We at BenefitPlace (.biz) and BP Trade Show (.com) have long been discussing the feasibility of a shift from traditional "Commission and Renewal Based" compensation to a "Fee Based" system. Our interest in this shift pre-dated Health Insurance Reform, Ratios, etc. As Carrier/Providers have reduced the systemic commissions and renewals, we have noted increased interest and discussions on this topic among Insurers and Brokers within Social Media Networks such as Linkedin, ProducersWeb, Insurance Campus, and in the Insurance and Benefits related media!
What we did not address in these discussions was the willingness of the marketplace to accept a "Fee Based" model of compensation! Throughout the history of Insurance and Benefits, the Carrier/Providers of the Policies, Plans, Programs and related Services compensated the Broker/Agents for their capacity as "Distributors". The Insurance Companies provided training, materials, and back-office services to support the Brokers. Generally, they compensated Broker/Distributors with lucrative commissions and renewals. An entire Industry evolved based on this compensation model! Many Individuals lived well and many Companies thrived!
The "Buyers" of the Policies, Plans, Programs, and Services did not directly pay the Commissions and Renewals. For the most part the "Buyers" were not aware of the amount of compensation the Brokers/Distributors received or consider that the commissions and renewals were built into the Pricing and Premiums by the Carrier/Providers. Even when the premiums began increasing dramatically year after year - outstripping inflation and wage increases - few buyers and decision-makers considered that the higher premiums translated into higher commissions for the Broker/Distributors! "Transparency" never was, and still is not, the favorite topic of the Carrier/Providers or the Broker/Distributors!
What is often lost in current discussions is that Broker/Distributors play an essential role in bridging the the major gap between the Carrier/Providers and the "Buyers" of the Policies, Plans, Programs, and Services! The task of the Carrier/Providers is to manufacture and profit by these Policies, Plans, Programs, Services. For the most part they answer to stockholders and success is measured by: Revenue Growth, Dividends and Earnings.
The Brokers, on the other hand, must search out and work with potential "Buyers". The task of "Prospecting" can be time consuming and costly! Most Brokers assist: the Individuals, Organizations, Employers, and Employees in determining areas of "Risk"; identifying solutions to mitigate the "Risk"; selecting appropriate Carrier/Providers who have developed the "Coverage" required; and in finding the "Premium or Cost" based on the Prospects "Price-Points"! The Broker must search out and work with the potential clients on a personal basis - whether an Individual or large multi-faceted Organization. In many cases several brokers must work together to package the appropriate tools to protect the potential client against Risk. Unfortunately, these efforts, often developed behind the scenes, are not fully appreciated by the Carrier/Providers, the "Buyers" and certainly not the State or Federal Government Entities! To make a shift to a "Fee Based" model these levels of understanding must change and become informed.
Making the shift to a "Fee Based" model may require a concerted effort on the part of the Broker/Distributors, with the assistance of Carrier /Providers, to better inform Individuals, Organizations, Employers, and Employees about the roll the Broker/Distributors play in the process of mitigating risk and providing affordable protection! For Broker/Distributors to survive, and continue to provide their valuable services, a shift to a "Fee Based" model in the Insurance and Benefits Industries may be required! Within the Financial Services Industries this is not the first time a shift to a "Fee Based" model was necessary!
Having been involved in the Financial Services Markets in the '70s, I witnessed the same type of shift. Discount Brokerage and Online Services took their pieces of the pie - leaving Traditional Stock Brokers with a group of clients who were sincerely looking, and willing to pay, for advice. Traditional Stock Brokers who shifted to the "Fee Based" model, and became Consultants, have been doing extremely well and enjoying the positioning of "Trusted Advisors"!
The same may hold true for the Insurance and Benefits Marketplace! Individuals, Organizations, Employers and Employees, who are generally to busy to research, select, and implement integrated Insurance/Benefit Plans, may gravitate to - and be willing to pay for - Broker Advisors who are willing to invest the time to work with them to meet their specific needs. The amount of time and expertise required would dictate the "Fee" charged!
I think the biggest question may be - How to structure the pricing? Using the Financial Services Model which looks at a "Fee" plus Percentage of "Assets Under Management" might have some application. Our research team is looking at the concept of a "Fee plus Percentage of Insurance or Premium Under Management" for Brokers and Consultants in the Insurance and Benefits Industries.
As the impact of reforms take place and shrinking commissions unfold, it will be interesting to see how the Broker/Distributor, Carrier/Provider, and the Prospect/Buyer sectors act and react!
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