Purchasing insurance involves much more than just finding a premium you can afford. You want to know roughly how your broker gets paid, and whether that impacts the service you are getting.
This is the reason why one must compare insurance broker fee vs commission. The payment models are different and hiring what model works for you will depend on your coverage, the services you need, and the terms of your contract.
Commission: The Cost That Builds Up from the Premium
With a commission arrangement, the insurer pays the broker after placing the policy. Typically, the payment is of a fraction − say 7% − of the premium.
Example of this is if the annual premium for a policy is $2,000 and the commission agreed upon is 10%, then $200 goes to the broker. That does not mean that the broker sends you a separate bill of $200. This is a portion of how the insurer prices its products/service and compensates its producers.
Commissions may also continue at the time of renewal in a policy. Brokers are incentivized to keep relationships long-term but the arrangement should still be queried as this is not ideal.
Fees: A Payment for Receiving a Service
The fee arrangement is different. A broker may charge the client directly for services that are agreed upon, as opposed to relying solely on insurer-paid compensation.
These services can include:
- Risk management advice
- Claims consultancy
- Complex commercial insurance work
- Other professional services
For example, a company might pay a broker an additional fee for assessing the company’s insurance risks and developing a coverage plan. The cost should be outlined before any work has gone ahead.
Which Model is Better?
The question, insurance broker fee vs commission, has no clear winner.
Then there are the percentage installations, which work better for someone who wants assistance in setting up normal coverage with no additional bill for the service. A fee arrangement can help when a client is looking for specialized advice or desires a clearer idea of what services are being paid for.
The real question is not, one which costs less? The question is simply, “What are the services that you are receiving and what additional broker remuneration?”
Things You Need to Know Before Saying Yes
- Who pays you?
- Are you getting commission, a charge OR both?
- Does the fee come on its own or is added to the insurance premium?
- What services are included?
- If not, do you get a written statement about why?
Well-enough, so that instead of guessing, you can compare arrangements with clear answers.
The Bottom Line
The information about insurance broker fee vs commission can assist you in taking a better decision about your insurance. A broker should be straightforward about how s/he is paid, and the service you receive should fit your situation.
Read the payment process carefully before you sign an agreement. If you are in doubt about a fee, or commission agreement, ask the broker for an understanding of it in layman terms.