What Is an Override in Insurance?

Insurance is a complex industry with various compensation structures, and understanding these can be challenging for those outside the field. One such arrangement is the “override,” a financial mechanism for compensating certain insurance professionals and entities. This article clarifies what an override is and how it functions within the insurance ecosystem.

Understanding Overrides

An insurance override is compensation paid by an insurer to an intermediary, such as a Managing General Agent (MGA), wholesaler, or a larger agency group, rather than directly to the individual agent who sells a policy. This compensation is earned based on the collective sales performance of a team managed by that intermediary. Overrides serve as an incentive, encouraging these larger entities to build, manage, and support a productive sales force.

This compensation extends beyond the standard commission an individual agent receives. It acknowledges the managerial and developmental efforts of the intermediary, rewarding them for fostering a successful sales environment. For instance, a general agent overseeing multiple individual agents might receive an override on the total premiums generated by their team. The payment of an override flows from the insurance carrier to the MGA or agency, recognizing their role in generating a significant volume of business.

How Overrides are Earned and Calculated

Insurance overrides are earned through contractual agreements that specify the criteria and methods of calculation. These calculations are based on a percentage of the total sales or premium volume generated by the downline agents. For example, if an upline agency has a 100% commission contract with a carrier and a downline agent works on a 90% contract, the upline may receive a 10% override on the business the downline agent produces.

Common types of overrides include those based on premium volume, where a percentage is paid on total premiums written by managed agents. Profitability or loss ratio overrides incentivize intermediaries to place profitable business by linking compensation to the underwriting performance or claims experience of the aggregated policies. Additionally, overrides can be tied to growth targets, rewarding the expansion of market share or the acquisition of new business. Some agreements also feature product-specific overrides, encouraging the placement of particular insurance products. These calculations are assessed over defined periods, such as quarterly or annually, and apply to the aggregated results of the intermediary’s network.

Overrides Versus Standard Commissions

The primary distinction between an override and a standard commission lies in who receives the compensation and the nature of the activity being rewarded. Standard commissions are paid directly to an individual insurance agent or broker for each policy they personally sell. This payment is a percentage of the policy’s premium and is directly tied to that specific transaction. For instance, a life insurance agent might receive 60% to 80% of the first year’s premium as their commission for a new policy sale.

In contrast, overrides are paid to a larger entity or an upline manager who oversees a group of agents, rather than to the individual transactional agent. While commissions reward individual sales effort, overrides incentivize leadership, team development, and the collective performance of a sales unit. An MGA, for example, receives an override on the volume of business generated by the agents they support, or they might participate in the underwriting profit or loss if they share risk with the insurer. This means commissions are transactional and policy-specific, whereas overrides are performance-based and tied to the overall results of a managed group over time.