The world of employee benefits management can be a complicated one, which often is the reason companies engage brokers. Companies perceive brokers as professionals who can help them save time and money, as brokers are the alleged experts in the insurance marketplace. The fact is, however, many brokers are conflicted with self-serving interests, and organizations end up spending too much money on too little value and meaningless services.
6 ways insurance brokers are overcharging you:
- Excessive commissions
- Hidden fees
- Supplemental compensation paid by insurance companies to brokers
- Insurance company kickbacks
- Services specified in contract but not performed
- Suggesting services you don’t need or are receiving from other vendors
Many brokers also promote products they own, which isn’t necessarily overcharging you, but instead creates a conflict of interest, for example private exchanges. They tout these products as the right solution(s) for your company, knowing there are more appropriate options in the marketplace.
Your broker positions him or herself as an independent expert of market solutions. The reality is that conflict of interest and self-serving behavior are much more prominent then you could possibly know and that they will want to admit.
Now that you understand where and how brokers hide costs, you are prepared to take control of your broker spend. Here are some tactics you might consider:
Conduct a third-party needs assessment
Perform an internal needs assessment. Don’t just agree with what is put in front of you. Consider these questions:
- What internal resources do you have?
- What are other vendors already doing for you or could be doing for you at no additional cost?
- How often do you actually use these services?
- Will you see tangible value from the services you are paying for?
Create and conduct a competitive broker RFP
The next step is a little more tricky: you must understand the value of the service(s) and the price that you should pay for it.
Are these services worth $100, $250, or $1,000 per hour? We often find that companies are unaware that they are spending in excess of $1,000 per hour for a broker’s time whose value does not even come close to merit that level of remuneration.
It is imperative to understand the value (billing rate) associated with each brokerage team member assigned to your account and who is actually doing the work. Are you paying for the big dog and getting the pup?
For example, if a broker has three people on his/her account, one might have a value of $100 per hour, another will have a value of $250 per hour, and the third person’s value is $450 per hour—all determined by each of the broker’s team member’s level of expertise and experience. Brokers don’t want to charge this way, but its how you can back into what you’re paying for.
Only purchase services your company needs and will use
Brokers will attempt to package every service under the sun in order to create dependency and perpetuate the myth of their value. The fact is you probably don’t need many of the services included in the package.
Brokers may try to sell you, for example: wellness, communications, reporting and underwriting services, some of which you may be getting from other vendors, which creates an unnecessary duplication of services. Just because it is offered, doesn’t mean your company will benefit from the service.
Let me illustrate: I don’t want to pay for the entire buffet when I am on a diet. The question we are posing is: “Why am I paying for things I don’t use?” Unlike a buffet where you must pay the entire price, brokers will provide services on an a la cart basis. Thus you only pay for the services you need when you need them. They aren’t openly sharing this with you, and it’s no surprise why they aren’t.
Create a well-structured agreement/contract with your broker
The contract must properly outline the scope of services and the compensation. Too often the contracts are written in a way that no one really understands what services are included (expect the broker). You may think that simply having an attorney review the contract is enough, but while an attorney may help with legal language, he or she will not have a full understanding of the insurance industry.
That’s where we come in.