The Last Word: Where have the ethics gone?

Even with the damage from hurricanes in late 2008 and the surplus depletion among reinsurers, the soft market may continue in 2009 and beyond. Insurers, program managers and brokers are all fighting for profitable business and many are offering specialty coverage without having any background with the clients they are seeking to cover. The result is widespread neglect of ethical business practices. We've seen it first hand. Our company has worked for years with a national wholesaler that issued the policies and filed taxes for the programs we designed. When we outgrew the wholesaler and our relationship ended, it decided to enter our line of business and contacted the clients we placed through it. Luckily, most of our brokers and clients stayed with us when they recognized the impropriety of this wholesaler's actions. In another situation, our E&O wholesaler terminated its relationship with the insurer that used to place our coverage. The insurer contacted us directly to ask if we wanted a quote from them. We could not ethically agree to that. Interestingly, many of the wholesaler's clients left and went with the insurer. Our agency is known for our program development and the forms we offer our clients. One day we discovered that a "wannabe" program manager copied our Web site and our consent and aftercare forms to give their clients. Because much of the insurance industry uses standardized forms, some people assume the forms, endorsements and applications are available for everyone. We have now put a warning on our Web site that all of our forms are proprietary. Any relationship in our industry should have it spelled out in a contract who owns the business if the relationship with the placing broker is terminated. Because it remains a buyer's market, it is up to the controlling broker to demand these types of contracts. We have revised our broker contract to state that we have no right to a retailer's clients unless they default on payments or return commissions, in which case the client is fair game. Insurers want to know everything about a program or a big line of business before they determine if they want to "take it on." In this market, the broker with the business holds the aces. Brokers, retailers or anyone with a strong line of business should not give up information to an insurer or wholesaler unless they are interested in the line of business. Don't give up your special knowledge without strong contracts in place. Be wary of reinsurers, too. Years ago we had a relationship with an insurer that placed a portion of our program with a well-known international reinsurer. When our relationship ended because of the carrier's purchase by an outside party, the reinsurer lost its part of our program. The reinsurer is now using the knowledge it acquired from us to try and get back into our market. Any broker negotiating programs with insurers should get a non-compete clause from all parties involved. Last but not least, we work with a third-party administrator (TPA) that is interested in selling coverage in one of our programs. We are concerned about giving the TPA our policy forms and program, wondering if it could use the forms to set up its own program. Although our clients, brokers and carriers are mostly good people, we must do everything possible to protect our specialized client information, especially in a soft market. Susan Preston is the president at Professional Program Insurance Brokerage and has been providing insurance to the permanent cosmetic, tattoo, tanning and beauty industries for more than 18 years, and to medi-spas and laser centers for 5 years. She is a well-known speaker and writer in these industries and has worked with states and other governing bodies regulating these fields.