Who do you work really for—the insurance carrier or your clients?

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James (not his real name) on why he quit his former agency to start his own benefits firm:

“The agency owner asked, ‘What are you doing with the Johnson account?’ I told him that, since they’re getting killed every year fully insured, I’m researching a good TPA in order to take them self-funded. ‘You’ll do no such thing,” my boss yelled. “You’ll put them with [the BUCA carrier] where they belong! That’s where we make our money.’”

He wasn’t talking about commission. “Every year, the carrier paid the agency a $600,000 bonus, on top of commission…that’s 20 percent of the agency’s $3 million annual revenue.”

It’s clear the agency owner in James’ story works for the carrier, which makes sense since he gets paid by the carrier.

Who signs your paycheck?
Who do you work for? The reality is, we all work for whomever signs our paycheck. There’s no arguing this point. So if you take medical commissions, you work for the carrier.

“No, I work for my client,” you say. Well, you may be motivated to work in your client’s best interests but you are incentivized to work for the carrier. If you’re paid commission, what happens when your client’s premium increases eight percent at renewal? The client hurts but you get an eight percent raise next year. That’s hardly an incentive to lower your client’s premium.

In 2017, a BUCA in North Carolina offered brokers “a $50,000 added incentive for each new fully-insured group sold” with 250 employees or more. Did the $50,000 sway any brokers to move a group to fully insured—possibly against the client’s interest? Certainly the carrier expected the bonus to influence the brokers actions by increasing their incentive to act in the carrier’s interest.

That’s an extreme example? OK, ever get a bonus for volume of placed business? How about a retention bonus? Have you ever been notified you are just X amount of premium shy of qualifying for a carrier awards trip? Lots of brokers have admitted these incentives have influenced their actions-- and not always in the best interests of their clients.

I’m not impugning anyone’s integrity. It’s human nature—and good business—to act on these incentives. But that’s the problem; no one consistently works against their own self-interest. And that’s why getting paid by the carrier is a bad idea.

“But the carrier pays me a per-member-per-month (PMPM) fee—not commission.” Okay, you don’t get a raise when your client’s premium goes up—but you also don’t feel his pain or have any incentive to work harder to lessen his burden.

The decisive thing is to align your incentives with your client and not the carrier. Moving to fees in lieu of commissions is a good start; at least the client knows how—and how much—you are getting paid.

But to be incentivized to do the hard work to actually reduce your clients’ cost of healthcare, you need to align your interests fully with theirs by guaranteeing certain results—and promising to forgo a certain portion of your compensation if you don’t. By aligning your interests, performance-based pay puts you on the same side of the table as your client.

Former Employee Benefit Adviser Editor-In-Chief Elizabeth Galentine wrote in these pages, “Brokerages that are not yet on the performance-based payment bandwagon better get on board, because from where I’m sitting, it’s clear that advisers who have not made this commitment… are going to be left in the dust by those who are taking the profession to the next level.”

So who do you plan to work for?

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