Canadian Underwriter

How important is brokerage size when it comes to broker compensation?

October 27, 2021   by Jason Contant

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When it comes to working with brokerages, embracing the future is more important than size, said Carol Jardine, president of Wawanesa Insurance’s Canadian P&C operations.

“A broker who’s embracing the future today might not be that large, but if they embrace the future properly, marry the digitization with the consumer touch and if they’re able to figure that out… it would be foolhardy of us not to look at who the broker is,” Jardine said during Insurance Brokers Association of Ontario’s virtual convention last week. “We’ve got lots of brokers who I visited five years ago in Ontario that we didn’t have contracts with, and today, we’ve got huge contracts.”

Jardine said during the convention’s CEO Panel that Wawanesa looks at how the brokerage is embracing modernization, if they’re investing in their brokerage and how they protect themselves against volatility. “There are [brokerage] answers to that and insurance companies offer answers to that,” she said.

“But you have to be aware that there is an impact of volatility on a small broker brokerage which is lost on larger brokers. Insurance companies are not built on scale, our fixed costs are very small, they’re mostly a variable cost model. But brokers are a huge variable cost model, so anything that adds to that volatility is going to impact them.”

IBAO CEO Colin Simpson moderates the CEO Panel with (from left to right) Matthew Turack, CAA Insurance president, Louis Gagnon, president of Intact Insurance’s Canadian operations, Carol Jardine, president of Wawanesa Insurance’s Canadian P&C operations, and Marc Lipman, president of Lloyd’s Canada.

Jardine was responding to a question from IBAO CEO Colin Simpson, who was moderating the CEO Panel. He asked about differences in running a small brokerage compared to a larger brokerage and how fluctuations of things like contingent profit commission can impact the business. Simpson also mentioned brokerage compensation in general, and asked if panellists saw a difference in the direction of compensation for bigger brokerages as opposed to smaller brokerages.

From a Lloyd’s perspective, compensation models are slightly more complicated because there are more intermediaries. These add cost and complexity to the broker compensation model, added Marc Lipman, president of Lloyd’s Canada.

“We do look for, as Carol says, those brokers that are adopting business models that lower their costs [and] that help us share and perhaps create more flexibility for compensation,” Lipman said. “But Lloyd’s is still coming off of a significant probability remediation exercise, so there’s not a lot of spare change.”

For Matthew Turack, president of CAA Insurance, brokers should be compensated well. As an example, he noted recent that prices are brought down because of things like pandemic rate relief measures, “then the broker is going to lose by that. But we’re still asking them to do more work. So, one of the initiatives we did during the rate relief is… we topped brokers up so that they didn’t lose as we are reducing rates and reflecting that relief back to the consumers.”

Jardine noted that broker compensation (including contingent profit) at Wawanesa is 18.5 cents out of every dollar. “But I’ll be transparent — we run our company on a general expense ratio of 10.8. So our entire organization runs on just under 11 cents,” she said. “So, when you think about 11 cents for a company and eighteen-and-a-half percent to the broker…we are paying [brokers] what we think is a fair amount of money for the work that we do. We’re happy to do that.”


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