James Fletcher, director of Malton Road, believes that the industry could move down a fee-based path, which could impact brokers.
“Once an account hits a certain size there is an expectation that fees be fully disclosed and brokers will not be influenced by commission,” Fletcher told Insurance Business. “I reckon in five to 10 years’ time that is going to be legislated anyway – that brokers will have to either disclose commission on all types of policy, whether it is a retail or wholesale client, or they will say that it will be fee-based only.
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“It is going to hurt a lot of businesses because clients don’t necessarily appreciate what it costs to service an account and some clients don’t want to know how much you get paid.”
While many brokers will already have part of their business on a fee-based model, the hardening market could bring remaining commissions into question as clients seek lower prices.
Karen Hardy, principal of Acme Insurance Brokers, said that transparency is critical, regardless of a fee or commission model.
“I believe reasonable consumers expect to pay commissions within their premiums,” Hardy told
Insurance Business. “Hardening market conditions only affect a consumer’s purchase decision where a broker cannot explain the global and local factors that are contributing to said market conditions.”
With prices rising, Hardy said that service is key and added that brokers can look to use claims histories and broker notes, alongside client addendums, as a way to highlight the work done by a broker on the client’s behalf.
“Consumers will walk if they sense they are being taken for a ride,” Hardy continued. “Reasonable clients are not fazed by commissions if they perceive this to be a reasonable cost for the convenience the service has provided.”
Fletcher noted that for clients who question the value of a broker, it is important to stress the professional service an intermediary offers.
“You have an accountant, a lawyer in your business and all these other external people who are qualified in what they do and insurance is another service you need,” Fletcher said. “Clients that are questioning your value in the insurance market transaction might just be a savvy buyer or they could be someone that feels you don’t add value to the process.”
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