Divide and conquer at bonus time in the insurance industry

Unlike investment banks, insurance brokers are still prey to the poaching of entire teams. Broking firms are turning to the traditional method of dealing with this: divide and conquer. A few key members are being paid massive retention bonuses, the rest are being treated as dispensable.

The underlying motivation is clear: as with any sales role, clients are key. Brokers fear that when entire teams depart they will take clients with them.

David Coupe, owner of EC3 Legal, a specialised insurance-focused law firm, says that firms are offering “huge bonuses” to one or two key individuals in an attempt to split the team and reduce the benefit for any poaching employers.

Unlike investment banks which are constrained by FSA regulation on retention bonuses, they remain a possibility in the insurance sector, as firms fall under the unrestrained ‘tier four’ category of financial institutions.

Senior brokers working in niche sectors can expect a basic salary of between £100-115k, according to recruiters, with bonuses likely to push total compensation up to £200k.

“Appetite from employers to recruit teams of brokers remains strong, even at this point in the year, particularly among small and mid-sized firms who target growth through acquisition,” says Rob Charles, director of insurance focused recruiters Thomas Kennard.

Recent examples of team moves include a team of six engineering underwriters from Aviva who joined Towergate-owned MGA Fusion Insurance and managing general agency, Dual, which poached three Brit staff for a new special liability business.

Retention bonuses are not brokers’ only weapon. Taking the legal route has been relatively common this year, such as the £300k suit brought against  Carroll & Partners by Oamps; Aon’s case against Alliant Insurance Services in the US and Travelers’ decision to sue XL and its former executives for allegedly poaching its entire luxury yacht insurance business.

However, it’s also costly, and most firms are keen to avoid a public legal battle.

“For every case of makes it to court, there are at least four that involved some sort of threat of legal action,” says David Coupe, owner of EC3 Legal, a specialised insurance-focused law firm. “Because of the cost and potential reputational damage it’s rare that many cases make it to court. However, the current employer has to send some sort of message out; if one team can be easily poached, what’s to say others won’t be targeted?”

Most insurance firms have restrictive covenants in place within their employment contracts. Coupe says it’s still rare for firms to use non-dealing clauses – where the employer restricts brokers from having any contact at all with former clients – and instead favour non-solicitation covenants, where brokers are restricted from directly approaching former clients.

Even big retention bonuses may not be worthwhile; in the long-term it may be possible to get more money by moving. New employers are offering generous commission splits for those coming on board, says Charles. While often this is 50-50, it can sometimes be 90-10 in favour of the broker.