It seems that there’s a lot of misalignment in the world today and it couldn’t be more true in the insurance world, especially the relationship that benefit brokers have with their clients. Are brokers’ interests aligned with their clients’ interests? I would say not.
Where is the value of benefits professionals? Is it in the product they sell, or the advice they give?
The misalignment begins and ends with how brokers are compensated. The vast majority brokers are compensated on a commission basis from insurance companies. These sums can be rather significant, especially when you consider all the revenue that’s not disclosed. Insurance companies incentivize brokers to sell their products by offering higher commissions than their competitors. Said another way, brokers are paid by an insurance company to sell their insurance product to the brokers’ clients. Employers don’t pay other professionals in this manner. Who is the broker working for? The client or the insurance company?
The Consolidated Appropriations Act requires all benefit professionals (among others) to disclose all direct and indirect compensation that they receive from all sources on behalf of their clients for the actual various services provided. I know that employers are going to be quite surprised by not only the amount of the compensation, but the sources as well. Once disclosed, employers can now determine and subsequently negotiate what is reasonable compensation for the actual services that they’re receiving. After all, it’s the employer’s who are paying all of the bills (including all compensation sources) for all the benefits they offer employees.
Alignment takes place when a benefits broker is paid directly by the employer, not a third-party insurance company who incentivizes a broker to sell their product. This would be a predetermined negotiated fee for any or all of the services offered. The broker could still sell an insurance companies product, it’s just that all commissions and overrides from all sources should be eliminated. Full transparency and disclosure.
In this way, the broker’s and the employer’s interests are aligned whether it be with the CEO/CFO or HR. It’s very important that specific goals and objectives are identified and set – then the broker knows what needs to be accomplished. Rather than getting a bonus from an insurance company to sell their products, why not give the broker a bonus paid for by the employer if those goals and objectives are met? That would create the ultimate alignment – a broker meeting the goals and objectives of the employer, not the insurance company!
Consider setting specific goals and objectives in both the short and long-term strategies, with your broker. Then negotiate and agree upon reasonable compensation when those goals and objectives are met. Get it all on the ‘table’ and demand that all commissions are eliminated. In this way all expectations are aligned.
