Plenty of long-time health insurance brokers have built their practices around commission-based products, and they’re inclined to continue doing business the way they know how. But according to one consultant, this tendency of going through the motions could be unhealthy.
“Brokers have been so geared to receiving commissions … that they’re like a bunch of sheep walking around,” Karen Kirkpatrick, owner of US-based brokerage consultancy On Your Mark Consulting, recently told InsuranceNewsNet Magazine. “They don’t know what their return on investment is for the agency per producer, per account executive — even per client.”
After determining the ROI from their clients — Kirkpatrick tells her clients to do time tracking to really see how the smallest and largest revenue-generating clients stack up — brokers can more effectively prioritize between high-ROI, medium-ROI, and low-ROI clients. Operating costs, as well as their history of commission earnings, are also critical to know.
“If you’re looking at 2017 commissions to get an estimate of ROI for a client, then you want to look at five years prior and see what your commissions were,” she said. “Most of my clients, when they’ve done this, see they’ve probably taken a 40-50 percent hit in their commissions, yet they’re including more products and services.”
At that point, her clients will likely decide to take a step toward a fee-based model. But before brokers can build their fee system, they have to decide on a goal for their agency’s earnings. “Some say, ‘I would like to make what we made five years ago.’ … Some say, ‘I just want to double where we are right now,’” she said.
Establishing fees requires brokers to consider all their products and services, their commissions data, the time tracking, and per client ROI. It can be “an educated guessing game,” with potential revenue breakdowns being generated based on different fee amounts being considered; for group clients, Kirkpatrick recommended that fees be established on a per employee/per month basis.
“This will allow you to consolidate and provide a flat-rate fee if a group client wants an all-inclusive monthly fee or an annual fee,” she said. “But at least you have the hardest part done, which is determining the per-employee fee.”
Brokers working only with life and health insurance could start with a so-called “Tier 1 model,” with a baseline amount that covers operational costs and a 10% to 15% profit; it then becomes a matter of deciding what services will be included within the fee. Any services or products not included in Tier 1 could then be added to higher-tier plans with correspondingly higher fees.
When it comes to selling a fee-based structure to clients, Kirkpatrick said the key is transparency. Brokers could explain that to offer clients more choice, they would like to include products without commissions, but would incur costs that have to be covered. Alternatively, brokers could tell clients that commissions covers enrolment meetings and assistance in finding the most suitable plan, and enrolment assistance or claims advocacy would entail additional fees.