwriters whose results boost contingency percentages above simple volume levels. It works well for multi-owner agencies in which the owners split the contingency income based on each owner’s book of business with a carrier. As stated earlier, it is perfect for clusters, conglomerators and other multi-dimension businesses that wish to split contingency based on more than simple volume percentages.

For more information regarding this program, contact Agency Consulting Group, Inc. 800-779-2430 or