Are group benefits commissions creating a new Wild West?

by Contributor18 May 2018

by Blake Waddell

With the launch of G-19 on group commission disclosure, there are both similarities and differences with the Property and Casualty sector.  As a dual licensed broker, I wanted to look at some of those similarities and differences:

“We don’t want to be as regulated as the P&C sector” – Group benefit insurers

In my opinion, the only item subjected to greater regulatory oversight is auto insurance. This increased regulation is because the government mandates auto coverage, drafts auto insurance policy, and is the primary place for dispute resolutions in some scenarios. This is not applicable to house, group, or life coverage as each insurer creates their own policy wording.

“FSCO and or RIBO set commission rates” – Group benefit insurers and advisors

There appears to be a belief that P&C commissions are set by the regulators, this is not true. Similar to life insurance, rates for different products are set by individual insurers, term 10 is 40%, term 20 is 50%, etc. Intact, Canada’s largest P&C insurer posts their commissions directly on their public website https://www.intact.ca/on/en/broker-advantage/commissions.html. We feel when the insurer sets the rate of commission it creates a more level playing field for all parties.

“The extra work I do for my clients requires me to be paid more” – Group benefit advisors

We fully agree that people are always willing to pay a premium for value. A big issue we feel is that group benefits have no baseline due to the lack of a standard commission. A broker who sends a one page renewal letter may make double what a broker who sends a quarterly experience and does an in-depth review. We find it ironic that an industry obsessed with high inflationary factors that group benefits is has not changed crown scale to reflect brokers cost escalation throughout the years.  RIBO certainly allows brokers to charge more than insurer’s standard rates as long as it is not “disproportionate to the service provided as to be unconscionable” and proper disclosure is done by the broker, in advance. 

“What does the average broker charge?” – Clients

When discussing commission on the P&C portion of our business it is a much simpler conversation when you are able to show standardized commission rates set by the insurer. This almost negates the need for your client to “shop” your commission rate to other brokers. Our biggest concern is the downward pressure the current disclosure guidelines will have on group commissions. Without a standardized group benefit commission schedule, in some scenario’s it will certainly be a race to the bottom.  In our experience clients have no issue with commissions, as long as they are reasonable.

The reality is most people don’t look for the lowest price until they view the product as a commodity. You can’t walk onto a BMW dealership and expect them to beat the price of a Honda civic. People know and understand the value they receive when purchasing a luxury car. Commission disclosure without standardization is unique as it advocates commoditization without a known market price.

 

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