How hidden charges sting the broker - Featured in the Insurance Age

piggy-bank-drowning

 

 

 

Bexhill UK’s Alan Atkins argues that cheaper is not always better when it comes to premium finance.

Transparency is clearly vital when arranging premium finance for clients, but are all premium finance providers as transparent in their dealings with brokers?

Are brokers aware how their commissions are calculated and are they getting a fair slice of the pie?

The headline rate is one thing, but the way in which some providers present their terms can mean that, in reality, there are a number of ways in which brokers' commission is eroded.

 

The first are minimum service charges; these are applied when the interest charge on the annual premium doesn't make the required return for the provider so the payments are increased. When average premiums are low and the minimum service charge is high, this can have a considerable effect on a broker's override commission earnings. Is this fair?

Arrears
Secondly, if a client paying by debit or credit cards goes into arrears many premium finance providers will deduct a percentage of your commission from the expected earnings for the months the client was in default. Why should brokers be penalised for this?

Eroding commissions in this way is essentially heaping hidden fees and charges onto brokers that, based on a personal lines book of business of say £12m GWP per annum and £7m of premium finance, could easily amount to more than £10k in lost commission based on say 25% of the book defaulting for one month.

This is also based on a variable commission rate; if brokers apply a high sell out rate this could of course be a lot more.

Breakdown
Thirdly, brokers should check how their override commission is paid and that there is full transparency month by month showing a breakdown of the commission earned from each policy.

This information should be easily available. All too often brokers are not offered a monthly breakdown, which if they were, would highlight the above issues and ‘eroded' commissions. This is at best lazy and at worst non-compliant.

Premium finance providers have a duty to be transparent with brokers. Brokers should be able to see exactly what they are signing up for by way of working premium examples and standard documentation showing fees and charges too in order to make an informed choice.

Brokers also need to be wary of Long Term Trading Agreements. Whilst a low rate in exchange for a long-term lock-in might look attractive on the face of it, it also means that they can't shop around for providers sometimes for a number of years.

When it comes to premium finance, it seems that cheaper is not always better.

Original article can be viewed here http://www.insuranceage.co.uk/insurance-age/opinion/2479358/how-hidden-charges-sting-the-broker 

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