Brokers Voice Pain Over Probe Fallout

By Mark E. Ruquet

NU Online News Service, Dec. 15, 4:15 p.m.EST?Ongoing investigations of insurance brokerage businesspractices has brokers worried the fallout will create financialburdens for both clients and themselves, hurting smaller brokersthe most, a consulting firm survey has found.[@@]

According to the report by New York-based Advisen Ltd., brokerssaid they are reluctant to scrap the entire contingent commissionfee structure and that smaller brokers, who are more reliant onthese fees, would suffer the most if companies drop thecommissions.

Besides poll statistics the company included some brokers'impassioned comments on the topic that has roiled the industrysince New York Attorney General Eliot Spitzer accused Marshbrokerage in a civil suit of taking kickbacks disguised as fees torig bids and steer business to insurers.

David Bradford, executive vice president with Advisen, said theresults of the survey are based on a series of question andcomments from 135 senior management brokers who responded to aWeb-based survey over a two-day period in November.

Of the 135 respondents, 64 percent, or 86 individuals, weremembers of the top 100 commercial insurance brokers. Nearly half ofthe 86 respondents were from the four largest brokers.

Mr. Bradford pointed out that 65 percent of the respondents feelthey now are obligated to enhance their disclosure with theirclients, while 16 percent of the brokers decline to answer thequestion.

He said it was unusual that so many would not answer a question.The remaining 19 percent said they did not feel the need to enhancedisclosure. Nearly 77 percent said they anticipate highertransparency would be required in the industry.

The vast majority, 92 percent of respondents, felt that stateregulators would require greater disclosure.

"The point is clear that brokers are feeling pressure now," Mr.Bradford suggested.

In comments Advisen received as part of the survey, brokers saidthat the total cost of risk would increase or stay about thesame.

Mr. Bradford said the brokers indicated they feel they should becompensated for their work and that it is only a question ofwhether the income is from the client or the carrier in the form oftraditional commissions. Their feeling was similar to the responseof over 700 risk managers in a survey released by Advisen inNovember.

Both survey groups indicated they feel the cost of risk willremain the same, or increase, because broker fees would be passedonto clients.

Whatever fees brokers do pass on, Mr. Bradford said, brokersfeel revenues will either decrease or stay the same.

"There is a very strong concern, from the comments we received,that they feel it will be very difficult to make up income," hesaid. "And that could be fatal to smaller brokers who rely on thisincome."

Besides the standard question and answer section, where thestatistics were drawn, the survey allowed for brokers to submitanonymous, written comments, Advisen said. In the comments, brokersblamed a few for the damage to the industry and to theirreputation.

"Contingent income was not a conflict for 99.9 percent ofinsurance brokers in the country who always strive to serve theirclients' needs," said one anonymous comment released byAdvisen.

"I think there is an unintended consequence?less competition,"went another comment. "The smaller brokers and agents will bedriven out of business if they lose contingent income."

Mr. Bradford noted that the comment section was included becausein the survey of risk managers they were inclined to make "copiousand impassioned comments," despite the fact that there was limitedspace for comment. In this survey, the firm wanted to make surerespondents had ample opportunity to comment.

"In every case, we came up with deeper insight into the issues,"he observed of the comments. "It became clear what is on the mindof the marketplace."

"There was unanimous opinion among the brokers that they did notbelieve [bid-rigging and other market abuses of contingentcommission fee placements] was happening in the industry," hecontinued. "They believe there may be a few incidents, but it isnot a pervasive practice in the industry."

Mr. Bradford also noted that the response rate for the surveywas very high at 18 percent, where the classic response rate issomewhere in the single digits.

"It is indicative of the level of importance brokers attach tothis issue and this survey has given them a way to expressthat."