Uncovering the Truth Behind Insurance and Workers’ Comp Costs
Tags: insurance, career, news, learning
Published: 2024-03-27 17:05:31

Many insurance carriers offer commission splits to brokers and agencies on workers’ compensation and insurance in general. These can start as low as 6% and go to as high as 20% depending on the carrier, based on the market status and if the market is hard or soft. 

The amount of compensation to a broker can vary, and it depends on many factors, including 

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Whether or not the broker has a direct appointment with certain carriers;

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If they are sub-brokering or obtaining access through an MGA (Managing General Agency) wholesaler;

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The volume of business submitted with the various carriers; and

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The size of the premium, profitability and what the market is dictating. 

When the workers’ comp market becomes very soft – as it has been for the last few years – many carriers will offer higher commission splits to attract more business from brokers. 

The carriers do their best in these markets. They jockey for position to obtain new business by enticing brokers with higher commission splits. This can potentially alter the buying process and possibly limit the employer’s opportunity to obtain the most favorable terms and lowest premiums. 

## Transparency and Fairness in Insurance Commission Practices
If there is complete transparency in the process, the risk is submitted to the top four, five or as many workers’ comp carriers who will have the most competitive pricing and terms. This is based on the type of risk, loss history, payroll, claims services, payment plans, financial rating, loss control services and so on. The employer should receive a complete marketing summary when the proposals come back. This should include a list of all the carriers the risk was submitted to, any feedback from the carriers, special requirements, if any, and the pricing, including taxes and fees. Basically, the summary should show the client everything, including commissions, to substantiate that the advisor did their job regardless of the commission split.

What can potentially get in the way is how much commission each carrier is paying on new and renewal business. One carrier may only offer a 10% commission, another 12%, one at 15% or higher etc. The prudent thing to do is show the client all the proposals, including the lowest one, even if the commission is lower. In reality, some may be self-serving and only show the one proposal on which they will be paid a higher commission, not the marketing summary or the lowest premium.

Other possible factors are producers who are compensated by their agencies for new business they generate.  Depending on their agreement, they may get a higher percentage on new business and less commission at renewal. An example is receiving 35% of the new gross annual commission on new business written and 25% of the gross commission on renewals. In a case where a carrier is offering 15% to 20% commission and a producer is getting 35% or 3.5 percent of the annual gross commission, the employer may only be presented with a proposal that has a higher premium and higher commission instead of the lowest quote that may be paying a lower commission.

## Exploring Alternative Insurance Models
Many business owners don’t know self-insurance, self-insured groups, captives, alternative risks, or high-deductible plans exist or are available unless they are informed or introduced to them.

As the market hardens and carriers suspend writing new business, the number of carriers and opportunities to offer terms will reduce. The carriers who remain in the market may continue offering terms and pricing at higher premiums, paying much lower commissions than the soft markets. This reduces and limits an employer’s opportunity to find the most competitive pricing.

In a hard market where rates increase, and commissions decrease, employers often encounter a wider range of options, potentially leading to more competitively priced offerings at reduced commission rates. They are offered alternative choices like SIGS, CRMBC, high deductible plans, and captives. The reason is simple: brokers are inclined to prioritize acquiring new clients or maintaining existing ones in the competitive insurance market. They often opt for lower commission rates to secure or retain accounts rather than risking the loss of business by demanding higher commissions.

Employers must take a proactive approach in a market where insurance commission rates fluctuate significantly. By inquiring more about the insurance buying process, they can navigate through varying commission structures to find the most cost-effective workers’ comp and insurance solutions. This awareness empowers employers to make informed decisions, ensuring they receive the most advantageous terms possible.

If you’re concerned about transparency in your insurance and workers’ compensation pricing and want to explore your options with a trusted partner, CRMBC is here to help. Our team is committed to providing clarity and the best possible solutions for your needs. For personalized assistance and to discuss your specific requirements, please contact CRMBC at 559-558-4800 or email info@crmbc.com.
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