Tougher year ahead for insurance brokers

Weaker economy to take a toll on brokerage fees and commissions

The Star, Tuesday, December 2, 2008, PETALING JAYA: Insurance brokers are bracing for a tougher and leaner year ahead as the amount of premiums handled is expected to be further squeezed in view of the weaker economy.

With the reduction in premiums transacted, the brokerage fees and commissions earned would be hit, industry players told StarBiz.

Lower premiums held or transacted by brokers (on behalf of their clients) would translate into lower brokerage and commissions for insurance brokers.

An industry player said: “For 2009, premiums are expected to reduce primarily due to the economic slowdown, resulting in major projects being halted or suspended.

“Premiums have generally been soft since 2003 and more so in the last two years as there were no major claims globally after Hurricane Andrew and Katrina,’’ he added.

However, he noted that insurance premium rates were expected to stay at the same level as in 2008 or increase to some degree as insurers could make more underwriting profits to subsidise the loss of investment returns.

In short, clients may be paying more for the same cover despite the slowdown in the economy.

He said the total premiums transacted by brokers were currently growing at about 10% per year and the figure was expected to decline next year.

Sectors with high risk such as marine and construction would be worst hit in terms of premiums transacted.

Total premiums transacted by insurance brokers last year stood at RM3.2bil as opposed to RM3.44bil and RM2.96bil in 2006 and 2005 respectively.

An official from another insurance brokerage said commission and brokerage fees earned would drop next year due to stiff competition among brokers.

“The competition may see brokers offering more discounts to clients or giving up all the commissions as discount to the clients and instead charge a small fee for professional services.

“This is to stay competitive and retain whatever business in hand for future survival,’’ he added.

According to the official, brokerages are beginning to see a downward trend in anticipation of insurers dropping premium rates to stay competitive in bad times.

This would indirectly reduce brokerage fees and commissions of brokers.

The official said he expected brokerage fees earned from fire insurance to be significantly reduced as the bulk of the premiums transacted came from this segment.

Source from: The Star Online, BY DALJIT DHESI
URL:
http://biz.thestar.com.my/news/story.asp?file=/2008/12/2/business/2614563&sec=business