Insurance Broker 20% Commission
May 12th, 2020
The insurance hard market has hit commercial insurance policy holders very hard over the last year. Condominium policies have sky rocketed by over 100% for some Condo’s while the limit of insurance for a flood loss has reduced from full building limits to 5 or 10% of the total – often $2,500,000 per flood – with a large $500,000 deductible. The increases in rates have not been limited to Condo’s – with many property based risks (commercial offices, industrial and retail spaces) also feeling the impact.
Good risk management is a key to reducing your long term premium costs but these processes take years to reduce the overall impact on your premium and if you are one of the many organizations facing increased frequency and severity of losses then you are not seeing a flat or modest increase in your premiums.
Small and medium sized commercial brokers can help with shopping for insurance in the marketplace but many local commercial brokers may only have access to 3 or 4 commercial insurers and many of those may not want to insure your risk or the one that does wants to charge a hefty premium for accommodating the broker.
Bigger brokers have access to a larger choice of insurers but they also have a significantly higher overhead compared to the small or medium sized broker. They often focus on firms that pay $1,000,000 and more for premium.
This brings us to the commission for commercial brokers which ranges from 15% – 25% plus contingent profit commissions or override commissions. Up to one quarter of your annual premium could be going to the insurance broker – what services are they giving you that justifies paying 25% of your annual premium?
A lot of work is done by the commercial broker in the first year of acquiring the new business – assessing the clients risks, recommending coverage and shopping the insurance market for the best terms to beat the existing insurance broker. There is a lot of competition at this stage. What do they do for you in the second year?
Have you ever considered what happens to an insurance brokers commissions during a hard market when rates are going up? The total commission goes up in direct step with the increase in premiums. Imagine you are an insurance broker and your client has asked you to reduce the insurance premiums on their account – does this mean a corresponding decrease in your commissions?
Reducing your premium expenses reduces the brokers revenue.
There are techniques to better manage your risk financing by selecting the correct broker for your type and size of business (good commercial brokers usually have one or two specialities there are other negotiated options such as flat fee, etc.), assessing and designing the insurance program that meets your needs and nothing more, determining what risks you will self-insure, determining your own risk tolerance (more than just higher deductibles), selecting other ways to compensate your insurance broker (you don’t have to pay them the commission – for larger commercial accounts) and selecting the services that you want your broker to perform (marketing your account, claims advocacy, inspecting your locations, certificates of insurance and other services).
If you have questions please feel free to connect with me for a FREE consultation. Darius Delon, MBA FCIP CRM RIMS-CRMP (one of only 36 Certified Risk Management Professionals in Canada)