Understanding Farmers Insurance Agent Commission Rates and Compensation

For insurance agents considering a career with Farmers Insurance, one of the most important factors is understanding how you will be compensated. Farmers relies on a network of over 20,000 exclusive, captive agents to sell their products. These agents represent Farmers as their only insurer partner.

As a Farmers agent, your income will come from commissions earned on new policies sold and policies you continue to service and retain. However, Farmers commission structure and pay scales are not always straightforward. Here is an in-depth look at how Farmers insurance agents are paid.

Overview of Farmers Agent Commission Rates

Farmers agents earn commissions as a percentage of the premiums paid on insurance policies they sell. However, Farmers does not publish a standard commission schedule. Rather, they determine each agent’s commissions individually based on:

• Geographic location
• Types of insurance products sold
• Production and retention goals met
• Overall revenue generated for Farmers

Generally, commissions will range from 8% to 20% of new premiums written. Higher commission rates are offered to agents who sell more or have better retention. Renewal commissions on policies you continue to service may be 3% to 10% of premiums.

Bonuses and profit sharing can add 1-3% more to your compensation. And your commission rate increases incrementally as you hit certain production goals.

Key Factors Impacting Farmers Agent Commission Rates

While every agent’s commissions are proprietary, these factors have the biggest influence on your rate as a Farmers agent:

• Your location – Commission scales will be lower in highly competitive markets like California where Farmers has a huge presence. You’ll earn higher commissions in rural areas where Farmers has lower market share.

• Lines of insurance sold – You’ll earn higher commissions for lines requiring more expertise to sell, like commercial policies vs. simple auto policies. Optional add-ons also pay more.

• Your production tier – Farmers wants high producers. The more revenue you generate, the higher commission bracket you’ll be assigned.

• Policy retention – Keeping policies renewed is key. Renewal commissions are 2-3x higher than new business commissions.

• Agency ownership – Owning your own book of business vs. working for an established agent impacts pay.

• Profitability of your book – The loss ratio on your policies factors into your commissions. More claims mean lower commissions.

Commission Rates by Insurance Product

While individual commission rates aren’t published, we can look at the typical ranges by product:

• Auto insurance – 10% to 15% new business, 8% to 12% renewal. Higher for add-ons like roadside assistance or OEM parts coverage.

• Homeowners insurance – 15% to 20% on new policies, 8% to 12% renewal commissions.

• Life insurance – 40% to 60% first year, 3% to 5% renewal trails over time. Requires licensure.

• Commercial lines – 10% to 20% new business, 8% to 15% renewals depending on size/complexity of the account.

• Farm coverage – 15% to 18% new premium, 10% to 12% renewals. Requires specialized product knowledge.

• Umbrella policies – 20%+ new business as these require substantial advising. Renewals around 10%.

Add-on products and coverage amounts impact commissions positively. Your overall “book of business” mix across lines also factors in.

Farmers Agent Commission Structures

Farmers utilizes two main structures for agent commission compensation:

Salaried Agent Program

This is for new agents getting started. Farmers pays you a salary $30,000 to $40,000 for your first 1 to 2 years as you build your book. You keep a smaller share of commissions, likely 25% to 50% of the totals above.

The salary provides stability as you learn and ramp up. And Farmers recoups their investment through the remaining commissions.

Commission-Only Agent

Once established, you transition to 100% commission-based pay. This offers unlimited earning potential tied directly to your production, retention, and total book profitability.

However, the first few years can be unpredictable. Drawing on your savings to cover gaps is key. And you fund all your own overhead expenses.

How Agent Commissions Are Paid Out

Farmers agents receive commissions monthly based on policies sold and renewed the prior month. Payments are made electronically on the 15th of each month.

Bonuses are paid at year end based on annual goals met. Profit sharing earnings from participation in Farmers’ retirement plan are also paid annually.

To receive commissions, you must remain a licensed, active Farmers captive agent. If you retire or leave the company, Farmers will terminate your agent contracts. This means you no longer receive ongoing commissions on your book – so staying with Farmers long term is incentivized.

Estimating Your Income Potential as a Farmers Agent

Given the variables involved, projecting your potential income as a Farmers agent requires looking at realistic production scenarios.

For example, let’s say in your first year you sell:

• 50 auto policies averaging $850 in annual premiums each = $42,500 in premium
• 25 homeowners policies at $1,500 annual premiums each = $37,500 in premium
• 10 life insurance policies at $2,000 first year premium each = $20,000 in premium

That’s $100,000 in new premiums written across a mix of products in your first 12 months. Apply commission rates:

• Auto at 12% = $5,100
• Home at 18% = $6,750
• Life at 50% = $10,000

That’s $21,850 in first year commissions. Factor in 20% for renewals on the prior book before yours, and you could earn around $45,000 your first year.

Ramping up to 500 policies by year three could put you over $200,000. High performers can potentially earn $500,000+ after 5-7 years.

Pros and Cons of Farmers Agent Commission Structure

Farmers’ commission-focused agent pay model has advantages and disadvantages:

Pros

• Unlimited earning potential
• Rewards sales success
• Higher pay for specializing in certain products
• Lucrative renewals build over time

Cons

• Unpredictable income initially
• No base salary after first 1-2 years
• No residual commissions if you exit
• Lower pay in extremely competitive markets

Overall, if you excel at sales, marketing and customer service, Farmers presents a compelling income opportunity. Just know it may take time to ramp up, and requires ability to sell across product lines.

Is Farmers the Right Carrier for Your Insurance Sales Career?

Farmers can be rewarding for the entrepreneurially-minded agent motivated by commissions. But there are a few key factors to weigh:

• Do you want to only sell for one carrier, or have flexibility to represent multiple insurers?

• Can you manage the unpredictability of 100% commission pay?

• Are you willing to invest time mastering and cross-selling products like life insurance and commercial lines?

• Can you build a book of business from scratch, or do you need an existing book to work from?

• Is your discipline more sales, service or financial advisory based?

Asking yourself these questions will help determine if Farmers, with its captive agent model and commission-driven pay, is the right place to grow and thrive in your insurance sales career.