With the launch of our new website and trading platforms, I thought we would start the blog with a rather contentious and delicate issue - how we earn our money.
First things first, lets dispel the myth ‘we charge what we like’; in days gone by this may have some truth and certainly there may be the odd broker that will increase their fees or commission knowing that either they are not under competition or the competitions price is significantly higher.
With the regulations set by the FCA, and our fee structure having to be clearly advised and declared prior to any quotation/cover being given; I feel the customer can rest assured they are not (with Liability & General anyway) being charged excessively on the fee or commission income.
There are situations whereby brokers will reduce commission to meet a competitors premium, a valid point could be questioned, why was the lower price not offered first time?
Now for the informative part: what is a fee and what is commission? Lets start with fees. There are two main types of ‘fee’ that may and can be charged.
1. Administration Fee (admin fee)
2. Broker Fee / Insurer fee
Admin fees are generally lower in amount and charged against specific items, for example documentation issue, duplicate cover notes or placement fees. Typical admin fees are £25 rising to £125 depending on the broker and type of cover. Insurers can charge in addition to you broker such fees - which means you are in essence paying two admin fees for the same policy.
Broker Fees are or at least should be charged in lieu of commission and therefore carry a higher cost. Its is important to establish early in your discussions whether your broker is working on a fee basis or commission (or both). We have seen policies that will pay a broker 20% commission and they are still adding a further 20% - 30% on in fees - am i contradicting my earlier statement here???
The benefit of knowing the fees being charged have several layers. firstly, this can assist in the lowering of an insurance premium. A general liability insurance policy carries anywhere from 10% commission to as high as 45% commission. If a broker waives his right to the commission and this in turn if discounted from the annual premium, firstly the Insurance Premium Tax (IPT @6%) is slightly lowered and secondly the fee that is then charged for the management of the policy is then negotiated and declared. Arguably the fee should be realistic of the duties your broker carries out on your behalf.
Commission is the hidden animal. Most commission is negotiated with insurers and can be specific to each policy and type of cover. for example Employers Liability commissions are generally lower than Property Insurance due to the high nature of the cover and possible claims that develop.
Brokers command higher levels of commission with insurers with whom business is transacted with on a regular basis - similar to the discounts contractors can negotiate with suppliers/manufacturers on bulk orders.
If you are paying an annual insurance bill of £10,000, have no claims and your broker doesn't visit you (ie will send you a renewal notice yearly by post, maybe a telephone conversation) would you expect to be paying them 30% commission on that policy - or just over £3,000?! However, if your broker offered you an offer of £7,000 plus £1,500 broker fee - would this appear more realistic and ‘fair’. Should you have a bad run of claims and the requirement for quarterly visits and risk management advice arise; you wold expect your broker to renegotiate their fee.
I feel I have give too many sweets away, but this topic is important to me and it should be to you, the insurance buyer - please feel free to contact us and ask the question “are we paying too much on our insurance”?
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With the launch of our new website and trading platforms, I thought we would start the blog with a rather contentious and delicate issue - how we earn our money. First things first, lets dispel the myth ‘we charge what we like’. Read More >