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Undercutting making mockery of insurance brokers, expert says

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Undercutting by insurance brokers, in order to secure contracts, is both building a mockery of and posing an important threat to the industry, says Michael Duncan, MD of Marsh Africa.

Speaking for a short-term insurance summit in Johannesburg, he denounced the commoditisation of insurance broking services.

Insurance brokers are often independent advisors who represent the interests in their clients, instead of that from insurance firms.

He said clients often don’t appreciate the value-add or advisory services made available from brokers and find out little difference among brokerages thus opting for the cheapest choices, particularly in [today’s] trying economy.

Duncan also chided brokers who undercut fees “without fully understanding or even just ignoring the extent of the services expected with the client”.

“At times, be successful to secure new company generally outweigh wise practice. If your competing broker is successful, however , the new fee then becomes the base figure for next year’s fee negotiations. It is quite tough for the fresh broker to argue to have an increased fee for the reason that didn’t grasp the workload,” he said.

According to Duncan, the successful bid to get a recently-awarded large broking tender in Nigeria was 45% that of the first year’s fee.

He made to feature that there would have been a 550% price variation among seven Botswana pula-denominated quotes received for a risk management tender in this country, while using lowest quote weighing P360?000 as well as the highest at P2 million.

“These pricing variances create a mockery of your industry within the eyes individuals mutual clients: whether it be undercutting of rates or the discounting of commission or fee income, I recommend that we’re successfully cannibalising our industry,” he was quoted saying.

Duncan also said that sub-economic pricing has resulted in detrimental outcomes for clients, techniques insurers facing an income squeeze are stricter into their interpretation of claims, while lower revenue for brokers ends in service cutbacks.

“Ideally, we should be motivating our fees using the added value services we’re providing. We should aim to avoid negotiations which focus purely on cost, much more serves to increase commoditise the ideas we’re providing and eventually destroys our brand,” he stated.

When coping with clients facing genuine financial hardship hoping cost-saving measures, he said brokers should look discover a compromise as a way to justify reducing fees, which might potentially be performed by decreasing the range of formal meetings or by negotiating a multi-year appointment.

Marsh Africa’s network, this includes a unique offices and correspondents, has reported which the rebating of commission or reducing of fees among brokers competing for tenders is normal practice in the region, with the exception of countries where it really is illegal.

Duncan said regulators in your neighborhood, which have been increasingly interested in fee cutting, have imposed minimum fees some countries, partly to ensure the sustainability of the marketplace.

He called on South Africa’s Financial Services Board together with other industry bodies to urgently read the pricing of merchandise and services in the united kingdom. ?

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