Insurance Broker Commission Disclosure; do you want to know?

There is an article on the Insurance Age website with the attention grabbing headline “Public want full commission disclosure”.

What immediately struck me is that in the now nearly 20 years that I have been a broker I have never been asked to disclose what we are earning.

As an Insurance Broker we get paid by either:

Receiving a commission from the Insurer with whom we place your insurance
or
Charging you a professional services fee in lieu of commission

We may also charge administration fees, receive commission from “add-on” products such as legal expenses cover or key protection, receive an overrider payment in respect of premium finance, and might even receive additional payments from Insurers and Finance companies for reaching account growth or profitability targets with them.

The commission we receive varies depending on a number of factors including:

• The class of business (Motor Insurance and Employers Liability Insurance are usually the lowest at 7.5% to 12.5% whereas property and package business is usually between 17.5% to 25%)
• The Insurer and our relationship with them
• Whether we have had to access the underwriter through a Lloyds Broker or other wholesale
• The amount of administrative work we do for the insurer. For scheme business for example where the broker carries calculates the premiums and issues the documentation the commission is obviously higher to take into account these costs.

There have been large fall-outs in the commercial insurance world where brokers, particularly the large consolidators, have insisted on very high levels of commission from insurance companies in return for their support. I remember when I briefly worked for one very large broker being quoted a commission rate of 50%! But these instances are rare and I strongly believe that the majority of independent insurance brokers base their advice on what is right for their client rather than the commission rate.

For the last few years our commercial renewal letters and quotations have clearly stated that “We act as your agent in negotiating, placing and administering your policy and dealing with your claims and for this work we receive a commission from Insurers.You are entitled, at any time, to request information regarding the commission we receive.”  In this time the number of clients who have mentioned commission disclosure and asked us what we are earning has been exactly nil.

What our Clients do ask us though, is to demonstrate that we

• understand their business and the risks it faces
• have identified and can obtain for them the cover that they need
• will look after them and their business throughout the period of insurance including importantly when they need to make a claim
• obtained from them a competitive premium from a financially secure, reputable insurance company

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