The insurance company pays my benefits broker. What do you mean do I negotiate their fee?”
It’s a common response that we hear from employers. Even when fees and commissions are properly disclosed, savvy financial and human resources executives are surprised when they realize a broker fee can be negotiated. The few who do negotiate can see savings of 35% to 60%.
Companies aren’t complaining about broker compensation. They assume it’s a cost they have no control over and is something that is dictated by the insurance industry. For employers with more than 50 or 100 employees (depending on their state), this is simply not true.
As a result, the brokerage industry has remained largely unchanged for decades. With little fee pressure, why challenge the status quo? Most traditional brokers remain focused on acquisitions or growing profit margins rather than delivering lower costs and faster results to their clients.
Compare this with what has occurred in the financial sector where technology has reduced transaction fees enormously, from trading stocks to managing retirement plans. Why shouldn’t it be the same in the benefits industry?
So how can a prudent employer get expert help with their employee benefits programs and not overpay? Use these five steps to ensure you are getting the best deal possible.
- Understand what you are currently paying your broker. Get a full compensation disclosure on commissions, fees and bonuses on all your programs, including stop loss and administrative service fees, for those who are self-insured.
- Convert any percentages to hard dollars. 2%, 3% or 4% can sound reasonable, and may be, but it is much easier to determine if a service is worth $100,000 or $250,000 rather than an innocuous sounding percentage like 2% or 3%.
- Ask for a list of services included in your broker’s fees. Often brokers sell a “package” that includes a lot of services you are not using. Don’t subsidize other employers. Only pay for what you need.
- Do your due diligence – the law requires it! As a fiduciary, you have an obligation to ensure you are charged reasonable fees, especially when your employees share in these fees in the form of contributions.
- Look for something innovative. Although most brokers have been stuck in neutral for years, technology powered brokers have entered the marketplace. Look for those who combine proven insurance expertise with efficiencies to make your life easier and drive your costs lower!
Remember, since most brokerage arrangements are month to month, you don’t need to wait until renewal time to open the negotiation process.
James Buonfiglio, Vertical Fox • firstname.lastname@example.org