By Charlie Wilmerding, Founder & CEO
It’s a conflict of interest that has persisted for well over two hundred years.
Consumers want the most effective and affordable insurance available. But to get it, they’ve traditionally had to turn to agents and brokers whose income rests on collecting the highest possible commission on the sale. Depending on the coverage being purchased and the size of the premium, these commissions can range anywhere from 5% to 35% of the premium.
To compound the issue, there is no reasonable connection between the amount of premium the consumer has to pay and the level of service the agent or broker actually provides.
For example, an insurer may charge three times as much to cover a house in a catastrophe-prone area than for one in a safer location, enabling the agent or broker to earn three times the commission. But the amount of time and effort they must put in on the purchaser’s behalf is often the same in either case.
And once the policy is sold, it’s naturally in the interest of the agent or broker to protect their commission by keeping the premium the same or even increasing it over time.
Another option: But until now, with a catch.
The alternative is for agents and brokers to be paid a flat fee in lieu of commission.
This not only reduces (sometimes significantly) the brokerage expense paid by the client but, more importantly, eliminates the conflict of interest that comes with commission—freeing the broker to negotiate the most favorable terms, conditions, and pricing with only the client’s best interests in mind.
Flat fees for service have been around since the 1960s, when the largest companies in the country realized they commanded enough clout to demand that their brokers eliminate commissions and the frictional costs they added, and instead provide advice, creative ideas, and access to insurance markets for a fee that more accurately reflected the level of service and value added.
Since then, all Fortune 500 companies and some middle market firms have followed suit and demanded that they, too, be given that same leverage with their brokers. This is good news, but it doesn’t go nearly far enough.
When consumers push brokers to provide their services for a fee, what they usually end up paying still amounts to nothing more than a slightly reduced commission.
But that’s not how Altus Partners does business.
Not just different. Better.
As the only 100% commission-free corporate insurance broker in the US, we measure ourselves not by how much we sell you but by how well we serve you. Altus Partners starts every client relationship with a clean slate, including how we arrive at your fee.
Rather than cloaking commissions in sheep’s clothing, we developed a proprietary model that is based on a thorough analysis of each client’s unique wants and needs, the level of service they require, and the characteristics of their business, such as their industry, number of employees, and location(s) of their operations, to name a few. To ensure objectivity in the process, we don’t need to ask what their current premium costs are and how much insurance they currently buy—information that a traditional broker could use to discover a client’s commission costs and undercut the competition just to make a sale.
The result is a transparent fee that enables clients to more effectively manage their insurance and risk-related costs while fully protecting their interests.
Making commissions a thing of the past—for once and for all.
Commission, along with the conflict of interest that goes with it, represents an unnecessary and expensive frictional cost that should have been removed from the insurance business long ago.
It’s time for the insurance industry and its regulators to get behind the complete elimination of commission from all insurance transactions. It’s in everyone’s interest: consumers, insurers, and even (ultimately) agents and brokers. Doing so will result in greater transparency and, even more importantly, objectivity, generating newer creative ideas and more cost-effective outcomes.
By eliminating commissions for our corporate clients, we at Altus Partners have already taken the first step. Unfortunately, and as much as we’d like to, prevailing rules and regulations prevent us from doing the same for individuals and families as well. But we’re working to change those rules—and the sooner this happens, the better it will be for everyone.
Altus is here to help.
To give you an idea of the value our knowledge and experience can provide, Altus Partners would be pleased to offer objective guidance, advice, and answers to whatever questions you may have about your insurance and risk management program. Just give us a call.