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Why What’s Good News for Most Brokers Can Be Bad News for Their Clients

Sep 20, 2023

The good news for traditional brokers? Insurance commissions keep going up.

The bad news for clients? This can make it even harder to be sure that their brokers are truly representing them and acting on their behalf. That they’re getting the unbiased, objective advice and counsel they deserve—and are paying for.

Why should you care? Because of the conflict of interest commissions create in the insurance business (and why we’re on a mission to eliminate them).

When a broker’s income depends on the commissions they can earn by selling insurance, they are confronted with an unavoidable clash between their self-interest and the interests of their clients.

The more insurance they can sell, the more they will likely be motivated to do what’s best for them—even if it’s not necessarily what’s best for you.

This may seem to defy logic, but the current trend of rising commissions also appears to defy gravity as well.

Here’s why.

What goes up must come down, right?

Until now, that’s always been the case with insurance commissions.

Like any industry, insurance is subject to business cycles of expansion and contraction. Or what are called “soft” and “hard” markets.

Traditionally, hard markets have exerted downward pressure on commission rates. As premiums have gone up, insurers have been able to negotiate lower commissions with brokers. But the current cycle—which began around 2018—has defied that trend.

Recent years have seen commission ratios (the percentage of every premium dollar paid to agents or brokers) steadily increase. From 12.3% just ten years ago, they rose to 13.4% in 2021 and to 13.6% in 2022.[1]

Why the recent deviation from such a long-established norm?

Bigger. But not better for you.

Most analysts cite the relentless pace of consolidation within the industry. In 2019, there were 659 mergers and acquisitions of U.S. brokerages; in 2020, despite an early pandemic slowdown, that number increased to 764; and by 2021, it rose again to 992. Also increasing is the role of private equity in these transactions, from 52.2% in 2019 to 61.2% in 2021. [2]

Some of this aggregation has been ascribed to demographic shifts, as many smaller agents and brokers who established themselves in the 1950s, 60s, and 70s are retiring and seeking to cash out. Another factor is that, as businesses that are not capital-intensive, brokerages are especially attractive to various investors, especially private equity.

Whatever the reasons, the net effect is a market increasingly dominated by fewer and larger firms with greater power to negotiate higher commission rates on the premise that if one insurer refuses to pay the higher commission, the broker may move the business to another who will.

Independent—in name only.

Consolidation within the insurance brokerage business has so far been a winning proposition for both the acquirers and those being acquired. But for clients, it’s generally been a losing proposition. While an acquiring firm can tout its greater depth of resources to serve clients, the outcome is more often turnover, a loss of personal contact and understanding, with call centers replacing personal relationships built over time.

And as brokerages grow bigger, and the returns from commissions get larger, it also becomes even harder to make any credible claim of independence.

In reality, however, the idea of an “independent broker” has always been somewhat tenuous.

While such brokers may not have had contractual ties to specific property and casualty insurance carriers, their dependence on commission-based compensation has always presented an inherent conflict of interest. When the more a client pays in premiums, the more their broker collects in commissions, what incentive is there to seek out comparable coverage at a lower cost? For an “independent” broker to do so would be to cut their own income—hardly a likely outcome.

The Altus alternative: No commission, no conflict.

Altus Partners was created to be truly independent: to serve clients honestly and objectively. And the only way to do that is to eliminate commissions. (For now, we can be commission-free for corporate clients. Regulators, insurers, and competitors are doing what they can to keep us from offering the same objective, commission-free approach to our private risk clients, but we’re confident we can change that.

This idea of eliminating commission from insurance transactions may sound revolutionary, but it’s been available to large businesses since the 1960s. Why only to large businesses? Because they’ve had the leverage to tell their brokers that they will no longer pay them on a commission basis. What Altus has done is give every corporate client—regardless of size—the same advantage. By decoupling what we do from what we sell, we are free to act in every client’s best interest; to get creative in customizing the most appropriate coverage at the best available price; and to apply our knowledge and experience to provide them with genuinely unbiased and impartial advice.

We call this “the power of objectivity.” And not only does it give our clients the leverage and power they have long deserved, but it also gives us the ability to be what others have only claimed to be:

Independent—in every sense of the word.


[1] The Hale’s Report: Issue #12, Vol: 7 June 12, 2023