Broker Compensation
The Economical Insurance Group's products are distributed by insurance brokers. Insurance brokers represent many insurance companies and provide consumers with impartial advice on what policy best meets their needs. Insurance brokers are licensed professionals, and are regulated by the province or territory they do business in.
We believe insurance brokers are a consumer's best source for insurance products as brokers help consumers make informed decisions about the type and quality of insurance products they require. Brokers also act on behalf of consumers -- not insurance companies -- an obligation that we clearly define in all of our contracts with brokers.
Brokers receive a commission for the work they do for consumers -- such as helping to understand the consumer's insurance needs, finding an insurance policy best suited to those needs, shopping for the best premium for the policy and assisting consumers in the event of a claim. Commissions are generally the only source of income for a brokerage.
Commissions are paid to brokers by an insurance company as a percentage of the policy premium. If requested by a consumer, brokers are required to disclose the commissions they receive for a policy.
The commissions paid to brokers by The Economical Insurance Group's member companies are:
Economical Mutual Insurance (and the Western General Farm division)
- a multi-line general insurer operating in most provinces
| Private passenger automobile | 10 to 12.5% |
| Personal property (e.g. homeowners, tenants) | 20% |
| Commercial automobile | 7.5 to 12.5% |
| Commercial property | 20% |
| Surety | 25 to 35% |
Federation Insurance Company of Canada
- a multi-line general insurer operating in most provinces
| Private passenger automobile | 12.5% |
| Personal property (e.g. homeowners, tenants) | 20% |
| Commercial automobile | 12.5% |
| Commercial property | 20% |
| Surety | 20 to 35% |
Missisquoi Insurance
- a multi-line insurer operating in Quebec
| Private passenger automobile | 12.5% to 15% |
| Personal property (e.g. homeowners, tenants) | 20% |
| Commercial automobile | 12.5% to 15% |
| Commercial property | 20% |
| Surety | 20% |
Waterloo Insurance
- an employee and professional association group insurer operating in most provinces
| Private passenger automobile | 10% |
| Personal property (e.g. homeowners, tenants) | 17.5% |
Perth Insurance
- a non-standard and high-risk property and automobile insurer operating in some provinces
| Private passenger automobile | 5 to 12.5% |
| Personal property (e.g. homeowners, tenants) | 15% |
Other Services
A small number of The Group's insurance brokers earn higher commissions (between 2 and 5% depending on the brokers capabilities) for providing additional services for The Group -- such as underwriting, data entry and administrative roles. The additional commission paid for these services reflects the additional expenses incurred by the broker that are normally paid by The Group. The cost of a policy is not impacted by this arrangement.
Contingent Profit Commissions (also known as profit sharing)
When The Economical Insurance Group has a profitable year, our broker partners may share in that profit via contingent profit commissions. This contractual agreement with our broker partners is based on the broker's entire volume of business with The Group (not individual policies) for that year, and is contingent (dependent) on The Group making a profit that year. Contingent profit commissions represented only about 3% of The Group's total earned premium in 2003.
Brokerage Business Loans and Investment
The Economical Insurance Group has provided a small number of our broker partners with loans, assisted them in arranging financing or taken an equity position in their brokerage. This assistance is to support the brokerage's business development or perpetuation plans -- e.g. a broker buying the brokerage from another broker that is retiring.
Some brokers require this assistance as traditional financing may not be available to them from regular lenders (e.g. banks). Few regular lenders consider goodwill (the excess of purchase price over fair market value -- often derived from a broker's customer loyalty, location, etc.) to be an asset.
Other
On occasion, as part of routine business practices, our broker partners or their office staff may be invited to participate in entertainment events or may receive small gifts for such things as recognition of a long-term business association with the company, product awareness, sales and training initiatives, participation in company focus groups, etc.
