Welcome to Part 9 of our Employee Benefits Marketing series – Checklist Items for doing it properly and the myths associated with each step.
The 10 Point Employee Benefits Marketing Checklist was created to equip advisors and employers with effective tools and information that go beyond marketing simply based on price. Our checklist is now available in the CloudAdvisors Solution Library, just search for “CloudAdvisors” or contact an employee benefit specialist who is #poweredbyCloudAdvisors to share with you.
Checklist #9: Commission Disclosure Comparison
As we approach the end of our checklist, we have discussed information that an advisor should disclose to employers in the marketing report. In this checklist item, we are going to focus on the advisor and how their service directly impacts the employee benefit costs.
For a fair comparison of quotes, it is essential that advisors disclose all commissions for each benefit line. This disclosure provides the basis for employers to recognize and evaluate the important role of the advisor in managing employee benefits year over year.
One challenge is that insurance companies do not regularly report commission fees to employers. It is also not currently required for advisors in Canada to disclose their commissions to employers. It is however considered a best practice and recommended in code of conduct by most provincial insurance councils. There are many opinions on commission disclosure, but it should be noted that many top advisors do already have a regular practice to disclose commissions.
Licensed Advisors are compensated by a commission built into the rate for each benefit. When the employer pays their premium each month, the commission is calculated and paid to the advisor(s) on record for the policy. Advisors are typically paid monthly, but they could be paid annually based on the renewal.
Two of the most common forms of commission:
- Graded Scale is very common especially as a standard commission schedule for insurance carriers. A percentage is set out across different ranges of annual premium; as a group grows in premium, the commission grows but at a reduced rate (10% of the first $10,000, 9% of the next $25,000, 8% of the next $50,000 and so on).
- Flat Commission is a simpler commission calculation; it is directly paid as a percentage of the premium. Varying commission percentages are paid for different benefits, they can be as high as 10-15% for some lines, or as low as 3-5% for other benefits. Group size and premium volume are the dominant factors in setting an appropriate commission each year.
The commission has a direct relationship with benefit quotes, it adds cost to unit rates and influences renewal factors such as the target loss ratio. A flat commission will increase the target loss ratio by adding several percentage points to the loss ratio that impacts annual renewal rates.
Marketing Myth #9: Commissions are all Standard
False. Insurance companies will have standards however commissions will vary by provider, policy, benefit line, and advisor. Commissions are set by the advisor in their request for quote, this could be a combination of graded scale or flat amount and could differ for each benefit line (Life, Disability, Health, Dental etc.).
Marketing comparisons will show overall savings, but different commission levels may be hiding the true savings and true costs that will impact a plan long term. An advisor who does not disclose commission rates may affect the perception of cost or conceal a conflict of interest to employers. Premiums are impacted by commissions, and employers are directly paying for their advisor’s services. Demanding disclosure of all commissions annually is the first step in negotiating fair commissions and maintaining the ability for a fair comparison during marketing.
Fundamentally there are three decisions for an employer to make in any employee benefits marketing: what benefits are they going to offer, which insurance provider is going to provide it, and which licensed advisor is going to be selected to “broker” the policy and provide ongoing advice. Following the marketing checklist will allow advisors and employers to evaluate benefits, providers and advisors presenting those quotes. The disclosure of commissions will ensure employers recognize and compare the value proposition of advisors, negotiate fair commission, and have the basis for making a fully informed decision on all three levels.