With no price increases on the horizon and insurers looking to improve profitability, an award-winning broker has said that ‘super normal’ commissions are unsustainable.
Speaking on the release of the latest BizCover Quarterly Price Index, Michael Gottlieb, CEO of BizCover, said that while he does not think all commissions will come into the spotlight as insurers look to improve profitability, certain commissions are unsustainable.
“Currently the vast majority of brokers earn ‘normal’ level of commissions,” Gottlieb told Insurance Business.
There are anomalies to this and it is often with large brokerages who have significant volumes that insurers are willing to pay for. However, I do not believe super normal commissions are sustainable because ultimately the combined ratios blow out or the premium needs to be increased which makes it uncompetitive.
“So every time we hear of a deal with a large broker and an insurer for super normal commissions, we think this is an opportunity to take this business off the broker.”
The latest index found that while the industry may be long overdue a price increase, the first quarter of the year showed no signs of delivering it as prices remained flat. Gottlieb did note that one market may prove to have a silver-lining.
“I think it is likely that insurers will be able to raise prices for property-related insurance,” Gottlieb continued.
“The BizCover SME Insurance Index showed insurers were able to increase prices 3 quarters ago for property-related business packs. At this stage while they have not been able to further increase pricing, they have not given back the increase.”
In a challenging insurance market, Gottlieb said that brokers need to understand their value proposition in order to solidify their businesses.
“Intermediaries should set themselves apart from others by being regarded as the best in class; this could be an industry expert or insurance class specialist,” Gottlieb said.
“If their business is transactional, it is more than likely that they will find their business displaced by technology. Therefore, it's best if they invest heavily in technology.
“If brokers are focused on providing Advice and Advocacy in procurement of insurance and at claims time, then this should performed with no conflicts and with the insured’s interest at the centre of every decision.”
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