Direct Bill Commission Reconciliation in P&C Insurance

Direct bill commission reconciliation is one of the most persistent pain points in P&C insurance accounting. Unlike agency bill, direct bill commission does not move with premium cash. Commissions are earned based on policy activity, then paid later by the carrier. Statements arrive after the fact. Adjustments follow endorsements and cancellations.

This article explains how direct bill commission reconciliation works, why it breaks in generic accounting systems, and how MGAs and wholesalers should handle it at scale.

How Direct Bill Commission Actually Works

In direct bill, the carrier collects premium directly from the insured.

The MGA or wholesaler earns commission for placing and servicing the policy. That commission is:

• Earned based on written or earned premium
• Paid according to carrier schedules
• Adjusted for endorsements and cancellations
• Subject to chargebacks

Accounting must recognize commission before cash is received and reconcile carrier payments later.

Why Direct Bill Commission Is Hard to Reconcile

Direct bill commission reconciliation fails for predictable reasons.

Timing Differences

Commission is earned when the policy is written or earned over time. Payment may arrive weeks or months later. Generic accounting systems expect revenue and cash to align. Insurance breaks that assumption.

Policy Changes After Issuance

Endorsements and cancellations change commission amounts. Carrier statements reflect these changes after the fact. Accounting systems that do not track commission at the policy level cannot reconcile accurately.

Carrier Statements Do Not Match System Totals

Carrier statements aggregate multiple policies and periods. Without policy level tracking, accounting teams manually match statements to expected commissions using spreadsheets.

Where Spreadsheets Enter the Process

Spreadsheets are used to:

• Track expected commission by policy
• Compare expected versus paid commission
• Record chargebacks
• Adjust prior period entries

This creates parallel records outside the accounting system.

Related reading: Why Spreadsheets Still Run Insurance Accounting

How Accounting Should Handle Direct Bill Commission

Proper direct bill commission accounting must:

• Track commission earned by policy
• Recognize commission independently of cash
• Adjust commission automatically for endorsements and cancellations
• Reconcile carrier statements efficiently
• Maintain a complete audit trail

This requires insurance specific accounting logic.

Learn how this is handled: Direct Bill Commission Reconciliation

The Impact on Close and Audit

When commission reconciliation is manual:

• Month end close slows down
• Prior periods are reopened frequently
• Audit support becomes labor intensive
• Confidence in reported revenue declines

These issues worsen as volume grows.

Why Generic Accounting Systems Fall Short

Most accounting systems were not built to:

• Track commission by policy
• Separate earned commission from cash
• Handle retroactive adjustments cleanly

As a result, commission logic lives outside the system. This is not a process failure. It is a tooling mismatch.

How Modern Premium Accounting Solves This

Modern premium accounting systems treat commission as a first class accounting object.

They:

• Calculate commission from policy data
• Track earned and expected commission
• Apply adjustments automatically
• Reconcile carrier statements against expected totals
• Synchronize final results to the general ledger

This removes the need for spreadsheet reconciliation.

Explore the approach: Premium Accounting Overview

How This Connects to Agency Bill and Overall Accounting

Direct bill commission reconciliation does not exist in isolation. Most MGAs operate mixed environments with both agency bill and direct bill business. Systems must handle both correctly.

Related reading: Agency Bill vs Direct Bill Accounting Explained for P&C Insurance

Key Takeaways

• Direct bill commission is earned before cash is received
• Timing differences create reconciliation challenges
• Policy changes drive commission adjustments
• Carrier statements arrive after the accounting event
• Spreadsheets indicate missing system logic
• Policy driven premium accounting resolves reconciliation issues

What to Read Next

• P&C Insurance Accounting for MGAs and Wholesalers
• What Is P&C Insurance Accounting
• Agency Bill vs Direct Bill Accounting Explained
• Introducing Selectsys Premium Accounting for MGAs and Wholesalers

FAQs

What is direct bill commission reconciliation?
It is the process of matching earned commission based on policy activity to commission payments received from carriers.

Why is direct bill commission hard to reconcile?
Commission is often earned before payment and adjusted after policy changes, creating timing differences.

Why do MGAs use spreadsheets for commission reconciliation?
Generic accounting systems cannot accurately track commission at the policy level, leading teams to rely on spreadsheets.

Can commission reconciliation be automated?
Yes, with insurance-specific premium accounting systems designed around policy data.