Can I see the bill? Understanding broker commissions

February 8

Imagine, as a business owner, you’re meeting a consultant for the first time. At this meeting you make friendly chit chat about the weather, your kids’ most recent hockey games or your weekend plans before getting down to business. A proposal is discussed, a plan is put in place, and then you shake hands and part ways.

Sound familiar? Probably, but there’s one major discussion point missing from this picture — and that’s the important part that revolves around cost. How much is this consultant charging to provide his or her services? Few people order off a menu in a restaurant without at least glancing at the cost, fewer people still buy a car or a house without care or concern for the dollar amount so why would a business owner hire a consultant without a thorough understanding of the cost?

But too often that’s exactly the kind of arrangement made between business owners and their employee benefits broker. The total commission amount that a benefits broker earns from each benefits package is typically buried in the cost of the business owner’s premiums; meaning that they don’t actually know how much they’re paying. But it’s not like that when you work with Thorpe Benefits.

Disclosing broker commissions

At Thorpe Benefits, we believe in full commission disclosure — and industry changes, being introduced by the Canadian Life and Health Insurance Association (CLHIA), will regulate just that.  Coming soon (estimates are January 1, 2019), all insurers will be required to disclose, in writing, any form of direct, indirect or in-kind compensation that they have paid or provided to intermediaries.

According to the CLHIA, these new guidelines will “strengthen the industry’s practices around compensation disclosure and will contribute to a customer-focused distribution system.”

To Thorpe Benefits’ existing clients, this may seem like an unnecessary regulation — after all, we are always upfront about our commissions. We don’t believe (and have for many years) in burying commission information in the premiums of an employee benefit package. Instead, we believe that it is important to separate the commission cost from the premium cost in order for our clients to effectively evaluate the success of the plan and the value provided by the broker (in this case, us.)

But, this isn’t the experience for all business owners with all benefits brokers. In many cases a business owner cannot easily determine where their premium payments end and their commission payments begin. An average mid-sized company of 50 to 100 employees likely spends about $200,000 a year on their benefits plan — a 5% annual commission works out to $10,000 per year that is simply ‘included in the cost.’

In this scenario, we ask: how do you measure the success of your employee benefit plan if you don’t realize how much commission you’re paying your broker to manage, improve, evaluate and customize it?

Real return on the invested commissions

A successful benefits plan is more than just ensuring your broker delivers the lowest possible cost at renewal. A successful benefits plan produces actual results for your employees and for the company. How do you do that? By working with a broker that provides service and results and delivers real return on the invested commissions.

At Thorpe Benefits, we believe that being upfront about our commissions opens the door to a larger conversation about the services we render for those costs. And we believe that these new regulations will only benefit all businesses because it will allow them to fully and effectively evaluate the services and results being delivered by their benefits broker and their employee benefits plan.