Opinion: Can brokers justify the commissions they earn?
Guest author Darren Trott of Claims Central explains why brokers earn every cent of the commission they receive.
Are brokers overpaid? I mean, how hard can it be to do a broker’s job and earn a commission?
After all, brokers just need to make inroads against the growing trend for consumers and businesses to jump online and search for the cheapest price when buying insurance. Who needs a broker? It’s all about price, because most policies provide the same cover, don’t they? A click here and a click there, whip out the credit card and we’re done, right?
A broker only wears all of the cost and risk in sourcing new clients. The heavy investment in building relationships and referral networks is easy to swallow, especially when it may or may not result in a new client for the brokerage.
But the work is done when the new client is won over, right? Well, there’s just the small matter of conducting a risk assessment of the property or the business, working with the new client to identify all of the various exposures. They discuss workplace safety, industrial relations, and all kinds of business and financial exposures. There’s no commission at this point.
The broker has now developed a sound understanding of the risks involved, and can put his or her feet up. Except for putting the insurance program together, of course. Preparing submissions, gathering supporting documentation, detailing past insurance history and all of the leg-work expected by underwriters to enable them to consider underwriting the risk. Still no commission.
Next, the broker carries out the relaxing and stress-free task of negotiating with interested insurers, all vying to win the business and meet their new business growth targets, conversion rates or existing business retention rates. Renewal business frequently presents the broker with the challenge of selling an increased price to their client. It’s not the insurer who has this challenging discussion, it’s the broker.
After considering the various insurers’ offerings and prices, the client makes their insurance decision, based on the advice provided by the broker. The deal is done. Handshakes exchanged. Commission is finally earned. Time for a beer.
But wait. There’s more.
A claim event occurs. It could be a small matter which is easily resolved without much effort on behalf of the broker. Or it could be a multi-million dollar fire loss, as Lindsay Parkes from McKenzie Ross Insurance Brokers experienced a few years back. Lindsay invested a couple of hundred hours of his time in the aftermath of the devastating fire, ensuring his client’s business was finally back up and running, despite the trials and tribulations of dealing with loss adjusters, claims departments, builders and tradespeople, fire investigators, financiers, equipment suppliers and media.
Is further commission paid for this work? I believe not.
When you throw in the other risks of running a brokerage, like compliance, employment law, staff training, recruitment, performance management and the like, it seems to me that most brokerages put in a lot of hard work for their commission, and you deserve every cent you get.
by Insurance Business | Jan 14, 2015