The role of the insurance broker

Once the client’s risks and insurance needs have been identified, a series of factors lead intermediaries to recommend a particular insurance or insurer to their clients.

These factors include, in addition to price :

• the extent of coverage available (capacity) ;
• the insurer’s flexibility in covering risks;
• the insurer’s brand image and reputation for handling claims (speed, fair settlement, additional benefits to claimants);
• the financial security of the insurer ;
• the quality and clarity of the documentation that the insurer provides;
• the promptness of the insurer in providing documentation or submitting offers;
• the insurer’s ability to offer timely renewal of contracts;
• the technical competence of the insurer’s staff;
• the quality of the advice the insurer provides to policyholders;
• the quality of other services provided by the insurer, its geographical proximity.

This shows that price is not the only determining factor in the choice of insurance.

How are they remunerated?

In general, insurance intermediaries are remunerated through two main mechanisms:

• the fee system, whereby clients pay intermediaries directly for the services they have provided;
• the commission system, whereby intermediaries receive a percentage, fixed after negotiation with insurers, of the insurance premium that customers pay to insurers.

Many insurance intermediaries (especially in the corporate insurance sector) give their clients the freedom to choose between commission and fees. When discussing the choice of remuneration system, the intermediary and his client must take into account a number of factors. For example, commission is only payable if a contract is signed In the fee system, clients must consider their ability to pay the fees that would be due to their intermediary in the event of a claim. The commission system provides for the provision of services in the future. The coexistence of several remuneration systems is the best guarantee of competitiveness and dynamism in the markets.

The remuneration of intermediaries, which is in principle based on the commission system with the possibility of negotiating a fee, has contributed enormously to the development and competitiveness of the insurance market worldwide. The decision on whether to use the fee or commission system should be taken by the parties, following a transparent dialogue on the different options.

Unrelated intermediary, insurance broker or even insurance consultant are the terms commonly used to describe the profession. The term “unbound intermediary” perfectly expresses the positioning of the profession. The broker is neutral and therefore not linked to any insurance company. However, he is bound to his client. He always acts in the interest of the client and gives his opinion objectively. He analyses, advises, applies and follows up all the files on his behalf with the sole aim of offering him the best possible cover, always taking into account the financial, economic and accounting aspects.

The profession is subject to a demanding legal framework. It also requires Errors and Omissions insurance and access to the profession is regulated. Because of its financial aspect, the activity is subject to the anti-money laundering law and falls under the direct control of the “Commissariat aux assurances”- the insurance equivalent of the CSSF for banking bodies – and the Ministry of Finance.

Its mission is first and foremost to identify and analyse the risks, to advise neutrally on the coverage to be implemented and to judiciously choose the appropriate insurance products, and even to draw up contracts and ensure all follow-up in the event of a claim. The search for suitable products requires in-depth knowledge of the business and the market and is not limited to the products offeredby Luxembourg-based companies. Often a search at European level is justified.

With regard to clients, intermediaries :

• identify the risks faced by clients;
• ensure that they make informed decisions about the risks to be insured;
• find new and innovative solutions;
• reduce their clients’ research costs;
• put their knowledge at the service of their clients;
• assist them in the management of policies and claims.

As far as insurers are concerned, intermediaries :

• facilitate market access for new insurance companies as they can reach a large customer base without having to set up their own distribution network. This is important for the development of the European Single Market;
• assist them in the management of policies and claims.

How do intermediaries recommend particular insurance to their clients?

In general, insurance intermediaries are remunerated through two main mechanisms:

• the fee system, whereby clients pay intermediaries directly for the services they have provided;
• the commission system, whereby intermediaries receive a percentage, fixed after negotiation with insurers, of the insurance premium that customers pay to insurers.

Many insurance intermediaries (especially in the corporatel insurance sector) give their clients the freedom to choose between commission and fees. When discussing the choice of remuneration system, the intermediary and his client must take into account a number of factors. For example, commission is only payable if a contract is signed. n the fee system, clients must consider their ability to pay the fees that would be due to their intermediary in the event of a claim. The commission system provides for the provision of services in the future. The coexistence of several remuneration systems is the best guarantee of competitiveness and dynamism in the markets.

The remuneration of intermediaries, which is in principle based on the commission system with the possibility of negotiating a fee, has contributed enormously to the development and competitiveness of the insurance market worldwide. The decision on whether to use the fee or commission system should be taken by the parties, following a transparent dialogue on the different options.