Tucking into the insurance brokerage game has proven illuminating for Float, the mortgage, personal insurance and Kiwisaver specialists with nearly a decade of success behind its name, and not necessarily in a good way. Co-founder Geoff Christopher says the company's foray into this aspect of financial services has revealed opacity in commissions being paid, which may undermine the value customers are receiving from their insurance payments.
That's on the one hand. On the other, he said brokers are still spending far too much time on administrative tasks, rather than focusing on accurately aligning cover with changing requirements.
Tackling the issue of commissions, Christopher said that while he's reluctant to make blanket claims across the industry, there is room for improvement. "On the policies we've reviewed, commission has typically been around 15% to 25% of the annual premium, but many of the clients we've worked with can't identify the commission component of their premium, or any additional fees, in their documents."
Greater disclosure, he argued, would help customers understand what they are paying and equip them to assess if the service they are receiving is worth the cost. He also said that in almost every case Float has reviewed to date, the client has not been able to show documentation setting out what proportion of the premium goes to commission, or whether any other brokerage fees are involved.
"It's the same cover every year, and there's that amount of 15 to 25% every year the policy renews."
Christopher said clients should understand the components of their bill, and that Float tells every client exactly what it earns on their account, in dollars, whether that is brokerage or a fee. "Where remuneration is involved, customers should be able to see the arrangement clearly, because that's the first step in assessing the value."
Those costs add up - and can be managed
He said brokers should be kept on their toes; a dynamic world demands a dynamic approach to maintaining the right insurances. Brokers earning - and justifying - their commission stay close to their clients and their evolving requirements. "That means staying on top of details, reviewing changing risks, working with underwriters and navigating claims may provide important ongoing support. By contrast, renewals sent with little or no consultation should have clients questioning any commission paid; and if they know the percentage, they can assess that value."
Christopher cited the case of a client where the annual insurance cost fell from $55,000 to about $37,000 after Float interrogated the numbers and arranged different cover with the same or broader protection. "It's a question of aligning cover and cost, rather than choosing the cheapest policy. And yes, it isn't solely about the price, but instead about the suitability of what you're paying and what you're getting."
His advice to any insured party is to interrogate premiums more closely to understand just precisely how the bill is constituted. "There may be an element of 'don't rock the boat' because it works for the industry. But I think if customers have that clarity, they can make their choices accordingly."
Moreover, he said Float's recent experience has surfaced broker practices that can shut clients out of choice. One such practice in the commercial insurance market is 'blocking'. When a broker approaches an underwriter about a client, they get first rights to the risk with that insurer. Christopher explained that some brokers exploit this advantage by sending deliberately weak, incomplete or poorly prepared submissions to a range of underwriters, effectively 'poisoning the well'. The practice locks the market; if the client moves to another broker, that broker finds the insurers already tied up, and can't place the business.
"With blocking, the client pays the price. They can lose access to competitive terms from competitor underwriters; they could end up stuck with a broker they've tried to leave, and they may have no idea why or even if it is happening," said Christopher.
Addressing the administrative elephant
Coming to administrative overhead, in an industry which has always been forms-driven, Christopher said this is a potentially related issue. "If brokers spend all their time on data entry, there's fewer hours in the day for client engagement and analysis. That's likely part of the reason for 'renewals without consultation', which can leave clients feeling like they aren't getting the attention they deserve."
As it works to bring greater transparency and better value to a growing range of financial services ("It sounds almost cliched, but we want to be a one stop shop," Christopher commented), Float is adopting AI and workflow-driven solutions designed to flatten administration. "You have to ask, 'what am I paying a broker for?' It isn't to file paperwork. It's for advice, assistance, and the outcome - a mortgage, or commercial insurance."
Float's answer is Afterburner, a platform streamlining repetitive tasks and accelerating the performance of the broker or financial advisor. In mortgage advice, it performs tasks including calculating borrowing capacity across multiple banks, generating credit memorandums, summarising client interviews from recorded calls, and translating complex lender approval letters into simple, client-friendly summaries.
"I do think these issues are related," said Christopher. "The vast majority of brokers out there want to add more value to their clients. But if you're stuck in administration and overloaded, it's tempting to go the easy route and just hit renewals year after year."
But it will happen, partly because the squeaky wheel gets the oil and those who quietly accept a renewal will get just that, and partly because people are busy. "So there should be a dual approach to driving better value. Customers should demand it, and providers like ourselves should be looking out for those opportunities for improvement as a part of our value proposition."