1. Introduction
For each product version, you can define some configuration related to product commission.
Product Commission (%): the percentage of product commission over Gross(1)/Net(2) policy premium.
Usually, the percentage of product commission is provided over Gross premium, because it reflects the money the company earned from the policy.
Option “Should Convert Product Commission Rate From Based On Gross Premium To Based On Net Premium”: defined percentage in (1) is over Net or Gross Premium.
If the option is unchecked, product commission amount = Product Commission (%) * Running Total(3).
If the option is checked, the product commission amount = Running Total * [Product Commission (%)/(1-Product Commission (%)].
Option “Is The Product Commission Amount At Cost”: defined whether the Product Commission Amount should be added to the Running Total or not.
If the option is unchecked, the product commission amount is ADDED to Running Total. This option usually goes with Option “Should Convert Product Commission Rate From Based On Gross Premium To Based On Net Premium” = checked.
If the option is checked, it means the Product Commission is already included in the Tariff Calculation. Therefore, the product commission amount is NOT added to the Running Total. This option usually goes with Option “Should Convert Product Commission Rate From Based On Gross Premium To Based On Net Premium” = Unchecked.
(1) Gross policy premium: in this context, this term means the premium that already includes all pricing components such as Product Commission Amount, Underwriting adjustment, Discounts, Tax,…
(2) Net policy premium: in this context, this term means the premium is purely tariff premium, and it does not include other pricing components.
(3) Running Total: there are multiple pricing components such as Tariff premium, Underwriting adjustment, discounts,… Running Total is the value of the premium after applying those components that are placed before product commission on the Premium table.
2. Example
1-Should Convert Product Commission Rate From Based On Gross Premium To Based On Net Premium? is unselected and Is The Product Commission Amount At Cost? is unselected
| Factor | Amount |
Policy tariff premium | 1.000,00 | |
Underwriting adjustment | 5% | 50 |
Sales discount | 5% | -52,5 |
Sales commission | 5% | 49,88 (5% * (1.000 + 50 - 52,5)) |
Tax | 50 | |
Policy final premium | 1.097,38 |
2-Should Convert Product Commission Rate From Based On Gross Premium To Based On Net Premium? is selected and Is The Product Commission Amount At Cost is unselected
| Factor | Amount |
Policy tariff premium | 1.000,00 | |
Underwriting adjustment | 5% | 50 |
Sales discount | 5% | -52,5 |
Sales commission | 5% | 52,5 ((5%/100%-5%) * (1.000 + 50 - 52,5)) |
Tax | 50 | |
Policy final premium | 1.100,00 |
3-Should Convert Product Commission Rate From Based On Gross Premium To Based On Net Premium is unselected and Is The Product Commission Amount At Cost is selected
| Factor | Amount |
Policy tariff premium | 1.000,00 | |
Underwriting adjustment | 5% | 50 |
Sales discount | 5% | -52,5 |
Tax | 50 | |
Policy final premium (the premium that a customer will pay) | 1.047,50 | |
Sales commission at-cost (apply on the net premium) | 5% | 50 (5% of 1.000) |
4-Should Convert Product Commission Rate From Based On Gross Premium To Based On Net Premium is unselected and Is The Product Commission Amount At Cost is unselected
| Factor | Amount |
Policy tariff premium | 1.000,00 | |
Underwriting adjustment | 5% | 50 |
Sales discount | 5% | -52,5 |
Tax | 50 | |
Policy final premium (the premium that a customer will pay) | 1.047,50 | |
Sales commission at-cost (apply on the gross premium EXCLUDE tax) | 5% | 49,88 (5% of 1.047,5 - 50) |