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Perspectives: The insurance commission continuum — bias too big to ignore


While reading a recent report, a headline proclaimed commissions across the insurance industry have increased by 4% over the past year. 

What’s most remarkable about this jump is what an outlier the insurance business continues to be in the amount of commission that is paid to intermediaries. For the past two decades, as the internet has put downward pressure on the cost of doing business in general and commissions paid to intermediaries in particular, the insurance industry has successfully resisted that pressure, at least for now. 

The real estate, travel and stock brokerage businesses are just three examples of how the balance of power has changed: Customers enjoy direct access to the end product or service that they want and need, with virtually unlimited information at their fingertips to help them with their buying decision. To stay competitive, for example, the largest retail stock trading firms — first, Charles Schwab, followed by Etrade and TD Ameritrade — ditched stock trading commissions in 2019, knocking what was once a $200-per-trade average down to practically nothing. This signifies a major shift for an industry that only 20 years ago was dominated by brokers who wielded their control over the market and charged what now seem like exorbitant commission rates.

Travel agencies offer yet another glimpse into a transformed compensation model where commissions play a much smaller role. During the 1990s, most travel agents earned their living from commissions, but that changed when airlines stopped offering agents commissions on airfare. Online travel agencies made it possible for people to book their own travel arrangements, and things were looking bleak for the traditional travel agent. 

In recent years, though, the tables have turned and tourists are returning to travel agencies in droves. Why? Because travel agents have proven the value of their expertise — they are not simply booking a hotel room, they’re advising clients on which hotels, and even which rooms, have the best value, the best views. They take the hassle out of travel by providing their clients with an exceptional customer experience and they rely more on fees than commissions to get the job done. 

At a time when nearly every other professional service industry is evolving in step with innovation and emerging technologies, how does the insurance industry continue to evade disruption and rake in higher compensation? Perhaps a more pressing question is how — if at all — are customers benefiting from the traditional commission-driven insurance market?

The short answer is they’re not. At the core of the commission-based model lies an inherent conflict of interest that puts agents and brokers at odds with their clients’ best interests. And when an intermediary’s compensation is inextricably linked to each insurance transaction, it’s the customer who loses. They lose power, leverage and confidence in their agent’s ability to provide objective insurance advice. This dynamic creates bias, and it’s getting too big to ignore.

There’s no question that clients need the knowledge, experience and access to markets that insurance agents and brokers provide; the problem is how those intermediaries are paid. Clients deserve the right to be able to decouple their agent’s or broker’s compensation from the amount of premium they pay. They should pay for the services they want and need, regardless of how much insurance they buy.

The idea of charging fees in lieu of commission is hardly new; it’s been around since the early 1960s when large companies realized they had the leverage to tell their brokers that they were no longer playing the commission game. Roll forward to today and many brokers are paid fees by their larger clients, but generally only because at some time or another the client had forced them to do so. As to how much they charge in fees, they are all over the map with most fees ultimately looking more like some form of reduced commission.

It’s time for that all to change. Every client deserves the power of objectivity that brokers can bring to the relationship when commissions are not part of the equation. Without commissions clouding the picture, brokers would be more effective in negotiating lower rate increases in hard markets and more significant rate reductions in soft markets, all to the benefit of their clients.

Agents and brokers who don’t rethink their approach will eventually become obsolete as industry disruptors swoop in to offer customers alternatives to the status quo. Insurers, regulators, agents and brokers are all jogging in place while the rest of the world is sprinting toward a more progressive and value-driven future. And the future is fee-based.

With a fee-based model, the power is put back in the customer’s hands, enabling buyers to better manage their insurance and risk-related costs without necessarily reducing their coverage. It also enables them to choose brokers based on their capabilities and expertise, which will force brokers to constantly innovate and improve even more than they do today. Most importantly, by removing commissions and the conflict they represent, buyers receive unbiased advice and transactional efficiencies unlike anything they receive today. 

If other industries have taught us anything, it’s that the tide has turned. How insurers, agents and brokers choose to respond will determine whether they sink or swim.

Charlie Wilmerding is the founder and CEO of Altus Partners Inc. A former underwriter and traditional broker, he started Altus as a fee-based intermediary in 1997. He can be reached at