Do You Know How Your Benefits Broker Gets Paid?
When selecting a benefits broker, most employers focus on finding someone who can provide quality service. However, an often-overlooked detail is how that broker is compensated. Understanding this is critical—not just for your company’s bottom line, but for ensuring your broker’s incentives align with your business’s best interests.
Broker Compensation for Group Insurance Plans
Benefits brokers typically earn through commissions and overrides paid by insurance carriers. Here's a breakdown of how this works:
Medical Insurance
Ancillary Lines
A Case Study: An 84-Life Group
To illustrate, consider a company who reached out to us with 84 employees enrolled in group benefits. The group pays approximately $1,064,000 in medical premium annually.
Their Broker’s Compensation:
In total, this broker earns well over $100,000 annually from just one group—raising questions about whether the services provided justify such high compensation.
Concerns Raised
1. Lack of Transparency
Many employers are unaware of the total compensation brokers receive. Regulations require brokers to disclose their compensation, but this hasn’t fully resolved the issue. Brokers with just a handful of mid-sized clients can generate significant income, often without employers realizing the extent of these payments. Overrides and other forms of compensation are often disclosed at the back of the proposal in fine print which can make it difficult to assess whether a broker is earning a fair amount for the value delivered.
2. Conflict of Interest
Since broker earnings often increase with higher premiums, they may have little incentive to negotiate lower rates or explore cost-saving alternatives for your company.
3. Excessive Compensation
In some cases, broker compensation seems disproportionate to the size or needs of the group, especially when renewal overrides continue indefinitely.
4. Carrier-Driven Overrides
Override programs vary significantly between insurance carriers. Brokers may be incentivized to recommend plans based on their own financial benefit rather than the client’s best interests.
Why Employers Need to Pay Attention
Transparency Protects Your Bottom Line
Understanding how your broker is compensated gives you leverage to ask the right questions, evaluate whether their advice is unbiased, and ensure you’re receiving value for what you’re paying.
Aligning Incentives
A broker whose compensation isn’t tied solely to premiums is more likely to prioritize your interests, like finding creative ways to reduce costs while maintaining quality coverage.
Regaining Control
When you’re informed, you can demand more accountability from your broker. Whether it’s renegotiating their fees or switching to a fee-based arrangement, you’ll have options to ensure you’re not overpaying.
Conclusion
Your benefits broker plays a critical role in managing one of your company’s largest expenses, but their compensation can significantly impact your costs and decision-making. By understanding how they’re paid, you can better ensure their priorities align with yours. Transparency isn’t just a compliance requirement—it’s a business necessity.
Start the conversation with your broker today. When you know how they’re paid, you can ensure you’re getting what you pay for.