The new commission model announced by Marsh and Willis has reignited the debate on broker remuneration. James Dean reports
Recent weeks have seen moves by Marsh and Willis to add additional commissions on fee-based business. The charge, a flat 2.5% commission, is not new. Aon has been following this approach since 2001, and other national brokers are thought to be following suit.
But the charge is nonetheless controversial and has led to confusion. The market is divided: some are angered by the move, while others shrug their shoulders, calling it unwanted but inevitable.
There is also uncertainty on a number of issues. Where does the charge fit in? Why has it been introduced? And who ultimately bears the burden for the charge – the insurer or the client?
So how does the charge work? Aon charges a 2.5% brokerage on fee-based business, which is paid for by the insurer, while the client pays an unchanged fee to the broker. With fee-based business, the broker will normally collect the premium from the client and pass it on, in full, to the insurer.
Aon does not levy the charge on commission-based business, where the broker collects the premium, takes its pre-agreed commission and then passes the remainder on to the insurer.
The commission recently introduced by Marsh, and the commission that Willis will introduce in the coming months, is understood to be identical to Aon’s.
Brokers say that the value they add to fee-based business, by providing extra services, needs to be reflected in a charge â€“ and a transparent charge, at that.
A spokesman for Marsh said: â€œThe key issue is transparency. Unlike the significant levels of contingent commission still being accepted by most UK brokers, Marshâ€™s decision to charge a uniform 2.5% brokerage is fully transparent and disclosed to clients as part of the total cost of a risk.
â€œWe continue to believe that it is in the best interests of our clients that all UK brokers should spontaneously disclose all the remuneration they earn.â€
Brokers say that the introduction of the commission reflects changes to their working practices: as fee-based business tends to involve more services being provided by the broker to the client, the fee is charged to the insurer in order to account for this.
Some insurers do not believe this is the sole reason, saying that brokers have a history of introducing extra fees when markets soften, in order to maintain income.
A broker source disputed claims that they can bully insurers into paying the commissions. â€œBrokers want good relationships with insurers too. We canâ€™t just say to insurers that we wonâ€™t give them the business.â€