How are they paid ?
Generally, there are two primary mechanisms by which insurance intermediaries are compensated for their services:
- A fee system under which the client directly pays for the services provided;
- A commission system under which the intermediary is paid a percentage of the premium paid by the client for coverage based upon the intermediary's agreement with the carrier.
Many insurance intermediaries offer the choice to the client (particularly in the business segment) to work either on a commission or a fee basis. When considering the choice between the two, a number of factors need to be considered by both the intermediary and the client in their dialogue. For example: commission is only payable if a contract ensues. In a fee system, clients should consider if they will be able to afford to pay fees based on time spent in the event of a claim. The commission system satisfies a need for services in the future. The transparent co-existence of various remuneration systems is the best guarantee for competitive and dynamic markets.
The remuneration of the intermediary, being in principle commission–based with the possibility to agree fees, has been a major contributing factor to the successful and competitive development of insurance markets all over the world. The decision to work on a fee or commission basis is a decision that should be taken between the parties based upon a transparent dialogue about the various options.
