When
QBE reported its poor results last week, its European arm told Insurance Business UK that it had
resisted efforts from brokers to increase commissions.
As QBE is an Australian company, our Australian edition had to ask our readers – should we be paid fees rather than by a share of what coverage we place? This is what our suvey found.
While insurance brokers continue to be unfairly painted in a negative light
in terms of their trust with consumers, could a move away from commissions help boost their reputation?
In the latest Insurance Business survey, more than 60% of respondents said that brokers should still be paid by commissions and Michael Gottlieb, managing director of BizCover, told Insurance Business that he agreed with the findings.
“I am comfortable with the commission structure,” Gottlieb said.
“In my experience clients do not mind how intermediaries are remunerated if they feel, and actually are, receiving value for money.
“I feel the commission structure works because if brokers perform a value added service they earn too little, in fact the service is usually loss making, on small accounts and margins are arguably too large on sizable accounts.
“However, this is why the industry can operate and everyone can receive advice. If it all became fee for service small business would not be able to afford advice. Commissions are an easy excuse for the negative public perception on our industry.”
Robert Cooper, director of Cooper Professional Risks, “firmly” agreed that commissions should remain and told Insurance Business that it is not commissions that “cloud the name of the broking industry.”
“Our clients know we get commissions. Besides we tell them this in our Financial Services Guide we provide to every client each year. If a client asks me directly what I receive, I am totally honest and upfront about it,” Cooper said.
“It does not send the wrong message to consumers, if anything it helps promote loyalty for a client.
“We may be accused of using a more expensive insurer to earn more money, but we can quickly lose that client to another broker who can offer a better deal with an alternate insurer. Brokers are accordingly held accountable every time a client tests you with seeking alternate terms from an alternate broker. We have a duty to act in the client’s best interests and getting them the best premium deal ensures that.
“If anything, not paying commissions may reduce the professional service we should be providing to our clients. This then equates with a higher Professional Indemnity exposure for ourselves.”
Dale Hansen, chief executive officer of Austbrokers Coast to Coast, told Insurance Business that while commissions should remain there could be a need for change in structure as brokers need to ensure they educate clients on the worth of using a broker.
“We need to be able to demonstrate our value and our worth to both parties,” Hansen said of clients and insurers alike.
“I know with my business we are very transparent with how we are remunerated but also the work that we provide in the process.
“You must be able to demonstrate your worth. In anything, not just insurance broking, if you can’t demonstrate your worth it is going to be very hard for you to survive.
“What we do find in our industry is, I believe, if I go back even in the last ten years, we are doing considerably more work now that we were doing ten years ago. Policy documentation, processing, claims management, compliance and the like but our commission structure has not changed.”
Cooper noted if commissions were phased out, it would impact more than brokers.
“The only alternative is to charge an upfront fee for service,” Cooper continued.
“This is acceptable for the larger corporate risks who are held accountable directly for the service and advice they provide. They can nett back the premiums and save the client Stamp Duty and in some states any applicable Fire Service Levies and even the Terrorism Levy.
“If all insurance brokers stopped collecting commissions, what a huge income drop for Governments.”
