Registered Insurance Brokers of Ontario (RIBO) Practice Exam

In what situation would a profit commission be based primarily on?

1. The type of coverage purchased

2. The claims made by the insured

3. The level of business produced

4. The market rates for premiums

The correct answer is: The level of business produced

A profit commission is primarily tied to the overall level of business produced, as it reflects the profitability of the insurance policies in relation to the premiums collected. When an insurance broker generates a considerable volume of business, they may be eligible for an additional profit commission if the incurred claims are below expectations, and operational costs are effectively managed. This incentive encourages brokers to foster a healthy relationship between policy sales and prudent risk management. In contrast, the type of coverage purchased, claims made by the insured, or market rates for premiums may influence an insurer's overall performance but do not directly correlate with the profitability necessary for a profit commission. Each of these factors plays a role in the insurance ecosystem but does not primarily determine the profit commissions awarded to brokers.