Evaluate Your Broker: Key Performance Metrics, Commissions and Binding Authority to Check

Understanding how well your insurance broker performs is a procurement imperative for any business buying commercial insurance in the United States. Brokers influence price, coverage quality, carrier selection, claims outcomes and long‑term risk strategy — and yet many procurement teams accept broker performance on faith. This ultimate guide gives you the operational metrics, contractual checks, negotiation tactics and practical templates you need to evaluate brokers like a procurement pro.

Key topics covered

Why evaluating brokers is essential for business insurance procurement
Operational and commercial KPIs to measure (with benchmarks and examples)
Commissions, fee models and transparency requirements
Binding authority: types, risks and what to check in contracts
Scorecard, RFP questions and an evaluation matrix you can use immediately
Red flags, negotiation tactics and examples for high‑risk industries
Related internal resources and next steps

Table of Contents

Why you must evaluate your broker (not “set and forget”)

Brokers act as your intermediary to carriers and claims teams. A strong broker does more than get a lower premium — they:

Improve coverage breadth and clarity, reducing hidden gaps and uncovered exposures.
Drive claims outcomes through advocacy and timely escalation.
Reduce total cost of risk (premiums + retentions + administrative cost + loss frequency) over time.
Provide procurement discipline: RFPs, market testing, contract transparency and KPIs.

Failing to evaluate them regularly leaves your business exposed to misaligned incentives (commissions vs client interest), uncompetitive markets, slow claims service, and undisclosed fees. Use evaluation to hold brokers accountable and to align procurement goals with broker activities.

Core categories of evaluation

Evaluate along three pillars:

Performance & operational KPIs
Commercial terms (commissions, fees, conflicts)
Delegated authority & binding mechanics

Each pillar breaks down into measurable sub‑metrics and contractual checks.

1) Performance & operational KPIs (what to measure)

Measure these KPIs quarterly (high exposure accounts) or at least annually.

H3: Response & service KPIs

Initial response time — time to acknowledge inquiries or claims. Benchmark: < 1 business day for general questions; < 2 hours for urgent claims notifications.
Proposal turnaround — time from RFP release to first market submission. Benchmark: 5–10 business days for mid‑market accounts; 10–30 days for complex/high‑exposure/RFPs.
Placement ratio — percentage of insurer offers accepted vs presented. Useful for gauging commercial defensibility. Target: > 70% for standard risks; lower is acceptable for complex risks but should be justified.

H3: Coverage quality KPIs

Coverage error rate — number of policies requiring mid‑term corrections or endorsements per 100 policies. Aim: < 5 per 100.
Policy accuracy at bind — percent of policies issued without clerical or coverage errors. Target: > 95%.

H3: Claims advocacy KPIs

Claims acknowledgment time — broker confirms claim to client and carrier. Benchmark: < 24 hours.
Claims escalation success — percent of escalations resulting in improved or timely settlement. Track outcome qualitatively and quantitatively.
Average time to resolution — median days from notification to final settlement (segmented by severity).

H3: Market & strategic KPIs

Carrier panel diversity — number of actively quoted, A‑rated (A.M. Best or similar) carriers used in last 12 months.
New carrier introductions — number of carriers introduced that become placement options.
Renewal negotiation savings — premium reduction (or improved terms) achieved at renewal, normalized for exposure changes.

H3: Commercial & procurement KPIs

RFP compliance rate — percent of RFP requirements met by broker submissions.
Documentation completeness — % of submissions with complete supporting documents (loss runs, applications, financials).
Procurement SLA adherence — percent of times broker met agreed SLAs (e.g., turnaround times, meeting cadence).

Table: Example KPI scorecard (quarterly)

KPI	Metric	Target	Weight
Initial response time	% within 1 business day	95%	10%
Policy accuracy at bind	% accurate	95%	15%
Claims acknowledgment time	% within 24 hours	90%	15%
Placement ratio	% offers placed	70%	15%
Carrier panel diversity	# of A‑rated carriers actively quoted	6+	10%
RFP compliance rate	% of Requirements met	100%	10%
Renewal negotiation savings	Premium reduction normalized	≥5% (or justified)	15%

(Adjust weights to reflect what matters most for your account — e.g., claims heavier for high‑exposure clients.)

2) Commissions and fee structures — transparency and negotiation

Understanding how your broker is paid is critical to aligning incentives.

Common models

Traditional commissions — percentage of premium (e.g., 10–20% on property/casualty lines). Paid by carrier to broker.
Fee‑for‑service — client pays broker a flat or hourly fee for placement, advisory, or program management.
Hybrid — lower commission + service fee to reduce conflicts.
Contingent/override commissions — additional payment from carriers based on volume or profitability (can create conflicts).
Broker of record / contingent payment — payments triggered by volume or retention thresholds.

What to check and require contractually

Full disclosure clause — broker must disclose all commissions, overrides, contingent income, referral fees and other third‑party payments.
Fee schedule — list of fees and the services they correspond to (placement, claims handling, audits).
Net price disclosure — show premium before broker commission and fees, and the total client cost.
Clawback & accountability — if a carrier rescinds commission or an audit reduces compensation, contract should define client remedies.

Example: Negotiating commission transparency

Ask for a line‑item commission reconciliation each renewal: show premium, carrier commission %, carrier commission amount, any overrides, and net client charge.
If a broker resists disclosure, require a standard audit clause allowing procurement to verify commissions through carrier confirmation.

How commissions affect behavior

Flat % commissions incentivize higher premiums; fee arrangements reduce that bias.
Contingent commissions tie broker incentives to carrier profitability, not client outcomes — require disclosure and cap/ban if necessary.

Suggested language (short clause)

“Broker shall disclose, in writing, all commissions, contingent compensation, overrides, referral fees, and any remuneration received from carriers or third parties related to the placement of client policies within 30 days of receipt.”

3) Binding authority — what it is and why it matters

Binding authority is the ability of a broker or intermediary to commit a carrier to insure a risk without the carrier issuing new paperwork at the time of bind. It speeds binding but increases risk if not controlled.

Types of binding authority

Full delegated binding authority (Authority to bind on carrier paper immediately) — broker can issue policy or coverage confirmation and bind coverage instantly up to agreed limits.
Limited/delegated authority — binds certain lines or classes up to specified limits and subject to pre‑approved forms/endorsements.
Quote/offer only (no binding) — broker must obtain carrier confirmation before coverage is bound.
Fronting arrangements — broker places coverage with a fronting carrier who then cedes risk to reinsurers; complex and requires doc transparency.

Why binding authority matters

Speed vs control tradeoff: Delegation speeds transactions and renewals, but errors at bind can create coverage gaps and exposure.
Claims handling: Delegated brokers may make representation errors that carriers later dispute.
Auditing & compliance: Delegated authority requires stronger audit rights and reinsurer oversight.

What to verify in delegated authority agreements

Scope & limits — line‑of‑business, class codes, single risk limits, aggregate capacity.
Documentation standards — required application data, evidence of insurability, endorsements, warranties.
Reporting cadence — immediate notice of binds, weekly/monthly bind reports, premium remittance rules.
Error & omission remedies — who covers unauthorized binds or material misrepresentations.
Audit & termination rights — client right to audit bind logs and clause to terminate delegated authority for cause.

Practical procurement checks

Require a copy of the broker’s binding authority letter from the carrier and review delegated scopes annually.
Ask for a bind log (date, insured, limit, premium, carrier confirmation, underwriter initials) to reconcile with carrier statements.
Where high exposures exist, prefer quote+carrier confirmation model or limit delegation to low‑impact endorsements.

Example: Delegated authority risk scenario

Broker binds a $10M property limit under delegated authority on incomplete valuation data; later a disputed claim reveals underinsured values. Without tight documentation requirements and audit rights, the carrier may seek rescission or deny claim coverage — leaving the client exposed.

Putting it together: an RFP and scorecard focused on metrics, fees and binding authority

When running an RFP, include sections that force transparency and make comparative scoring objective.

Suggested RFP sections (examples)

Executive summary and incumbent info
Scope of services required (placements, renewals, claims advocacy, analytics)
KPIs & SLAs requested (include the KPIs listed above)
Fee schedule & commission disclosure requirements
Delegated authority: current letters, scopes and examples (bind logs)
Case studies & references for similar accounts
Data access & reporting (monthly reports: binds, claims, premium movement)
Transition plan and onboarding timeline

Sample evaluation scoring (out of 100)

Service & operational KPIs: 30
Claims advocacy & outcomes: 20
Commercial transparency (fees/commissions): 15
Carrier panel & market access: 15
Binding authority controls: 10
Implementation & transition plan: 10

Include these RFP questions (direct)

“Provide a full schedule of all commissions, contingent commissions, overrides and referral fees received from carriers or third parties during the last 24 months for placements made on our behalf.”
“Attach your current binding authority letters by carrier and provide the exact scope and monetary limits.”
“Provide three client references of similar size/industry and the KPIs achieved over the last 2 renewals (claims SLA, binding accuracy, placement ratio).”

For a detailed RFP approach and templates, see: How to Run an RFP for Commercial Insurance: Templates and Questions for Large Accounts.

(Also reference: RFP Template for Fleet or High-Exposure Accounts: Requirements, KPIs and Evaluation Scoring where relevant.)

Example calculations and scenario analysis

Example 1 — Commission impact on cost comparison

Carrier premium (gross): $1,000,000
Carrier commission to broker: 12% = $120,000
Broker adds administrative fee: $10,000

Client pays: $1,000,000 (carrier invoice) + $10,000 fee = $1,010,000
But effective broker revenue: $130,000. If broker negotiates lower commission or accepts lower service fee, client can capture savings through net premium reduction or fee rebate.

Example 2 — KPI improvement ROI

Current claims closure median = 120 days. Improved to 60 days after broker change.
Cash flow improvement (time value of money), reduced legal costs and lower reserve levels can produce tangible TCO savings; work with finance to quantify for your account.

Red flags and warning signs

Watch for:

Lack of disclosure on commissions, contingency payments, or referrals.
Unwillingness to provide binding authority letters or bind logs.
High policy error rates or frequent mid‑term endorsements.
Single‑carrier dependency — over 70% placements with one carrier without diversification justification.
Poor claims metrics: slow acknowledgments, low escalation success, or repeated claim denials where advocacy would be expected.
Unexplained overrides or premium increases at renewal with no market benchmarking.

If you find these, escalate to legal/procurement, run a market test, or require corrective action plans and penalties.

Negotiation tactics procurement can use

Require full commission & fee disclosure before final award. Make transparency a pass/fail criterion.
Negotiate performance‑based fees: portion of broker fee contingent on meeting KPIs (e.g., claims SLA).
Cap or eliminate contingent commissions for conflicts — or require rebates if contingent commission exceeds X% of revenue.
Add audit rights and periodic independent verification of binds/commissions.
For delegated authority, require higher documentation standards and carve out material classes from delegation.
Use a hybrid model: smaller percentage commission + service fee to align incentives.

For tactics focused on reducing broker costs and improving transparency, see: Negotiating Broker Fees and Commissions: Tactics to Improve Transparency and Lower Costs.

Special considerations for high‑risk industries and fleets

High‑risk or high‑exposure clients need stricter oversight:

More granular KPIs (severity‑weighted claims metrics).
Stronger carrier appetite reviews and annual carrier audits.
Detailed RFPs for technical underwriting requirements and frequency of audits.
For fleets, require telematics integration, safety program KPIs and loss‑control action plans.

See targeted procurement resources:

Sample Broker Evaluation Checklist (Operational)

Obtain current binding authority letters and bind logs — verify scope and limits.
Request last 12 months of KPI reports (response times, placement ratio, policy error rate, claims SLAs).
Get full commission & fee schedule for last 24 months.
Review carrier panel and list of introduced carriers in past 12–24 months.
Require client references and case studies for similar accounts.
Validate RFP compliance and documentation completeness for last renewal cycle.
Audit a sample of recently bound policies for accuracy.
Conduct at least one claims file review with client claims team and broker.

For procurement process steps from needs analysis to final policy bind, consult: Step-by-Step Procurement Checklist: From Coverage Needs Analysis to Final Policy Bind.

Sample evaluation scorecard (simplified)

Area	Weight	Score (1‑5)	Weighted
Service KPIs	30	4	24
Claims advocacy	25	3	15
Fees & transparency	20	2	8
Carrier panel & market access	15	4	12
Binding authority control	10	3	6
Total	100	—	65/100

Use the total to compare finalists — set pass thresholds (e.g., 75+) or require remediation plans.

FAQs procurement teams ask

Q: How often should we re‑evaluate or run an RFP?
A: For typical commercial accounts, every 2–3 years. For large or high‑exposure accounts, annually or at each material change in exposure. Run market checks at renewal or when KPIs fall below thresholds.

Q: Are commissions always bad?
A: No — commissions are industry standard. The issue is disclosure and alignment. Hybrid fee models can reduce conflicts and increase transparency.

Q: Can we terminate binding authority mid‑term?
A: Yes, but the broker‑carrier agreement dictates terms. Ensure your contract with the broker includes termination for cause and transition provisions.

Q: What minimum documentation should be in place before binding under delegated authority?
A: At minimum: complete application data, signed disclosures, evidence of values/limits, loss runs, and any required inspections or inspections waivers as per the delegated scope.

Action plan: 30/60/90 steps for procurement

30 days

Request broker commission schedule, binding letters and last 12 months KPI reports.
Run a scorecard on current broker against targets.

60 days

Audit 10 recent policy binds and 3 claim files.
If shortcomings found, negotiate corrective plan and SLA revisions.

90 days

If performance doesn’t improve, issue RFP using the recommended sections and scorecard. Consider hybrid fee model and performance‑based components.

Conclusion — align incentives, measure outcomes, control authority

Evaluating your broker is not a one‑time checkbox; it’s an ongoing procurement discipline. Focus on measurable KPIs, demand commission transparency, and control delegated binding authority through documentation and audit rights. Use RFPs and scorecards to compare options objectively, and negotiate fee structures that align the broker’s incentives with your company’s risk control and cost reduction goals. Done correctly, this process reduces surprise exposures, improves claims results and lowers the total cost of risk.

If you’d like, I can:

Generate a custom RFP section or a downloadable Excel scorecard based on your account size and priorities.
Draft sample contract language for commission disclosure and binding authority controls.
Which would you prefer?