How to Navigate the G19 Runway
In my past life I was a Property and Casualty insurance broker. Among the many things I learned from this to deal with the elephant in any Insurance Broker's room: FEE DISCLOSURE!!
One day I was sitting in an airport coming back from a conference with another insurance broker. I was on the phone with an insurance adjuster about a claim that had gone sideways for one of my clients. The adjuster on the other end was literally grasping for information and I just began to feel that they had no idea what was going on.
I finally asked him what he was charging his client and the answer was that they charged out at $300 an hour for their services. After getting off the phone I was visibly upset and venting to my fellow insurance broker about how a person making $300 an hour should be working harder than this.
I told him, "I wish I made $300 an hour."
After I settled down, we had a beer and waited for the airplane. My companion turned to me and suddenly said, "You probably do you know... make $300 an hour. You just don’t bill it out so it seems foreign to you."
I sat back and calculated and turns out I sure as hell did make that... I just didn’t know it and neither did my clients.
We had a significantly large client at my old insurance brokerage, it was a public company who one day decided they wanted to do a review on their insurance services. Not a tender, per say, as price was not really part of it and there was no other insurance brokers that were being brought into the account. It was literally a determination whether they were with the right partners. This process included hiring a consultant from Deloitte out of New York to review a regional broker out of Calgary.
"There was one major item that would stress an insurance advisor out,
the document named broker compensation."
I'll admit this was a fearful process, however, the good part was we passed with flying colours on the services part. There was one major item that would stress an insurance advisor out, the document named broker compensation. Holy crap! I had never been asked about this before. Did they already know? Did they read the fine print of the insurance policy? Was I to lie to them? Was I to tell them that the commissions we earned were standard from the insurer? I quickly realized this was not an option but my self-worth was immediately tested.
Do you know that the insurance and financial services industry is one of the only industries still in existence that keep it a mystery to clients how we get paid? Why is that? It's pretty sad when your service is being reviewed at every level and the scariest part for you is how much you make.
At the end of the day, neither the client nor the consultant was surprised by the compensation. After some slight adjustments, both parties agreed that insurance advisor was well worth the compensation they were getting. The only critique they had is it should be clearly outlined. This experience made us alter our entire business model going forward from a buried commission method to a full disclosure of commission/ fee for service. It cleared out most of the awkward conversations from happening and vastly improved client retention.
Right now, there is a lot of talk about G19. In the P&C industry, we had to live through the very long process lead by Elliot Spitzer in 2004 to uncover what he considered to be "underhanded and unethical" tactics of compensation by both insurance brokers and insurance companies:
" The letter made a stunning allegation against the world’s largest insurance broker,
Marsh & McLennan. It charged that in its commercial insurance, the broker took two payments. First, it got a commission from its customers, the businesses it represented that were seeking insurance. Then, it took undisclosed payments from the insurance companies that wrote the policies. " - NY Mag
In a lot of ways the benefits and financial services industry goes way back in time compared to the P&C industry. These upcoming events are reminiscent of Spitzer's crusade to “out” insurance advisors.
So why does this matter? I am not sure what is going to happen with G19 and fee disclosure, etc. However, I will guarantee you that it will happen in some form.
There are some pretty amazing advisors from coast-to-coast that are actively working to ensure that this will be better than as proposed. I don’t believe the entire idea could be scrapped at this point as the public is already weighing in. Not to mention disruptors trying to take out the advisors role will be actively working to ensure that this proposed legislation helps their cause.
As an advisor, you may at some point have to look your client in the eye and explain why you make the what you make. If this thought scares you, luckily nothing has happened yet. This is your opportunity to out yourself rather than having a panel that does not know anything about you, or what you do for your clients do it for you. One of the largest spears (other advisors trying to get into your accounts) in the industry is to ask a client if they know how much you get paid. It is the quickest way into an account (ask Zenefits).
My advice is to break that spear in half before it becomes relevant. Also start talking to your client about fees and start adding fee for service products such as Health Spending Accounts, Wellness, HR tools, and some of the other Insure tech that are available to advisors these days.
The most relevant thing the new age insurance advisor should know about their client is they don’t just want to buy insurance from you.