Paying Brokers for the Value Delivered
In the property casualty insurance business, it almost seems like the debate over commission transparency is perpetual. For the customer, the critical issue is whether the price for the product -- regardless of how it is paid -- provides the value to the customer that was promised and expected.
Carriers and brokers will design the kind of pricing structure that will meet the needs of customers. For some that's a commission. For others it may be a fee. And carriers, right on the policy declarations page, will tell the customers what the policy costs. Brokers, by and large, also tell the customers what they charge. Nobody is really against transparency today.
There are advantages to both kinds of payment mechanisms for the customer. With a commission, when prices decline, the amount paid in commissions declines too. But with a fee, the brokerage costs are set and can be budgeted with some certainty. It's a common trade-off.
"We believe in transparency," said Joseph Murphy, head of Distribution and Strategic Relationships for Zurich. But, even so, the lines can still get blurred. For example, as Murphy points out, there are services that brokers may provide to the carrier. Who pays for that? Some examples could be policy administration, underwriting and even some claims services.
"Pricing and commission questions should kept between the broker and the client. Brokers work hard and provide a valuable service to their clients. It's not just defined by the premium on the insurance. It's also about a broker's expertise," Murphy said.
Brokers should be paid for the value they deliver; whether it is by commission or fee should be decided between the customer and the broker.
October 1, 2013
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