Blanc warns on commission disclosure:: Insurance Age
Tuesday, 9 October, 2012 3 Comments
I would like to be a bit more specific than Mr Blanc. THE ‘danger gap’ is the difference between what brokers are PAID and what their clients’ perceive they are worth!
That is, what value does a client place upon the quality of advice and service they receive from their broker?
It should tell the commercial/corporate insurance-buying public all that they need to know, that the industry has been trying to resist the “threat” of commission disclosure for a long time…
…surely TRANSPARENCY is only a threat if you have something to hide!?
For Mr Blanc the “danger gap” was the space between what brokers earned and what clients perceive that they earned.
Biba did disappoint (rather than surprise) when Eric Galbraith, at their conference in May this year, vowed to resist EU regulatory calls for “hard disclosure”. I was not impressed and voiced my opinion at the time!
For an industry involved in risk, we have become remarkably proficient at lecturing others on the subject whilst failing to take our own advice! Ignoring or avoiding inconvenient truths about our own shortcomings is standard practice.
In the intervening months I have been horrified by the attitude of some of my peers whose attitude tends to be along the lines of “we reckon we’ll get another 5 years out of it”! How reassuring that strategy must be for those in the organisation just starting out or building their careers…and all the time we have the hollow rhetoric of The Aldermanbury Declaration, calls for greater Professionalism (is that the Vinny Jones or Messi variety?) and frequent questions about how we attract fresh talent into the industry!!!
Of course clients do, already, have the right to ask about earnings but it is certainly NOT a practice that is ever encouraged because there are scary targets to be met in order to sustain some top-heavy, debt-laden, leviathans who appear clueless as to how to execute a change that may help them survive the change of climate.
They MUST evolve or risk extinction because there is so little chance that the financial needs of their business model will match with their clients’ valuation of the service they receive.
Their staff will seize opportunities to move to a more appealing and stable environment.
The insurer relationships that served them so well – but were so freely and frequently abused – on the way up, cannot (even if they wanted to) maintain commissions at a level sufficient to assure survival of flawed models when the harsh Regulatory spotlight falls on them. Axa were at the forefront of excessive commissions and funding consolidator growth…because it suited their own (insatiable and unsustainable) growth strategy. Now that they have ‘ridden’ that particular wave (right up onto the beach) we will see who has been swimming naked, when (not if) they &/or one of the others who adopted the copycat strategy, finally, admit that they can no longer sustain the commission levels upon which their ‘key partners’ have become dependent.
In truth major insurers have needed the means to curb commissions for some time BUT, left to their own devices, will only do so when it doesn’t threaten to undo the work they have done i.e. when the risk of losing tranches of business to competitors subsides. They know the importance of timing, for their own market position and for the very survival of the ‘addicts’ they have created. The threat of transparency, to the sales organisations that dominate what was the domain of professional brokers, is very real. Forgetting the flimsy argument of “work transfer”, how could Towergate or similar (and their insurer partners) attempt to justify commission levels that, in some classes, equate to an increase in customer spend of up to 100%!? So keep watch for an alternative, insurer-led, strategy that enables them to safeguard their market share. Alternatively the clamour (real or manufactured) for increased disclosure may just help them out.
Transparency is good news for customers from the cost-savings of a reduced regulatory burden. Professional brokers should welcome the opportunity such would represent.
The majority of the current market has moved so far from a philosophy of “underwriting for profit” [quality] to one of chasing market share [quantity], that it is based upon unsustainable premiums, unjustifiable commissions and unrated or underrated exposures.