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If you’re like most businesses which choose to use a broker for their insurance, you may be aware of something known as a ‘broker fee’.
So what is a broker fee, and do you really have to pay it? Those are just some of the questions we’ll be answering in this guide.
What is a broker fee?
A broker fee, also referred to as an ‘intermediary fee’ or ‘admin fee’ in some cases, is a fee that some brokers place on top of an insurance policy.
The fees range in size by a vast amount, often depending on the size and complexity of the insurance policy being taken out.
Broker fees are an important part of the insurance industry, but as a client you have every right to know more about them and how they work.
How much is the fee?
A broker fee can range anywhere from ten dollars to tens of thousands of dollars.
The amount will generally be closely linked to the complexity of the insurance policy or package that it is being charged on.
Broadly speaking, an insurance policy that is very straightforward for a broker is only going to attract a very small fee, whilst a policy that is far more complex to arrange will attract a higher fee.
For example a basic public liability policy setup for a carpenter with no complications might attract a broker fee of only $30 or $40.
This is because there is very little in the way of research and advice required, and the time to quote the policy is very small.
On the other hand a comprehensive package for a company that imports, installs and maintains complex medical equipment may attract a broker fee that stretches into the thousands.
This is because the broker will have had to spend a lot more time learning about the client’s business operations, then researching the risks that apply to the business before coming up with a set of recommendations on what is likely to be a complex and costly insurance package.
One of the larger broker fees which has been made public is the $36,000 paid by the Cairns Regional Council.
Whilst this seems incredibly high, it’s important to understand that this would have been an extremely complex policy requiring hundreds of hours’ worth of work.
The premium for this insurance policy was a hefty $1.3 million, which helps to put the fee into perspective.
Does this mean I’m paying more for my insurance?
It would be easy to assume that paying a broker fee on top of the insurance premium would mean that you are paying more to use a broker.
This is not always the case however.
Brokers can often find you a suitable insurance package at a cost which may be lower than if you had to find the insurance yourself.
For example you may have been able to find a policy for $1,500 however the broker can secure the same cover for $1,300.
If the broker then adds a $100 for their time, you are still paying a lower amount for your insurance.
In some cases a broker fee may mean that you are paying more for your insurance, but that $100 fee may have saved you a whole day of researching on your own.
If saving a day of work is worth more than $100 to your business, then it has been money well spent.
Do I have to pay the fee?
Ultimately the broker fee forms part of the overall insurance premium, so there is no option to pay the premium without paying the broker fee.
This doesn’t stop you from negotiating the fee with the broker however.
For example if your broker provides you with an insurance quote that includes a $200 broker fee, you can certainly go back to them and say you’re only willing to pay a $150 fee.
As with many things in business, it’s all about negotiation.
If the insurance broker wants your business badly enough, they will negotiate on the fee.
But it’s also important to remember that broker fees form an important part of the firm’s revenue, so don’t expect them to be waiving fees left, right and centre.
But don’t brokers earn a commission?
In the majority of cases insurance brokers (or the firms they work for) will be paid a commission based on the insurance premium you pay.
Broadly speaking, this commission will be somewhere between 10% and 25% of the base premium amount.
So if a broker is already getting commission, how can they justify charging an additional fee?
In many cases it is about covering the amount of work that goes into any given client.
For example two clients may end up with a premium of $5,000 for their insurance, but one was very simple and took very little time, whilst the other required many hours of research.
When taking the commission only, the broker is going to be paid the same amount for the straightforward business as they will be for the complex business.
By charging an additional fee on the complex business the broker can justify the additional hours that have gone into ensuring that the client has the right policy in place to protect their business.
Most business owners would agree that it’s better to pay a little extra for the peace of mind knowing that their complex insurance needs have been properly researched.
Broker fees will always be separately listed on your insurance invoice, making the whole process very transparent.
If you would like more information on how the fee has been calculated or how it can be justified, simply ask your broker.
Any good broker will be more than happy to tell you about it, and if you have a spare few hours they’ll probably be happy to explain how hard they work to earn it!