Definition:Overriding commission
📋 Overriding commission is an additional commission paid on top of the standard brokerage or agent commission, typically awarded to a managing general agent, wholesale broker, or supervising intermediary that manages a portfolio of business or oversees the performance of producing agents. In insurance and reinsurance markets, the override serves as compensation for the administrative, underwriting, and oversight functions the recipient performs beyond simply placing individual risks.
🔧 The mechanics of an overriding commission are usually spelled out in a binding authority agreement or agency agreement between the carrier and the intermediary. The override is expressed as a percentage of gross written premium and is layered on top of any acquisition costs already built into the pricing. For example, an MGA that holds delegated underwriting authority might earn a base commission of 10% plus an overriding commission of 5% to cover its policy administration, claims handling, and portfolio management responsibilities. In treaty reinsurance, the ceding company often receives an overriding commission from the reinsurer that reflects the cedant's costs of acquiring and managing the underlying business.
💡 Getting the overriding commission right matters because it directly affects the combined ratio and overall profitability of the book. If the override is too generous, the carrier's expense ratio swells and the program may become unprofitable even with favorable loss experience. Conversely, an inadequate override can leave the intermediary unable to invest in quality underwriting talent, risk selection tools, or compliance infrastructure — ultimately degrading portfolio performance. Carriers increasingly tie a portion of the override to profit commission arrangements, aligning the intermediary's financial incentives with the long-term results of the book and creating a shared stake in disciplined underwriting discipline.
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