Does a broker earn a higher commission for substandard health ratings?

[lordagary]

Let's say you are charged double for the first 5 years due to something that came up during underwriting. Does the broker's commission double as well? In some ways it makes sense, they are generating higher revenue and potentially doing more work, but doesn't this also create a conflict of interest? A transaction-minded broker, will not have the incentive to negotiate out of a rating (through well-worded cover letters, or conversations with underwriters) and therefore may no longer be working in the client's best interest.

 

[hannahjane]

@lordagary As @jwalk33 mentioned flat extra premiums are generally not commissionable though some companies may pay for those.

Beyond that, most commissions structures are based on the target, planned, or required premium. Ratings make premiums go higher so commissions go higher too. But if someone is paying $1200/year at standard and $1200/year at substandard (generally for less coverage) the commission would be the same.

 

[lordagary]

@hannahjane I'm thinking of a case where you hold the same FV either way but pay double due to a rating. How do you know a company pays? I want to know if my broker has a conflict of interest as it relates to my application.

 

[hannahjane]

@lordagary I answered your question.

If the rating is not attributed to a flat extra then the commission will go up if the face amount is level.

Will youe agent get paid more if you accept the substandard rate? Sure. But as an underwriter I can tell you the agent really has nothing to do with the rating we accessed.

Press him to try other companies if you want but the agent isn’t manipulating a higher premium because it will raise his commission. Someone like me decided that you were a higher risk.

 

[hannahjane]

@lordagary Maybe you’re right. Quality producers can negotiate with underwriters. Top producers will certainly have more receptive conversations.

But there are a lot of factors that dictate success.

 

[maxyss]

@lordagary You realize being paid more for a larger premium is how brokers get compensated right? He has no more of a conflict of interest retest now than when he chose the company you applied with. You knew or should have been told by your agent of the possibility of a rating when applying. What’s changed?

 

[lordagary]

@maxyss It's very different. As explained in other comments.

 

[jwalk33]

@lordagary Are you working with a broker who can shop the market for you? Sometimes other carriers will be more favorable vs negotiating with the original carrier who made the rated offer.

Why not ask the broker what they are doing to advocate for you. Will other carriers make a better offer knowing what the impactful underwriting details are?

If not talk with other brokers

 

[jwalk33]

@lordagary If you can’t trust your broker find a new broker.

 

[levnishbar]

@lordagary Yeah, a rating can mean a higher commission for the agent.

Do some agents not fight for their clients because of this? Possibly. I believe most try to do right by their clients. I know I do.

 

[maxyss]

@lordagary It depends how you define it. If the price increases they will earn more dollars but the rate doesn’t change. If the coverage is adjusted to maintain premium they’ll earn the same amount. Basically they’re paid on volume of premium dollars at the same rate.

Edit: Temporary flat extras generally don’t add to the commission however percentage ratings will.

 

[lordagary]

@maxyss I'm talking equal FV.

Your response contradicts what others have said. Would you mind giving a little more info. Thanks!!

 

[maxyss]

@lordagary Ratings are either flat extras (You will pay an extra $5 per year per $1,000 of coverage) or they are quoted as a higher risk premium (ie. If the cost of your premium is $1,000 per year we will assess a 50% rating on that so the premium for you is $1,500).

 

[amberb]

@lordagary Brokers don’t negotiate with underwriters. Also most brokers would rather you get the best rating possible.

 

[jwalk33]

@lordagary If it’s what’s called a ‘flat extra’ that additional premium is not commissionable.