Should your broker get a raise just because your premiums went up again this year?

As you wade deeper into the murky world of commissions paid out by insurance companies it is critical to keep a couple of things in mind:

1. The insurance company is merely acting as a pass-through entity when they send your broker a check every month.

2. In many cases when your insurance premiums increase so does the commission your broker receives for the next 12 months.

Let’s tackle the first bullet point; your insurance company merely acting as the middle man when it comes to paying your broker. Why? Because if you look at a typical commission statement it will reflect a month in which you paid your premium. Then next to that premium amount is usually a percentage. Say 3% up to 15% depending upon the line of coverage you are evaluating. To further educate yourself ask your broker to send you a snipping tool view of the commission statement so you can see for yourself. The point is the carrier will not pay your broker prior to you paying your premium. The carrier receives the premium, posts the premium and then the commissions department processes the commission on the next month’s commission statement. It is not the insurance company’s money; it is your company and your employee’s money. As a result, you have a right to know how much it is and how it is being paid.

Onto the second bullet point; your premiums go up at renewal so does your broker’s compensation in most cases. Usually commissions are a function of paid premium and are paid as a percentage of that premium. So, it stands to reason that if your health plan premiums increase 12% and your broker does not proactively tell the carrier to maintain the dollar amount they received in compensation then they too are seeing a 12% raise in their compensation. At times this presents a potential conflict for your broker; are they always looking out for the needs of their clients in terms of cost effectiveness, plan designs and the marketplace offerings?

The most effective way to mitigate this is to remove all commissions from all lines of coverage and ask your broker for a flat service fee agreement in which you receive an invoice from your broker monthly or quarterly, so you know your interests and the financial interests of your broker are aligned.