From the June 2008 issue of Treasury & Risk magazine

Making Brokerage Dollars Go Farther

Risk managers at companies large and small continue to move away from commission-based brokers for their insurance needs, with about two-thirds of 1,500 companies surveyed opting for brokers who operate on a set fee basis, a new study reports. Those companies making the switch, however, are often not taking advantage of the many extra services available from those fee-based brokers.

The study, conducted jointly by the Risk and Insurance Management Society (RIMS) and by Advisen Ltd., a New York and London-based risk advisory firm, found that the average commission for corporate insurance in 2007 was 10.5% of premiums, while the typical flat fee was running at about 8.8% of premiums.

"There is clearly a cost advantage in moving to a fee-based broker," says David Bradford, editor in chief of Advisen, "though with premiums coming down, that relative advantage could diminish." Bradford also notes that companies could get more services from the broker for their fixed fee than many were bothering to ask for.

"IT companies are the least likely to buy insurance from commission brokers, and are the best at getting services out of their brokers," Bradford says. He adds that it is possible to get program structure benchmarking, premium benchmarking, quote comparison and other services, often at no extra charge, just by asking. "I think many companies just don't know to ask, while others don't understand the value of those services."

Even if some services are not included in the base fee, it can be possible to get them by paying a bit more, he suggests, which might be money well spent. Among these add-on services companies are buying are property loss control, claims administration, captive management and actuarial services.

Just 5% of IT companies get their insurance these days on a commission basis, according to the survey, compared with 70% of financial sector companies. In general, with the insurance market soft, Bradford says buyers are in a good position to bargain, and bigger companies are in the strongest position. "In general, large corporations are getting a lot more out of their brokers these days than smaller companies are getting," says Bradford.

Comments