HomeThere are a number of separate methods for setting pricing and earning revenues for your insurance brokerage business. Generally, brokers use a commission model or an advisory fee model.
Commission Model
Generally, insurance brokers are not paid commissions directly by the client, but are paid commissions by the insurance companies whose products they sell, much like a real estate broker. However, as these commissions are calculated as a percentage of the premiums sold, there is some incentive for the brokers to sell more expensive insurance to clients. Also, although independent brokers can theoretically sell the products of any insurance provider, they may choose not to. This is because insurance providers pay different commission rates, providing an incentive for a broker to try to sell products of the companies that pay higher rates, regardless of the client's best interests.
Many insurance brokers who work on a commission model are trustworthy and impartial agents, unaffected by these potential conflicts of interest. However, even in these cases, clients who understand how the brokers are paid may see bias where it is not. To win the trust of clients, brokers must be transparent about how they make their recommendations and how they are paid.
Advisory Fee Model
By charging clients set advisory fees for the service of finding the right insurance for them, an insurance brokerage positions itself as an impartial expert, whose services are valuable beyond simply setting up deals. This avoids the appearance of conflicts of interest of the commission model, but will be more expensive for clients.
The advisory fee model could be based on a set fee for a suite of services, or on an hourly rate. The hourly rate might be especially useful if the company is positioning itself as a combination insurance brokerage and financial advisory service.
Are you looking for more tips on
