MAKING IT SIMPLE How Do You Pay For Your Insurance Broker?

There are three principle ways in which an insurance broker can be remunerated. These are as follows:Commission (paid by the insurers) Combined Fee and Commission (paid by the client and the insurer) Fee (paid by the client) Commission Basis This is where your broker earns a percentage of your Gross Written Premium. This percentage is agreed between the broker and Insurer and does not involve any discussions or agreement with a client. These commissions do vary between Insurers and different classes of insurance and this can create conflict as illustrated by the following questions:Has an insurer been chosen for the right reasons (or just because they pay higher commissions)? What incentive is there to reduce premiums (when a reduced premium reduces a brokers earnings)? Are high levels of cover, indemnity or additional policies being included because they are appropriate (or because they increase a brokers earnings)? A Commission basis is not wrong, however, a client needs to consider if it is appropriate and reflects the work that is carried out on their behalf. (For information, some classes of insurance can attract 50%+ commission.) Under FCA rules, a client is entitled to ask for a summary of earnings and a broker is obliged to provide this information. Fee and Commission Basis This basis of remuneration is strictly forbidden, unless it is specifically agreed between a client and broker. There are instances where this basis may be appropriate, however, a client must be made aware of the situation and the approach specifically agreed and recorded in writing. Fee Basis This basis of remuneration is the most transparent, since it is openly agreed between a broker and client. The broker must provide the client with details of any fee (or the basis of calculating any fee). There are a number of advantages, but the prime benefits are:A client only pays the net premium and as a consequence Insurance Premium Tax is only applied to this lower amount; this results in an immediate Insurance Premium Tax saving. A broker is not motivated to maintain increased premiums, as their earnings are not reliant on high premiums the fee is based upon activity. Decisions around Insurers/Covers/Policies are unaffected by commission levels. Are you confused which basis is most appropriate for your business? If you would like a chat to discuss or clarify any of the above, please do not hesitate to contact us and we will happily visit and discuss your situation.

WHO CAN YOU CONTACT?

Emma Thornton Account Executive 07841 775699
emma.thornton@finchib.co.uk

Chris Finch Head of Office 07912 480262

chris.finch@finchib.co.uk

David Westcott Account Executive 07887 522748

david.westcott@finchib.co.uk

FINCH INSURANCE BROKERS LTD Sheffield Business Centre, Suites 5 & 6, Europa Link, Sheffield, S9 1XZ 0114 3033335