It’s a trend that has been consistent since 2007—and according to data released by A.M. Best, 2009 was no different. Contingent commissions are going down.
Each fall, the A.M. Best Company issues “Aggregates & Averages,” a publication that brings together all property-casualty insurer financials in a single volume. It generally takes a full nine months from the ending date for A.M. Best Co. to create the 750+ page work from 2,300+ insurer annual statements. The 2010 edition was released this week.
Some of the figures of interest every year are the final roll-up of industry premiums and losses, as well as subsets by the same type of policy. IN&V covers this sort of data for articles throughout the year. Beyond the basic loss and premium roll-ups, however, the data also provides insight into the industry’s financials for trends. And there is no better example of a trend-setting figure than direct contingent commissions paid out.
IN&V has covered the trends in contingent commissions ever since Eliot Spitzer first brought suit against Marsh McLennan in late 2004. At that time, contingents had increased to all-time highs of about $4.5 billion and exceeded 1% of net written premiums. Starting in 2007, however, contingent payments began to fall, and 2009 now marks the third year in a row that contingents have both fallen in total dollars paid and as a percentage of premium. As shown in the chart below, the drop exceeds-30% from over $4.5 billion paid out to just under $3 billion; as a percentage of premiums, it drops from 1.04% to 0.70%.