Deciding on a strategy for you K-12 school or public entity

Author: Scott C. Tennant

This article is intended to help you think through the remuneration strategy between your K-12 school or public entity and the insurance broker or brokers with whom you work. Our insights are gleaned from risk professionals who have spent decades managing these relationships; we hope that this advice will help you apply that experience to your entity's operations.

The key questions about remuneration are timeless. How do you create a strategy where the remuneration represents a positive value for both parties? What are the fundamentals about insurance and risk management you need to know in order to create a successful strategy and partnership?

Fundamentals of broker remuneration

Understanding how insurance brokers get remunerated is a critical place to begin. Insurance brokers are paid through a commission on policies placed, a fee for services or a combination of the two (see sidebar). Those options are straightforward and represent remuneration for the services provided by the broker.

A less-understood aspect of compensation includes supplementary or contingent commissions. These are payments based on percentages of the annual volume of all policies placed with a specific insurance carrier by a specific agency. If these commissions are paid, they are smaller in percentage than individual policy placements and they are paid to the company (not individual brokers). These payments encourage the aggregation of risk with a specific insurance carrier. Remember that the actuarial law of large numbers generally has a positive impact on carrier losses when those losses are spread across great mass. This can result in lower overall premiums and coverage for a broader array of risks, and is therefore a valid and helpful tool used by the industry.

Choosing the most appropriate method of remuneration requires that you understand the options and think through your expectations and desired outcomes before issuing a request for proposal (RFP) or entering into compensation negotiations.

How many ways can an insurance broker get paid?

  • Commission on an insurance policy placed directly by your insurance broker with a standard lines insurer. This is a policy that your broker helps your school or entity purchase directly from a standard insurance company.
  • Commission received from intermediary or wholesale-brokered placements. Your broker may work with specialty wholesaler brokers to access insurance companies that have limited distribution channels. These insurers are often non-standard insurers; access is gained only through the appointed specialty wholesale broker network. Often an intermediary or wholesale broker is engaged when multiple insurers are needed to build your risk financing structure; wholesale brokers may be appointed to work with both standard and non-standard insurers. Best-practice hint: require your broker to disclose ALL commissions received.
  • Fee for service. This is a negotiated flat fee for brokerage services. Best-practice hint: agree upon the list of services and hold your broker accountable through stewardship reports or report cards.
  • A combination of fee and commission. Some schools and public entities pay a fee for service but also allow the broker to receive commissions on particular policies. For example, the broker places policies like cyber or environmental for some (but not all) members of a pool, and is allowed to receive a commission on those placements
  • Supplemental commissions or contingency commissions are paid by insurers to brokerage companies (not individual brokers) based upon entire books of business. They may be paid based upon profitability, premium retention or premium growth.

Determining the insurance broker's role

The fundamental role that an insurance broker plays is to assist in the identification and transfer of risk between your entity and the insurance marketplace. It can be a simple transfer through a first-dollar insurance policy, or a complex arrangement of layers of self-insurance, excess insurers and reinsurance. To accomplish this transfer, brokers need to understand your operations, know potential risk transfer options and advise you on the best fit for your organization.

Certainly, a fundamental criteria is insurance product expertise. Insurance accounts for a considerable portion of any overall risk management budget. Insurance placements, if done poorly, can create disastrous outcomes if a significant event has no insurance response. However, another valued and integral component is the insurance broker's understanding of all your entity's risks, and not just insurance policies. Insurance is a significant part of managing an organization's risks, but is never the only solution.

The list of additional services provided by insurance brokers has expanded in scope and depth in recent years. Many K-12 schools and public entities struggle to manage the expanding role of risk management through internal resources, and partnering with a broker who can provide additional services may be a cost-effective solution. Insurance brokers are less subject to internal politics and may be able to shield key risk management services from budget cuts. A broker with personal and organizational depth of experience can provide great value to you and your organization. Clarifying the services you need and the specific role that your broker will play is critical to understand in order to negotiate appropriate remuneration.

It's important to consider the role you want your broker to play, and the expertise and knowledge needed to carry out that role. That role may change over time or be expanded as your operations—or as global influences upon your risks—expand. Therefore, we recommend that you consider both insurance product and enterprise risk expertise as you evaluate brokerage services.

How do you create a strategy where remuneration represents a positive value for both parties?

Organizations need insurance and brokerage services; brokers need clients and revenue. To make the best decision about remuneration, those needs must be balanced and fair to both parties.

Public entities and K-12 schools seek the best insurance coverage at the best price to suit their specific operations and risk exposures. Balancing the cost of brokerage remuneration against your organization's total cost of risk is an effective tool for evaluating the value of services and lowering overall costs. Broker remuneration should bring value to your organization's risk management program.

Brokers value long-lasting relationships as much as revenue. Those relationships are built through communication and accountability. Expectations and service requirements should be outlined in the bid documents and reviewed during the bid process. That should carry through into broker contracts that incorporate achievable objectives and written expectations. Then quarterly or semi-annual reviews will ensure that all parties stay on track.

When broker remuneration is tied to goals and outcomes, and accountability is built into the process, both parties win.

Put your organization in the best possible position to manage current and future risk.

Key remuneration considerations

The amount and type of remuneration should be commensurate with the complexity of the placement, the customization of coverage to your operations, and the standard practice for your entity or sector.

The following key considerations can be used to manage your existing broker relationships and prepare for an RFP/RFQ process. We recommend that you review this list and update your entity's need for services every few years even if there is not a statutory mandate for a bid process.

  • Individual and team expertise: Who will service your account and what expertise do they bring to your service team? Is there backup for individual members, and are other experts available as needed? It may be helpful to require an organizational chart that lists specific roles and expertise available from your service team.
  • Insurance market awareness: Does the broker stay current with which markets are interested in writing your specific type of business? Does the broker track trends and communicate critical information about what's on the insurance horizon? Awareness of market conditions should help you plan and prepare for the future.
  • Insurance market presence: What kind of relationship does the broker have with those key markets? Negotiating tricky placements or resolving claims coverage issues are significantly enhanced by brokers with strong insurance market relationships.
  • Specific market relationships: Does the broker have any special market relationships, programs or access? Does the broker work with specific underwriters and know organizational leaders? Insurance is a relationship business and understanding your broker's relationship with key markets is key to pricing, availability and options.
  • Sector-specific expertise: Does the broker have expertise with other entities like yours? Can the broker provide exposure information, loss analysis and claims advice specific to your entity's operations? These services speak to your overall management of risk, and not just insurance policy placement.
  • Risk management expertise and support services: Does the broker provide any risk management or insurance support services that would benefit your program? Examples include certificate checking, contract review, claims consultancy, predictive analytics, risk data analysis, enterprise risk management, board and membership management systems (for pools), risk control services, online training, whitepapers, and other sector-specific risk management advice or programs. These are critical to managing your entity's overall cost of risk.
  • Data analysis and support: How can the broker assist your entity in understanding data trends and applying that knowledge to reducing claims costs? Can the broker provide predictive analytics, benchmarking data or sector-specific risk data that will help your entity focus and improve? Data-informed decision-making is risk management of the future.


These considerations support the development of a strategy for managing risk beyond insurance placements, and will put your entity in the best possible position to manage current and future risks.

As the world changes and risks evolve, the best prepared organizations are constantly working to uncover the unknown and emerging risks. A successful risk management and insurance program developed in partnership with an experienced broker supports today's operations and prepares entities for the future.

We hope this short piece provides practical advice and some wisdom. We also wish you the very best of good fortune and sound planning in all that you are doing for your organization.

Author Information:


The information contained herein is offered as insurance Industry guidance and provided as an overview of current market risks and available coverages and is intended for discussion purposes only. This publication is not intended to offer legal advice or client-specific risk management advice. Any description of insurance coverages is not meant to interpret specific coverages that your company may already have in place or that may be generally available. General insurance descriptions contained herein do not include complete Insurance policy definitions, terms, and/or conditions, and should not be relied on for coverage interpretation. Actual insurance policies must always be consulted for full coverage details and analysis. 

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