Show me the money

The recently published Insurance Personnel Selection Salary Guide 2003/4 contains some surprising figures. The survey shows the average wage for a junior personal lines broking technician was £11,500 in 2003, £12,500 in commercial.

The IPS survey did not look at directors but a salary of £200,000 is not unusual for successful broker directors. However, industry commentators deny suggestions they are paid too much. "I don't think there are many fat cats in broking," says Ian Richens, chief executive of FM Green. "Though one or two scheme brokers don't have to do much for the money they are earning."

Brokers usually spend about 25% to 40% of their commission income on wages, aiming not to exceed this limit. How this is spread among the staff depends on the business, as Christopher Dickman, director of IPS, points out.

Dickman adds that there are no guidelines on how much the directors should take from the business, though it may be in their interest not to take too much. He says: "It depends what they want to reinvest. Ambitious broker directors may be happy to take less money in order to help the company grow."

Ultimately, says Richens, the value of the company goes to its owner.

"The broker is storing up value in the business to sell," he says. "It's their nest egg."

At the other end of the scale, junior staff can earn as little as £10,000. Oliver Laughton-Scott, managing principle of IMAS Corporate Advisors, says at this level staff usually do unskilled call centre work and, therefore, cannot bargain for much more. Laughton-Scott says technology has impacted on this end of the market, decreasing the number of jobs available and deskilling them.

"As systems are getting better, they are being applied to call centres and to smaller commercial lines," he says. "Around 20 years ago brokers could do some personal lines and hope to make some money out of it, now it's all gone over to large operations."

Dickman warns that off-shore call centres, many of which are now based in India, could also bring the wages down in the UK. He explains that these call centres can undercut their UK equivalents by thousands of pounds.

He adds: "On the other hand, there's a limit to how little people can accept in the UK. People will not be able to accept non-UK wage levels so in that sense will not be able to compete."

Further up the salary scale, the broker salesforce is usually paid about one third of the commission it earns. Some company owners offer these sales staff bonuses for doing particularly well, meaning staff wages can reach £80,000 per year. "We want to encourage our sales reps to achieve more so we offer them a bigger slice of the cake if they earn more," explains Richens.

Bonuses can also be a valuable way of handling hardening and softening markets. While brokers will be happy to accept increases in a hard market, few will accept their wages decreasing in proportion with soft market premiums.

As Peter Staddon, technical services manager at the British Insurance Brokers' Association, says: "In a hard market, prices might rise by 20% but I don't think brokers' wages should directly mirror that - you don't see many brokers' wages going down when the market softens."

Geographical area also seems to influence brokers' wages, with the South-east winning the highest wages. According to the IPS survey, London retail broking house account directors can earn up to £62,500, while this wage tends to level off at about £45,500 for regional commercial brokers.

Kevin Young, chairman of Argyll Insurance Holdings, claims that London does not necessarily lead the market on wages, however. "The pool of prospective employees is smaller in the provinces, so you sometimes find you have to pay over the odds to attract the right person," he points out.

Niche earner

London brokers' high wages may also reflect their niche expertise more than geography, as specialists can demand higher wages. Laughton-Scott attributes this to basic market economics. "If you have a specialist business you have to have specialist staff and pay more for them," he states.

He backs this up with figures, pointing out that motorcycle and classic motor specialist Carole Nash pays its staff 13% more than other large, personal lines brokers on average. As a specialist broker, he believes it has to.

Dickman claims the broking market has moved away from offering employee benefits towards offering pure salary, a point backed up by Richens' experience.

"We don't give perks like pensions, health insurance and so on," he says.

"People forget they are getting these extra benefits after the first year and, if considering other jobs, simply compare the annual salary."

While not a perk of the job, directors' and officers' insurance is increasing the cost of employing senior staff. Staddon points out that some potential employees are now unwilling to take senior roles unless protected by this kind of cover, understandably unwilling to risk being sued in an increasingly litigious society.

"D&O isn't a benefit in kind and wouldn't be treated as such," says Laughton-Scott. "But if the cost of employing someone goes up sharply it puts pressure on the industry."