Can brokers justify the commissions they earn?

Can brokers justify the commissions they earn?

Can brokers justify the commissions they earn? Darren Trott of Claims Central explains why brokers earn every cent of the commission they receive.

Vero’s recent decision to slash broker commissions on domestic business reminded me of a time many years ago, when a school buddy of mine lobbed a large rock at an even larger beehive. Within moments, the whole place was abuzz. My mate copped a number of nasty bee-stings, while the rest of us questioned his earlier judgement. He developed a severe allergic reaction requiring medical attention.

But this controversy has opened the door on a wider issue: 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? Obviously, it’s a complete coincidence that a recent ICA survey found more than 70% of Australian households are under-insured. 

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. Don’t forget there’s zero commission if you don’t get the letter of appointment, either.

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.

This effort is multiplied significantly when there’s a catastrophe. David Coe at Northwest Insurance in Bundaberg received nearly 1,000 claims from February’s devastating floods. David and his dedicated team helped their customers lodge and resolve insurance claims across a number of insurers, yet only two insurers bothered to provide direct ground support to David when his own business was submerged under two metres of floodwater.

Insurers pay an additional loading to loss adjusters during a CAT event, but there’s no additional commission paid to the broker. It doesn’t seem fair, does it?

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 bloody hard work for their commission, and you deserve every cent you get.

Oh, by the way. My school mate recovered from his multiple bee stings, but we always laughed at him whenever we heard the classic Ian Hunter song, “Once Bitten, Twice Shy”.
16 Comments
  • Scott 11/12/2013 9:10:24 AM
    All good points not too mention that these days submissions and claims are largely done on line. Whereas once upon a time you submitted a claim form, for example, to the insurer and they took it from there, these days in many cases you log on, enter the details (in full) appoint an assessor, upload the claim form and then pursue settlement. In other words - do the insurer's job for them. Far from reducing commissions, they should be increased to reflect a much greater input (time and therefore money) by brokers.
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  • Jak 11/12/2013 9:14:18 AM
    If I could attach images to this facility I could show you the 'professionalism' of broker-based business and claims evolving, which would confirm the broker neither got out of his/her seat, made any forensic or other professional inquiry about the information being provided by their client, and most certainly never ever conducted an on-site risk assessment of the property/business/farm...
    Curiously, when ever I hear that song which has a tag line'...cows with guns...' I always think of insurance brokers, but I suspect I am being unfair towards the cows...
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  • Lynda Davies 11/12/2013 9:21:10 AM
    Described beautifully Darren. Perhaps IB can do "a day in the life of an insurance broker" just to prove we earn our commissions!
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