The commission debate is a farce and unnecessary

The argument that never gets answered satisfactorily is why a large firm gets better commissions paid and many a time more opportunities for delegated/binding authorities than any small firm could hope for.

Loss ratios are closely guarded secrets between the Insurer and the Broker but it doesn’t take a rocket scientist to work out trends affecting one firm will more than likely hit contemporaries.

The argument goes that it’s all a numbers game now and so long as the GWP is coming in, larger firms will justify the better terms. But the income stream from investments is not there and rates are still not going up.

As a small broker we have a good stream of sub-brokers and Introducers who like what we do and the service we give. It goes without saying that courtesy of the infamous Martyn Lewis the world and his father has been so conditioned to expecting lower prices that some conversations appear to go to a set format, i.e we offer the rate, and then are told it is cheaper else where.

What we see happening is that with internet quotes being used by end customers as supporting evidence for lower prices, regardless of the fact that some 25% of all quotes appear to be based on incomplete details or dare I say it deliberately misleading information, we are reaching a stalemate.

It gets to the point where we have to pass, and return the business which is upsetting. Yet ironically it is a cost effective move because the repercussions when the system eventually establishes the right details come through; followed by the endless requests for extra premium which get nowhere, lead to the eventual cancellation all this extra cost of time is saved. But it highlights what is still so wrong with the system.

What I don’t get is why folk would want to book anything irrespective of the truth - arguing that the information was taken in good faith- just to keep money slushing through their books for an effective loss. This is not having a go at brokers more so at Insurers for their complacency.

The figures coming through show the UK is not making anyone any money, yet there is a death wish to see off the enemy. The infamous regulator sees nothing wrong is subsidising personal lines if the end customer is getting better value. That argument has no credibility if the same end customer is paying through the nose for other insurance products, is anyone looking at that?

“The commission debate issue is such a red herring it is becoming laughable and making this industry look stupid.

The commission debate issue is such a red herring it is becoming laughable and making this industry look stupid.

When large contemporaries are being offered 30% commission with prerequisite instructions that no extra charges are to be added on, and then that is topped off with delegated authority to boot, what the hell is the right price the end customer should pay? The punter is left suspecting a conspiracy of mis-information is being run when it isn’t.

The problem we have had for too long is that the present commission structure is antiquated and serving no one any good. Lets face it a 15% commission of nothing is nothing!

Accepting premiums have gone down for the last 10 years in real terms, against increasing claims values and brokers actual operating costs. The only way to supplement the nominal commissions is to have extra charges added on so that the brokers are able to run as a going concern. Yet this is frowned upon by those who have never seen what really happens in a brokers office let alone run one.

Yesterday I was in a major supermarket hearing a loud speaker offering 12 months car insurance for the cost of 10, no comparable prices were volunteered just a bland statement and punters could not have failed to be initially impressed by the ‘offer’. Its all a bit like the ‘up to’ 75% off malarkey!.

Yet is this TCF? I doubt it, and is anyone going to do anything about it certainly not the regulator! so more people get sucked in on the basis of trust that is summarily abused.

What with the misleading invite and the delivery of misinformation to the insurer the whole system is now in a mess and needs a complete overhaul.

I have already called here for an investigation into the operations and remit of the FSA, as its present worth is showing itself as more of a handicap than offering any intrinsic value.

“I also propose that commissions are removed altogether and we all work off net prices supplied from Insurers

I also propose that commissions are removed altogether and we all work off net prices supplied from insurers. The broker or intermediary can then offer a net price to the end customer as they want.

This works perfectly well in foreign exchange where the world and his father is selling their service with ‘no commission’ even though the end customer can see a larger ‘spread’ between buying and selling prices than there ever was pre ‘net dealing’.

The customer is more than happy with the arrangement because there is easy access and they just get the final price which is all they really want.

By adopting this format, the argument over commissions evaporates in one go and we are left for basic efficiencies to deliver to the customer.

How difficult is that? The customer is now so driven by price they get what they want, and all that must be supplied are clear and obligatory bullet points of what is and is not included.

This need not just be for personal lines alone but for all commercial policies as well. If it makes all lives easier, absolutely and less costly most particularly for the end customers and ensures the regulator addresses issues like getting its own house in order first.

Could it happen? Without doubt. Will it happen? that will depend totally on when the regulator wakes up!

Robert Marshall is a director at Trident Insurance.