How much is your insurance agent making off you?
Ever wonder how much your insurance agent is making off your business? Curious about whether your independent broker earns extra for steering you to a particular insurance company? And how do you find out?
You could try asking point blank, but few states require agents to tell you what they're making off a particular policy. But if your agent won't tell you, says Wesley Bissett of the Independent Insurance Agents & Brokers of America (IIABA), "You should find another agent."
Bissett, the group's senior counsel for government affairs, says agents expend a lot of effort finding — and keeping — their customers. With 3 million licensed insurance agents in the nation eager to grab your business, he says, "You'd be crazy to risk losing a customer."
Home and car insurance agents typically receive a 10 to 15 percent commission on the first year’s premium. Commissions can range as low as 8 percent, says Bissett, while "15 [percent] would be on the very high end."
In contrast, life insurance agents make most of their money in the first year of a new policy. Such front-loaded commissions can run anywhere from 40 percent to more than 100 percent of the policy's first-year premium.
Your insurance agent could also be making money every year you renew the policy. For auto and home insurance renewals, agents make a 2 to 15 percent commission (most are in the 2 to 5 percent range). Life insurance renewal rates are typically 1 to 2 percent, or zilch after three years.
Overall, however, Bissett says the competition for your insurance dollar tends to hold down commissions. He cautions customers against focusing too much on commission levels. What matters more, he says, is finding a policy that meets your particular needs. "Price may be a primary factor but it shouldn't be the only factor."
Interestingly, a February 2010 study from J.D. Power & Associates reveals that agents’ satisfaction with an insurer is depends on whether the insurance company has a knowledgeable and helpful staff. Compensation ranked last in importance to agents, after policy offerings, technology, claims and policy prices.
Disclosure rules vary by state
Many states have laws requiring agents and brokers to disclose all fees and services charged to customers, according to the National Association of Insurance Commissioners. But in most cases you have to ask. They're not required to spill their guts without prompting.
A few states (Texas, Connecticut and Rhode Island) require agents and brokers to disclose whether insurance carriers pay them performance bonuses above and beyond the commissions included in the policies issued. In Georgia and Hawaii, that rule applies only to life insurance agents and brokers.
It's tough in New York
And then there's New York, which under a regulation set to take effect Jan. 1, 2011, will have the strictest commission-disclosure rules in the country.
As in many states, New York brokers and agents will be required to tell customers the commission rates they receive on policies sold, if asked. But also, if customers ask, New York insurance agents will have to offer written disclosures of any year-end bonuses from insurance carriers and non-cash rewards such as prizes and trips.
The New York State Insurance Department's (NYSID) pending regulation grew out of a 2004 bid-rigging investigation by then-State Attorney General Eliot Spitzer. In that case, Spitzer found that commercial insurance brokers were getting under-the-table payments for steering clients to particular insurance carriers. For example, here’s more on Marsh & McLennan’s settlement.
The biggest resistance to the proposal has come from independent agents, who complain that the rule makes no distinction between them and single-carrier brokers, and that they can ill afford to revamp their computer forms and reporting procedures for each and every policy.
Bissett of the IIABA says he expects the NYSID will face a legal challenge. "We don't need a government solution when there's no problem," he said.
Matthew J. Gaul, NYSID's deputy superintendent for life insurance, counters that without this regulation, there's no legal requirement that consumers can get such information. "We believe consumers are entitled to as much information as possible," said Gaul. Although it's possible to overwhelm consumers with information, in this case "we feel like it strikes the right balance."
However, Bissett predicts that New York's approach will not catch on in other states. "If it was a problem, you'd have more legislators making a fuss."