The Value of Contingent Commissions in the Property–Casualty Insurance Industry: Evidence From Stock Market Returns


  • The authors can be contacted via e-mail: and, respectively. The authors thank two anonymous reviewers for helpful comments. This article has also benefited from helpful remarks from Mark Homan, Anne Kleffner, Lin Klein, Tom Miceli, and Laureen Regan, as well as the participants of the American Risk and Insurance Association annual conference and seminar participants at the University of Connecticut and the University of Georgia. Dr. Hilliard acknowledges the financial support of the Spencer Educational Foundation and the Stephen D. Messner Scholarship Fund.


Insurance producer compensation has incorporated contingent commissions for decades. In 2004, the New York State Attorney General sued insurers and brokers, alleging compensation abuses and calling for elimination of some forms of contingent commissions. Daily stock price return data reveal negative announcement-period portfolio returns for property–casualty carriers, suggesting expected negative cash flow effects. Firm-level losses were related to intensity of contingent commission use, suggesting that the effects of such regulatory changes would be felt most by firms that relied on contingent commissions. Investors believed contingent commissions were valuable not only for producers but also for carriers.