The brokerage

THE ROLE OF INSURANCE BROKER

Independent intermediary, insurance broker or even consultant are the terms commonly used to describe the profession. The term independent intermediary perfectly expresses the positioning of the role. The broker is neutral and is therefore not linked to any insurance company. However, he is linked to his client. He always acts in the interest of the client and gives his opinion in all objectivity. He analyses, advises, applies and follows all files on his behalf for the sole purpose of providing him the best coverage possible, always taking into account the financial, economic and accounting aspects.

The profession is subject to a demanding regulatory and legal framework. He must also be in possession of a Professional civil liability insurance and access to the profession is regulated. Due to its financial aspect, the activity is subject to the law against money laundering and falls under the direct control of the insurance commission – the insurance equivalent of the CSSF for banking authorities – and of the Ministry of Finance.

Its mission consists in the first instance to identify and analyse risks, to advise with objectivity in terms of coverage to be implemented and to choose wisely the appropriate insurance products, or even to establish contracts and to ensure all follow-up in the event of a claim. The search for suitable products requires an in-depth knowledge of the business and the market and it is not limited to products offered by companies based in Luxembourg. Often a search at the European level is justified.

As regards clients, the intermediaries:

  • identify risks that the customers face;
  • ensure that the latter take informed decisions on the risks to be insured;
  • find new/innovative solutions;
  • reduce the search costs of their clients;
  • put their knowledge to the benefit of their clients;
  • help them in the management of policies and claims.

As regards the insurers, the intermediaries:

  • facilitate access to the market 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;
  • help them in the management of policies and claims.

 

How do intermediaries recommend a specific insurance to their clients?

Once the risks of the client have been determined and the insurance needs defined, a series of factors lead intermediaries to recommend a specific insurance or insurer to their clients.

These factors include, in addition to the price,

  • the extent of coverage available (capacity);
  • the insurer’s flexibility in terms of hedging risks;
  • the brand image and insurer’s reputation in processing claims (speed, fair settlement, additional benefits to the victims);
  • the financial security of the insurer;
  • the quality and clarity of the documentation that the Insurer provides;
  • the promptness of the insurer to provide documentation or submit proposals;
  • the ability of the insurer to offer timely renewal of contracts;
  • the technical competence of the insurer’s staff;
  • the quality of advice that the insurer provides to policyholders;
  • the quality of the other services provided by the insurer, its geographic proximity.

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

HOW ARE THEY PAID?

The remuneration of intermediaries, which is, in principle, based on the system of commissions with the possibility to negotiate fees, has contributed enormously to the development and competitiveness of the insurance market around the world. The choice of system of fees or system of commissions should be made by the parties, at the end of a transparent dialogue on the various options.

How are they paid?

As a general rule, insurance intermediaries are paid according to two main different mechanisms:

  • the system of fees, according to which the clients pay directly to intermediaries for the services they have rendered;
  • the system of commissions, according to which intermediaries receive a percentage, set by the insurers, of the insurance premium that customers pay to insurers.

Many insurance intermediaries (especially in the insurance companies sector) leave it up to their clients to choose between a commission or fees. During the consultation about the choice of remuneration system, the intermediary and its client need to consider a number of factors. For example, the commission is only due 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 supply of services in the future. Coexistence of several systems of remuneration is the best guarantee of competitiveness and dynamism on the markets.

HOW DO INTERMEDIARIES RECOMMEND A SPECIFIC INSURANCE TO THEIR CLIENTS?

The remuneration of intermediaries, which is, in principle, based on the system of commissions with the possibility to negotiate fees, has contributed enormously to the development and competitiveness of the insurance market around the world. The choice of system of fees or system of commissions should be made by the parties, at the end of a transparent dialogue on the various options.