It is time to switch to a fee-based plan rather than commissions with your insurance broker.
Every business owner is searching for ways to cut unnecessary costs to boost profits at the bottom line. Or, if you’re not, you should be.
One area for potential savings that can sometimes be overlooked is the cost of insuring your business. You’ve probably tried negotiating or shopping around for better property or casualty insurance premiums.
But there’s another area where you might be paying higher costs than you need to. And that’s the fees that your insurance broker collects.
I was recently introduced to this technique when working with a CEO peer group. One member shared that he had used the method to save a significant amount of money in his business. I didn’t know you could do this, so I decided to share it with you.
I can already anticipate the hate mail I’ll receive from brokers everywhere. So, let me explain what I mean.
It’s Not Me, It’s You
I guarantee that if you talk with your insurance broker—the person you’ve charged with finding you the best policy that suits the needs of your business—they’ll tell you some form of the following: “I work for you for free. You don’t pay me anything. I get paid by the insurance provider.”
And guess what, they’re right. It’s true. Your broker collects a commission from the insurance provider. But what your broker won’t tell you is that you can change that equation—and save significant money as a result.
You can start that process by asking your broker what the total commission dollars are that they earn from all the lines of your business. You might want to sit down when they tell you because it might shock you. It’s not uncommon for your broker to collect a $250,000 annual commission, even if your business is only moderate in size. That’s enough money to get your attention, right?
So, what do you do about it?
The answer is that you tell your current broker that you no longer want to structure your commission that way. Instead, you’d rather pay a fixed fee of $100,000 than the former structure that awarded your broker $250,000. In other words, you’d like to save $150,000 a year.
Your broker may not enthusiastically respond to this request. If so, it’s time to find a new one.
Playing the Field
Suppose you decide to break away from your current insurance broker. In that case, you’ll need to do some homework to identify a handful of alternative brokers who can handle the insurance needs of your business. A word of caution: there is no shortage of these folks. So, you might receive many calls if you cast too broad a net.
You can narrow your options by explicitly stating in your RFQ that you intend to pay a fee rather than a commission. Again, I think you’ll be surprised by the avid response you’ll get, even with those terms.
Of course, you’ll also need to consider whether you’ll receive the same level of service and attention that you did from your former broker. Your goal is to save money and get the same level of customer service you deserve.
Moving to a new broker using these new terms can be painful, particularly if you haven’t evaluated the level of service your broker has been providing you in a while. That’s especially true if your broker happens to be a family member and you haven’t taken the time to check in on them and keep them honest.
Letting your wife know you are firing her brother might not be a popular decision, especially around the holidays. But if you can connect the dots by showing her how much money you’ll save, that decision might be more understandable.
Boosting the Bottom Line
If you’re looking for a straightforward and meaningful way to cut costs in your business, it’s time to revisit your relationship with your insurance broker. The sooner you can change your compensation arrangement with them from a commission to a fee-based model, the quicker you can boost your bottom line.
