Buyers across the commercial insurance market are being shocked when they find out just how much of their insurance spend is being channelled to the broker in the form of undisclosed commissions and fees.
Hamilton based commercial broking firm, Hutchison Rodway say it is high time that brokers come clean with their clients and disclose their remuneration. Recent anecdotal evidence documented that client’s generally have no idea what their broker is taking from the deal. Further, it showed that on occasion the broker remuneration was over ten times their general expectation. Concerned over how the issue was tarnishing the industry Hutchison Rodway director Rene Swindley encouraged all insurance buyers to ‘ask their broker for a complete breakdown of costs’. Good brokers should have no problem with this and the buyer can then decide if the remuneration equated to good value for the services given. “We [Hutchison Rodway – Waikato] disclose our fees on all commercial business and always have”.
The situation is further exasperated by the recent premium increases following the Christchurch earthquakes. “Premiums are increasing and some business is harder to place; however, the bulk of accounts are simply renewing at the higher rates. As brokers are being paid on a percentage of premium they are profiting very nicely” explains Swindley. The calls from insurers for intermediaries (brokers and agents) to ‘share the pain’ have largely gone unanswered.
Brokers in New Zealand have resisted mandatory disclosure stating that people would be buying insurance based on price with little regard for the advice. The reality is that in Australia, where disclosure has been a requirement for around a decade, has shown that purchasing patterns have not changed significantly. There has also been an argument that disclosure would force greater compliance costs on the industry and therefore the customer; however, there has been statutory disclosure requirements placed on the industry in the form of the Insurance Companies Ratings and Inspections Act 1994, replaced with the Insurance (Prudential Supervision) Act 2010, with no significant cost to the intermediary market. Swindley says “let’s face it, the industry is pretty competitive, if a broker is not playing by the rules, everyone hears about it, even the regulator so compliance will not be an issue”.