Switzerland is home to nearly 1000 insurance brokers. While insurance agents sell insurance for a single insurance firm, brokers are independent (at least officially) and are meant to operate as such.
Brokers must register with FINMA
Independent insurance brokers are required to register with the Swiss federal financial supervisory authority FINMA. All official insurance brokers can be found on the FINMA register.
Brokers should operate in the best interests of their customers, meaning they should offer potential insurance buyers the policies which best suit their needs. Unfortunately, that obligation has gotten somewhat blurred over the years. Some brokers are motivated primarily by the commissions they receive from insurance companies, rather than the best interests of their customers.
In practice, some “brokers” only provide a limited selection of policies from a handful of insurance companies, and thus would better be described as “multi-company agents”.
Business model: Commissions
While independent Swiss comparison services are primarily financed by online advertising and compensation for contact requests, brokers and agents generally work on commissions.
Commissions are normally paid out for completed, successful applications. Fee-based consultation is not common among Swiss insurance brokers.
Depending on the insurer and the type of insurance in question, commission amounts and types may vary. The most important commissions used in the Swiss insurance industry are listed here:
- Acquisition commission: A one-time compensation for each policy sold. This may be a percentage (20% of annual premiums, for example) or a flat fee (300 francs, for example). Possible reasons for this commission: The insurance company saves the costs associated with new customer acquisition and passes part of the savings on to the broker.
- Residual commission: This is a recurring compensation for an ongoing policy. Typically, this is paid out on an annual basis for as long as the policy is in place. Residual commissions can be a percentage of premiums (15%, for example) or a flat-rate payment. Possible reasons for this commission: The broker is paid for the ongoing service they provide to policyholders over the life of the policy.
- Multiple policy commission: Bonus payment for getting a customer to sign up for more than one insurance policy from the same insurance provider. Example: A broker receives a 200-franc bonus if a customer signs up for both a compulsory health insurance policy and a supplemental health insurance policy from the same insurance provider. Possible reasons for this commission: Insurers understand that a customer with multiple policies from one insurance company is more loyal, and is therefore a more valuable customer.
- Performance-based commission: This additional bonus compensation is paid out when certain sales targets are met or a predefined volume of commissions is reached. Example: An insurance seller receives a performance-based commission equal to 50% of total commissions after reaching a commission volume of 50,000 francs in one year. Possible reasons behind this commission: It motivates insurance distributors to generate as many new customer acquisitions as possible.
Combinations of these commission types also exist. There are also insurance companies which let distributors choose between different compensation models.
Performance-based commissions under fire
Performance-based commissions in particular are the subject of regular criticism because they can create a conflict of interests. A fairly large number of brokers primarily sell products from a single insurance firm to their customers, even when other insurers would be a better fit.
Genuine and less genuine brokers
Brokers can provide a value added service if they deliver clear, transparent and unbiased consultation which helps customers find their way around the insurance jungle.
Brokers can also help you save effort and expenses if they handle your insurance correspondence for you. Some brokers are also able to provide good discounts due to special agreements with insurance companies.
Unfortunately, there are also a few black and grey sheep in the broker fold. Less scrupulous brokers are primarily interested in accumulating commissions from insurance companies, and do not act in the best interests of customers.
On paper these brokers claim to work with multiple insurers, but in practice they promote just a handful of insurance companies which pay them the highest commissions. Brokers which try to sell customers insurance coverage that they don’t actually need or tie customers into long insurance terms also qualify as less-than-genuine.
As a customer, you have the right to understand the relationships between a broker and insurance companies. As well as the names of the insurance firms they represent, you also have a right to know what type of commissions they receive and how high these commissions are.
Digital brokers and broker apps
Digitalization has also affected the insurance industry and its distribution system. And it isn’t just insurance companies that are making apps and digital insurance filing options available to customers. Some brokers have also made the move to mobile apps.
An increasing number of purely digital brokers now operate in Switzerland. These aim to claim market share by using apps to reach large portions of the population. These include brokerage platforms like Knip, Optimatis (Comparis) and Wefox.
Suggestion: Don’t let a catchy web design or a sleek mobile app wow you. Instead, focus on digital brokers’ independence and the quality of the consultation they provide.
10 tips for choosing the right broker
If you’ve decided to use a broker, pay attention to the following tips.
- Choose a broker that works with multiple insurance companies. Ask brokers which insurance companies they work with and what commission they receive from these firms.
- Choose a broker which is completely transparent about the way they operate and the compensation they receive. If you prefer, suggest paying your broker a consultation fee as an alternative to their receiving commissions.
- A real expert can be a valuable asset. Choose a broker that is highly knowledgeable in the way in which they answer your insurance questions. A good broker should be able to answer complex questions relating to all insurance matters.
- Make sure that the broker in question is listed in the FINMA register. Sadly, a FINMA registration is by no means a guarantee of quality service and consultation.
- Take your time when going over the brokers insurance proposals. Make use of an independent insurance comparison tool to confirm the accuracy of their consultation, or ask moneyland.ch’s Moneyguru online financial assistant.
- In many cases, the insurance policies recommended by brokers are not the best value options. Don’t be afraid to ask your broker why they didn’t recommend a more affordable policy. If there is a notable difference in price between the solutions recommended by your broker and the most affordable solutions providing the same coverage, you should probably use a different broker.
- Check the insurance term on the policies which your broker recommends. Multi-year policies are generally a no-go.
- Don’t allow yourself to be put under pressure to sign up. If a broker isn’t willing to wait, they probably aren’t genuine.
- Be careful when filling out insurance-relevant information: always make sure that information you enter when taking out insurance is 100 percent accurate. If not, you may not be eligible for insurance benefits when you make a claim. If a broker doesn’t consider each question put forward by the insurance provider to be important, they probably aren’t looking out for your best interests.
- Careful: Signing a brokerage contract gives your broker full power to take out and to terminate insurance policies in your name. If you use a digital insurance app, it may even be possible to provide an initial “signature” right on your phone. Only sign this if you are absolutely certain that the broker is genuine and working in your best interest.
The moneyland.ch team