Insurance Brokers

[SillyBill]

Out of interest is it typical to charge a fee to a client and take commission from the insurers? Even when the commission might in itself be quite juicy.

I have a long time broker and past couple of years I have been frustrated that on the two occasions where we were looking to potentially make a claim on various policies we got very little support and therefore didn't bother and decided to suck it up. Does make you wonder what you pay insurance for sometimes.

We are charged £5.5k as a fee per year and spend c. £50k a year on insurance ontop of that. Given we see our broker once a year at renewal time for a couple of hours, 2-3 hours more on paperwork between us and that is about the sum of it. And we always end up with the same insurers (advised there are no competitive alternatives for our business risk level) - I am therefore questionning if they are worth up to £15k (commission and fee) for their contribution which seems to me to be a couple of days work tops.

I asked my GM to look at this and invite another broker in to see the lay of land, he let slip to me he had effectively invited them to offer us a lower fee than £5.5k (when asked if our current broker charged a fee) as if that was a shrewd business negogiation..."We pay £5.5k, would you do £4.5k?".,..not quite what I had hoped to get out of the exercise. I'd have gambited with no fee and see the reaction, if one would have done it for just commission, can only say no...

Be interested to know how others are charged.

 

[WaveJumper]

This is defiantly one for @Frank the Insurance guy

 

[Mark T Jones]

I'll be interested to hear what @Frank the Insurance guy has to say.

My industry is less regulated than insurance, but dual fees are heavily frowned on, and largely prohibited

 

[Frank the Insurance guy]

Hi @SillyBill

Unlike Financial advisers, Insurance brokers do not have to disclose commission/earnings in their quotes/invoice etc. However you are entitled to ask, and they MUST disclose their commissions/earnings to you.

From your post it looks like the brokers are earning commission of £10K, plus charging you a seperate fee of £5,500 - I assume you have asked them for written confirmation of their commission?

An overriding principal of Insurance is - treating customers fairly. To ensure this is the case any additional charges should reflect that the commission received is adequate for the work carried out by your broker.

I will usually charge a fee in addition to commission where the premiums are too small to cover my costs - a small office policy premium may be £250, giving about £45 commission - My minimum earnings on any policy would be at least £150-£200, so I would make an additional charge of between £100-£150.

On large fleet insurance policies where commission may only be 7.5-10%, with lots of vehicles, motor claims and multiple changes every month, the commission may not be sufficient - in this case we would look to agree a suitable additional charge with the client, based on the likely work involved throughout the year.

In some cases, the commission can be far in excess of the work carried out by the broker - in these cases we may work with the client purely on a "fee basis", earning no commission from the insurer and being transparent with our client as to what they pay for our service (in a similar way to how they know how much they pay other professionals like accountants, solicitors etc). We will always be happy to discuss this approach with prospective clients.

(eg I once had an IT client who worked on IT systems at airports - their premium has high due to the Airport IT system. Therefore commission would be high as this is a % of the premium. We agreed to earn no commission and charge a fee instead - as the work involved for us as an insurance broker was no more greater than any other IT company we looked after that did not work at airports - a suitable fee was agreed with the client based on the work involved)

Where there is little work/interaction throughout the year, on a premium such as yours, i see little reason for an additional charge!

I asked my GM to look at this and invite another broker in to see the lay of land, he let slip to me he had effectively invited them to offer us a lower fee than £5.5k (when asked if our current broker charged a fee) as if that was a shrewd business negogiation..."We pay £5.5k, would you do £4.5k?".

Easy for a broker to do little work and just "undercut" the holding broker. Did they provide a report of who they had approached and the responses - they should be able to demonstrate that they have done the broking work and not just make an offer to take over the existing policy.

Did they approach an Independent Insurance Broker?


Recommendation
As a starting point, I would suggest writing to your existing broker requested formal confirmation of all their earnings on your policies (commission and fees).

Once received, if you feel (as you have indicated in your post) that this is unreasonable for the work they carry out, challenge them - ask them to demonstrate that their income is reasonable and that they are treating you fairly.

If they cannot demonstrate they have "earned" the income, I would ask for a return of their fee/charge.


Feel free to get in touch directly if you would like any more specific advice.

 

[WaveJumper]

Hi @SillyBill

Unlike Financial advisers, Insurance brokers do not have to disclose commission/earnings in their quotes/invoice etc. However you are entitled to ask, and they MUST disclose their commissions/earnings to you.

From your post it looks like the brokers are earning commission of £10K, plus charging you a seperate fee of £5,500 - I assume you have asked them for written confirmation of their commission?

An overriding principal of Insurance is - treating customers fairly. To ensure this is the case any additional charges should reflect that the commission received is adequate for the work carried out by your broker.

I will usually charge a fee in addition to commission where the premiums are too small to cover my costs - a small office policy premium may be £250, giving about £45 commission - My minimum earnings on any policy would be at least £150-£200, so I would make an additional charge of between £100-£150.

On large fleet insurance policies where commission may only be 7.5-10%, with lots of vehicles, motor claims and multiple changes every month, the commission may not be sufficient - in this case we would look to agree a suitable additional charge with the client, based on the likely work involved throughout the year.

In some cases, the commission can be far in excess of the work carried out by the broker - in these cases we may work with the client purely on a "fee basis", earning no commission from the insurer and being transparent with our client as to what they pay for our service (in a similar way to how they know how much they pay other professionals like accountants, solicitors etc). We will always be happy to discuss this approach with prospective clients.

(eg I once had an IT client who worked on IT systems at airports - their premium has high due to the Airport IT system. Therefore commission would be high as this is a % of the premium. We agreed to earn no commission and charge a fee instead - as the work involved for us as an insurance broker was no more greater than any other IT company we looked after that did not work at airports - a suitable fee was agreed with the client based on the work involved)

Where there is little work/interaction throughout the year, on a premium such as yours, i see little reason for an additional charge!




Easy for a broker to do little work and just "undercut" the holding broker. Did they provide a report of who they had approached and the responses - they should be able to demonstrate that they have done the broking work and not just make an offer to take over the existing policy.

Did they approach an Independent Insurance Broker?


Recommendation
As a starting point, I would suggest writing to your existing broker requested formal confirmation of all their earnings on your policies (commission and fees).

Once received, if you feel (as you have indicated in your post) that this is unreasonable for the work they carry out, challenge them - ask them to demonstrate that their income is reasonable and that they are treating you fairly.

If they cannot demonstrate they have "earned" the income, I would ask for a return of their fee/charge.


Feel free to get in touch directly if you would like any more specific advice.

Good info hope that helps @SillyBill he could do with some good news after hearing what he going to be paying for his energy. will be interesting to hear how it gets on.

 

[Frank the Insurance guy]

Sorry @SillyBill , just realised how long my previous post was! - Short version:

1. Brokers can make a charge and also earn commission

2. Brokers must disclose their earnings if you request it

3. Challenge your broker if their earnings from charges and commission are not reasonable for the work they do (They should be able to back up why they feel the need for the additional charge).

4. Speak to an independent broker when your policy is next up for renewal - they should be able to check the market for alternative quotes and confirm what work they have done, which insurers they have approached quoted/etc (ie. not be lazy and just offer to take over your policy and make a lower charge!)