Now, more than ever brokers and companies alike rely, to some degree, upon fee income. Though commissions have stabilized somewhere between 12 – 15%, depending on the insurer you are selling, the cost to run your business keeps increasing and that you can expect to continue. Some of the companies that I sell for charge fees for SR-22s, policy fees, billing fees, and late payment or reinstatement fees. As much as you and I continue to pay the fixed expenses of our offices, so do the carriers we represent, except they are probably on a much higher level due to the number of employees they need in order to maintain their operation. Some of the larger, multi-office brokers also contend with this issue. It’s my opinion that they are very much needed and well deserved. From what I have come to understand talking with marketing reps and managers, fee income has become very important to the bottom line and understandable. On a daily basis, how many fees are we forced to pay? There are fees for many DMV services, late and/or penalty fees on credit cards and let’s not forget about the numerous fees you have to pay when you buy or refinance your home. We could spend half of a day adding to this list. Some of these fees would not be necessary if we lived in some Nirvana society where there is no inflation but that is all fantasy. We live in a world where it continues to become more expensive and finding ways to offset these expenses is a daily chore. Sure we can cut expenses but you can only go so far before you cut into the bone of the operation. Broker fees have been under fire for years both from a legal and practical sense. The Department of Insurance has been very much involved but what has become the biggest influence has been competition. I can remember the days when $100.00 was the norm for broker fee, agreed upon by both the broker and the customer by the signing of Appendix A and B or the Broker Fee Regulations. That very same form now boasts an average broker fee of about $55.00, at least in my agency. Since I have limited overhead, I know that I can afford to go that low on the fee and close a good percentage of the business. In some cases, there are no fees charged because the premium is respectable and the persistency of that policy is high. But some agencies can not afford this luxury because they have a sizeable staff and as you know, employees are very expensive. You have to pay their salary not to mention the taxes associated with it and the cost to train and maintain their employment. The fees that are charged by a company are necessary; however, when you and I are writing a policy and we have a choice of Company A or Company B to sell and the difference in their downpayments(due to fees and/or lack of fees) is $60.00 or so, who are we going to sell(assuming the companies are similar in rating and quality)? I think you have seen this illustration but I think it deserves repeating. You, as the broker can chose:

Company A - $45(premium) + $40(policy fee) + $25(SR22 fee) and there is a $10 billing fee/month.

Or Company B - $48(premium) + $50(policy fee spread out over the term of the annual policy) + $10(SR22 fee) and an $8 billing fee/month.

As much as you have been contacted to sell for both companies, the reality is that we have to offer the customer the best price, assuming they are requesting a monthly payment plan and they want the lowest possible down payment. By the way, I always push for the paid-in-full option for retention reasons and the obvious savings to the customer. And finally, you have to add your broker fee to pay for your expenses. I believe it is Infinity Insurance Company who finances their policy fee over the term of the policy and that makes their down payment very, very competitive. I wish more companies did this. It sure makes it easier for us to sell. On a side note, Infinity just reported some impressive numbers:

"PRNewswire-FirstCall/ In Infinity's 17 focus states, personal auto gross written premiums grew 1.2% and 12.2% compared to the three months and nine months ended September 30, 2004. Personal auto policies-in-force in the 17 focus states grew 11.0% compared to September 30, 2004. Personal auto premium growth in California, Infinity's largest state, was 5.2% compared to the third quarter of the prior year. Personal auto policy counts in California were up 4.2% compared to September 30, 2004."

Though this is not intended to be an advertisement for Infinity Insurance Company, I think this illustrates a successful nonstandard auto carrier that has carved a niche in California(especially Southern California) and continues to find ways to be a favorite with some brokers. I really like selling for these type of success stories and it seems that certain general agencies and companies continually outperform their competition much like we brokers who have lasted a couple of decades through many business cycles. In any case, I would be interested to see what percent of their gross income is directly attributed to "fully earned fees" and compare that number with the same company from a balance sheet of 5-10 years ago. From insurer to broker, fees are essential to the bottom line and the most difficult part is setting these fees at a level that optimizes income yet does not scare away business and in some cases, the fees that are being asked just seem to high compared to the competition. Once again, I think the idea of financing the policy fee over the term of the policy is ingenious and shows a willingness to "earn as paid". Does any other company do this?

Did you know that some companies include a policy fee within their premiums? In other words, their program filing includes a policy fee "constant" that you do not see in the quote and appears to have no policy fee! I believe that these constants are allowed but they are NOT fully earned and are subject to those rules…..another interesting approach. It almost seems that the companies who employ the "earned as paid" are willing to wait because they feel very strongly about the retention in their program and that they will see most or all of the fee earned during the term. Now with that being said, I am not suggesting that programs that do not use this method are flawed, so please don’t email me your complaint. I am illustrating what is available to all of us as producers. Anyway, that’s my 2 cents for now as I write this at 4:30 A.M. I am waiting for Sears to deliver my new TV and Refrigerator this morning and as I look at the work order, guess what I see? Yep, a $10 Haul Away Fee for the old refrigerator.