Will consumers be willing to pay insurance brokers fees for services?
By BenefitPlace.biz - BPTradeshow.com
BenefitPlace / BP Trade Show
Will individuals, organizations, employers and employees be willing to accept a fee-based compensation model for compensating brokers given pending health care reform, additional regulation, and shrinking and disappearing commissions?
We have long been discussing the feasibility of a shift from traditional commission- and renewal-based compensation to a fee-based system. Our interest in this shift pre-dated health reform, ratios, etc.
As carriers have reduced the systemic commissions and renewals, we have noted increased interest and discussions on this topic among insurers and brokers within social media networks such as LinkedIn, ProducersWeb, Insurance Campus, and in the insurance and benefits related media.
What we did not address in these discussions was the willingness of the marketplace to accept a fee-based model of compensation.
Throughout the history of insurance and benefits, the carrier of the policies, plans, programs and related services compensated the agents for their capacity as distributors. The insurance companies provided training, materials and back-office services to support the brokers. Generally, they compensated brokers with lucrative commissions and renewals.
An entire industry evolved based on this compensation model. Many individuals lived well and many companies thrived.
The buyers of the policies, plans, programs and services did not directly pay the commissions and renewals. For the most part the buyers were not aware of the amount of compensation the brokers received or considered that the commissions and renewals were built into the pricing and premiums by the providers. Even when the premiums began increasing dramatically year after year — outstripping inflation and wage increases — few buyers and decision-makers considered that the higher premiums translated into higher commissions for the brokers.
Transparency never was, and still is not, the favorite topic of the carriers or brokers.
What is often lost in current discussions is that brokers play an essential role in bridging the major gap between the providers and the buyers of the policies, plans, programs and services.
The task of the carriers is to manufacture and profit by these policies, plans, programs and services. For the most part they answer to stockholders and success is measured by: revenue growth, dividends and earnings. The brokers, on the other hand, must search out and work with potential buyers. The task of prospecting can be time consuming and costly. Most brokers assist the individuals, organizations, employers and employees in determining areas of risk; identifying solutions to mitigate the risk; selecting appropriate carriers who have developed the coverage required; and in finding the premium or cost based on the prospects’ price points.
The broker must search out and work with the potential clients on a personal basis — whether an individual or large multi-faceted organization. In many cases several brokers must work together to package the appropriate tools to protect the potential client against risk. Unfortunately, these efforts, often developed behind the scenes, are not fully appreciated by the carriers, the buyers and certainly not the state or federal government entities.
To make a shift to a fee-based model, these levels of understanding must change and become informed.
Making the shift to a fee-based model may require a concerted effort on the part of the brokers, with the assistance of providers, to better inform individuals, organizations, employers and employees about the roll the brokers play in the process of mitigating risk and providing affordable protection.
For brokers to survive and continue to provide their valuable services, a shift to a fee-based model in the insurance and benefits industries may be required. And within the financial services industries this is not the first time a shift to a fee-based model was necessary.
I’ve been involved in the financial services sector for 30 years, and in that time I witnessed another similar type of shift. Discount brokerage and online services took their pieces of the pie leaving traditional stock brokers with a group of clients who were sincerely looking and willing to pay for advice. Traditional stock brokers who shifted to the fee-based model and became consultants have been doing extremely well and enjoying the positioning of trusted advisors.
The same may hold true for the insurance and benefits marketplace. Individuals, organizations, employers and employees who are generally too busy to research, select and implement integrated insurance/benefits plans, may gravitate to — and be willing to pay for — broker advisors who are willing to invest the time to work with them to meet their specific needs. The amount of time and expertise required would dictate the fee charged.
I think the biggest question may be how to structure the pricing. Using the financial services model which looks at a fee plus percentage of assets under management might have some application. Our research team is looking at the concept of a fee plus percentage of insurance or premium under management for brokers and consultants in the insurance and benefits industries.
As the impact of reforms take place and shrinking commissions unfold, it will be interesting to see how the broker, provider, and the buyer segments act and react.
If you would like to contribute your ideas to our research, please share your thoughts below or send us a message.
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