Property and Casualty Insurance Practice Exam

What dual compensation method can agents in a direct writer system receive?

1. Solely by commission

2. Salaries only

3. A combination of salary and commission

4. Only through bonuses

The correct answer is: A combination of salary and commission

Agents in a direct writer system can receive compensation through a combination of salary and commission, which allows them to benefit from both a stable income provided by a salary and additional earnings based on the sales they make through commissions. This dual compensation method incentivizes agents to perform well and achieve sales targets while providing a safety net through a guaranteed salary. Choosing a combination of salary and commission aligns with the business model of direct writers, who often prefer to maintain control over their sales force while motivating agents to increase productivity. This model also helps in retaining agents by ensuring they have consistent income, which can be important in a competitive industry. The other compensation methods, such as solely by commission or exclusively through salaries, do not provide the balanced incentive structure that is characteristic of a direct writer system, which relies on both stable income and performance-based rewards.