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December 2nd, 2014 | 3 min. read

By Jonathan Waterman

As we celebrate Ethos’ 10th anniversary this month, I’m reminded of how important it is to talk about commissions openly.  I find that many people in our industry are a bit reluctant to do so.  My goal in this article is to show how speaking openly and honestly about wholesale brokerage commissions is a positive thing.

Think of a time when you shopped for a car and engaged the sales person. Did you ever ask them how they were getting paid to help you?  You probably assumed they were paid on some kind of commission, but do you know how much?  Was there any reason you shouldn’t have known how they were paid to help you find the right car?  There’s nothing wrong with asking.  In my opinion, only a sleazy car salesman would avoid telling you the truth if you asked!

As industry insiders know, insurance brokers are often paid a commission by the insurance companies with whom they are contracted.  Sometimes brokers provide their service on a fixed-fee basis, but generally speaking, commission-based revenue models are most common.  This is especially true with small and medium-sized accounts.  Either way, brokers need to be compensated fairly for their time, effort and expertise.  I believe a discussion of fair compensation begins first with honesty…the broker’s honesty, to be more specific.

When quoting accounts for their retail clients, it’s not unusual for wholesale insurance brokers to purposefully remove or exclude information about the gross commission that is paid to them by their carrier.  Why?  It seems obvious that hiding the gross commission gives them more ‘freedom’ on how to split that commission with their retail client.  I see this as a less-than-open way of doing business.  How can a retail agent know they are getting a fair commission from their wholesaler if they don’t know how the gross commission is split between them? There’s certainly no good reason I can think of to hide how much I will get paid when I work hard on my accounts.  If I bring real value to a deal, then I hope to make a reasonable amount of revenue for that effort.

When we opened our brokerage almost ten years ago, my business partner and I agreed that our vision for doing business ‘the right way’ would always include open discussions of commissions with our clients.

Here’s two ways we do just that at Ethos:

  1.  Disclose all commissions in writing.

We always disclose the gross commission paid to us by the carrier on each and every quote.  We don’t remove or hide the gross commission quoted to us by our carrier.  This way our retail partner can see exactly what Ethos is being paid.  When we provide that quote to our retail partner, we make clear how much of the gross commission we keep and how much is being paid to them.

  1. Talk about commissions openly.

We discuss commission structures openly with our clients at the onset of new relationships.  We are always willing to discuss individual commissions clearly on every deal.  But, therein is the difference.  I guess some wholesale brokers might be afraid to clearly reveal or discuss just how much they will make on a given deal.  Perhaps they haven’t really provided a value equal to their revenue, so they might be afraid to engage such a discussion openly with their clients.  Whatever the reason, it seems silly to us to ‘hide in the shadows’ on the issue of commissions.

During the ten years of building our firm, I’m glad to say that we regularly bring into the light issues just like this.  At Ethos, we know we can improve on the overall value a wholesale broker brings by fully disclosing all commissions.  This way, everyone is working together and fully in the know!  It’s just one of the ways we try to ‘do business the right way’ at Ethos.

My suggestion is that the next time you think about buying a car or working with a wholesale broker, consider asking the sales person how they are paid.  By asking that simple question, I’ve found that it takes at least some of the mystery and weirdness out of the negotiation process.  If the sales person or broker squirms at the question, then maybe you’re on the wrong lot!

Feel free to call me if you want to know more about wholesale commissions.  I’d be happy to speak to you openly about it!

Jonathan Waterman

Jonathan, the Co-Founder and Chief Operating Officer of Ethos since its inception in 2004, has had a distinguished insurance career dating back to 1992. Beginning as an underwriter specializing in medical liability insurance for PHICO Group, he progressed to roles with Frontier Insurance Group and National Specialty Underwriters, Inc., before co-founding Ethos in 2004. Jonathan's background as a med-mal underwriter and in the wholesale market uniquely positions him to drive operational excellence at Ethos, utilizing his expertise in identifying data patterns. He has contributed to industry dialogue through his blog articles and participation as a panelist at events such as PLUS. Beyond his professional pursuits, Jonathan finds joy in family, a wide range of hobbies including music and sports.