Fees: Get Paid What You Are Worth

For years we have been saying this: There should be no correlation between your income and the commission paid by insurance carriers. The two just ain't the same thing. Now I know this sounds like sedition, but stay with me here.

As your clients have become more sophisticated, many of your firms have added internal resource capabilities.  Whether they be claims, risk control, client portals or financial analysis.  The commission structures that are developed and paid by insurance carriers just don't support the expense of these resource capabilities; and your producer compensation too.

So, the answer comes in 4 possibilities:
  1.  As producers you determine to give up part of your commission in order to support the resources required to stay in the game on larger accounts.  (A bad option)
  2.  Your firm requires you to pay for resources out of your pocket, thereby forcing you to select which clients get resources and who does not. (A worse option)
  3.  You decide as a firm to get out of the larger account arena and simply work on commodity transactions. (The worst option)
  4.  You learn and commit to developing ROI-Based Fees.  (YES!!!!)
There has long been a fallacy built into our business that no longer has legs.  This problem is around the calculation of a Fee and how we present it to clients. Now this edition of the Consultative Broker briefing will not be around the methods of fee calculations.  There are as many calculations as there are stars in the sky.

For today, we all need to accept one universal truth about fees.  At the end of the day, after calculating fees, most brokers then compare it to commissions.  If the fee is too low; they adjust up.  If too high; they adjust down.  So, eventually the fee becomes a function of commission benchmarks.

The key here is that they ultimately peg their income to what the market will bear.  Then, pray to god that another broker doesn't undercut them in a competitive situation!
But what about their quantifiable impact to the client?  Doesn't that count for something?  What about the ROI the client has received from their ability to deploy resources and achieve a consultants goal of improving the client's business model?  What about the impact your client has received in reduced costs, improved efficiencies, competitiveness and productivity?  What about that?  Shouldn't that be factored in the Fee as an ROI?  What about that?  Huh? Huh? Huh?

Now before you scoff at me.  Let me tell you a true story that recently occurred with one of our broker clients.  Over the past several years the broker and firm did a tremendous job of reducing this client's losses and premiums.  So good in fact, that the premium reduced from $550,000 to $300,000.  The fee on the renewal was $50,000 and the client was asking for a reduction.

Here was the problem our intrepid Consultative Broker faced.  He could either lower his fee and therefore not get fully compensated for the firm's efforts.  Or, he could present the client with a complete ValueReport based upon the calculations of our Major Account Development System.  He chose to present the ValueReport prepared by MADs.

So, what happened?  The client fully accepted the $50,000 fee based upon the evidence and proof of the ROI the broker had provided the client.  It approached seven figures over the course of the past 3 years.  Not only that, but the client acknowledged it would be fruitless to entertain any other broker proposals.

So, it is time for you and your firm to get with it.  ROI-based selling is the only way that you can stay in the game and compete for profits.  Remember commissions paid by carriers and under-priced fees should have no correlation to your income.  Hey, we have a vested interest in this.  Our goal is to help firms like yours to prosper and grow, no matter what.

If you keep reading, we will keep writing.

- Rob Ekern

Fee-Based Compensation: It Takes Money to Drink Good Whiskey

We have said this before, but it bears repeating as we all go into our year-end planning. Never confuse the difference between commission and fair compensation! There is no relationship between them. A commission is what an insurance company is willing to pay you to deliver their commodity and your compensation should be based upon the value you deliver to a client. The two are not the same.

We have said this before, but it bears repeating as we all go into our year-end planning.  Never confuse the difference between commission and fair compensation!  There is no relationship between them.  A commission is what an insurance company is willing to pay you to deliver their commodity and your compensation should be based upon the value you deliver to a client.  The two are not the same.

In many cases for you to provide value to your clients it will require a great deal of resources and effort outside the commission check.  It is imperative that your clients and prospects understand the value that you bring to the table.  Sometimes, that requires an additional investment on their part.

When speaking about this, I am reminded of one of the first lessons I learned as a very young person in this business.  I was negotiating a surplus lines placement with a grizzled veteran of the business.  When I complained about the price he was charging my client he looked at me above his nose glasses and growled, “It costs money to drink good whiskey, Ekern."

Simple enough, eh?  Now, how do we get fairly compensated without falling victim to the cannibalistic commission structure?  (i.e. the better the price negotiation for our clients, the less we make!)

The answer is to switch your top clients to a fee based, results and resource driven compensation system.  One in which you get fairly compensated for the resources you deploy and the costs your clients reduce.  This is the only win/win formula I know of.

So, if you agree, as most of you should, here are some additional thoughts on Fee Based Compensation.

  1. Your fee must be results driven.  It is not enough to simply tell a client that you intend to switch them to a fee.  You must answer the question of “what’s in it for them?”  The “wiift” is the fact that you will demonstrate a reduction in costs through your resource deployment.
  2. You must be prepared to manage the account.  This means that you and your organization will take responsibility for owning an outcome.  This goes well beyond simply placing the insurance policy and hoping that things work out.  You will need to provide the client with strategic planning and stewardship reports.
  3. Your fee should be higher than the commission.  Remember, the commission is based upon simply the insurance placement and does not reflect any of the client’s results or your efforts.  A successful Consultative Broker knows how to demonstrate the ROI and value proposition of their firm.  This is particularly true in a soft market when each year the premium or rates drop.
  4. Never use a fee to compete on price.  Your fee should not be used as a way to reduce a clients cost through removal of a commission and then a lower fee substituted in its place.   If you do this enough times, you will find yourself out of the business.

Of course there are many additional nuances to skillfully developing a fee based practice.  But for today, let’s all agree upon one thing.   The good whiskey costs money!  The commission compensation system does not account for the difference between aging in oak barrels versus aluminum vats!

- Rob Ekern

For more information on how to quantify TCOR, manage projects, build a value proposition, and consistently deliver stewardship reports and new business presentations to your customers, check out the Major Account Development System (MADS), an on-line consultative broker's toolkit. Available now!

Ready to learn more about Consultative Brokerage Sales Training? Visit the Consultative Brokerage Academy.

To learn more about C.R. Ekern & Company, please visit our website

It's a Top Line Game

I remember being in the depths of the last soft market . . .and it was worse. Our mission as successful brokers was to grow our books of business in spite of the marketplace trend. Some were capable of it, and some were not. The ones that were capable (I was one of them) adapted themselves to the marketplace and client expectations. As a Consultative Broker, here are some of the things that you must do to change gears...

Okay, I know that the industry is ripe with gloom and doom.  Everywhere we look there seems to be another horror story.  The economy is bad, industry prices are down, and our clients are all looking to cut back.  Some say that the worst isn’t even in sight.

But, Cheer UP Bucky!  It is the same industry that it has always been.  The Game is exactly the same.  It is all about the Top Line.  That hasn’t changed and it never will.  All that has changed is the imagination, focus, knowledge and intensity that is required to be successful.

I remember being in the depths of the last soft market . . .and it was worse.  Our mission as successful brokers was to grow our books of business in spite of the marketplace trend.  Some were capable of it, and some were not.  The ones that were capable (I was one of them) adapted themselves to the marketplace and client expectations.

As a Consultative Broker, here are some of the things that you must do to change gears:

1.) Anticipate the marketplace.  First of all, let’s all understand that this is the condition, and we can’t do anything about it.  We don’t control it, and it is what it is.  Do not expect it to rebound in the near future.

2.) Change your approach.  You must find the opportunities that lend themselves to resources and cost reduction techniques.  Find the prospects that have been under-served by brokers who rely solely on pricing as a method of proving their value.  (They are all over the place!).

3.) Stay on the cutting edge.  As the marketplace changes, there are always new products and techniques that begin to emerge.  Why?  Because the increasing capacity is looking for a home that is not price sensitive.

4.) Prospect Larger Accounts.  It is inevitable that the softening market will take the revenue guts out of the lower middle market accounts.  You have already seen it haven’t you?  So, anticipate that trend to continue.  Go upstream now!  Here is a little secret . . .there is less competition at the lower end than at the top.

5.) Become a Better Broker!  Learn and understand the Consultative Brokerage techniques that allow you to hold your revenue stream up.  Focus on Total Cost of Risk, Stewardship Reports, Fee Based Selling and Conceptual Presentations.

So, remember this, surviving the soft marketplace is still about the Top Line!  It is about growth and creating new opportunities while at the same time bringing more value to your current clients.  In a soft market there is only one way to do that:  Get better at what you do.  You will still prosper and grow if you focus on that.  I know this because I have seen 3 soft markets and the game has never changed, only the skill required of the players.

- Rob Ekern

For more information on how to quantify TCOR, manage projects, build a value proposition, and consistently deliver stewardship reports and new business presentations to your customers, check out the Major Account Development System (MADS), an on-line consultative broker's toolkit. Available now!

Ready to learn more about Consultative Brokerage Sales Training? Visit the Consultative Brokerage Academy.

To learn more abour C.R. Ekern & Company, please visit our website

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