Broker, Agent Roles Faces Redefinition, Says Study

By Steve Tuckey

NU Online News Service, Feb 16, 4 :11 p.m. EST?A redefinition of the roles of broker, agent and insurer may be underway, according to a new study by Conning Research and Consulting, Inc.[@@]

Stephen Christiansen, Conning director of research and author of the study, said insurers may view the current market as an opportunity to get closer to their clients.

"The clients, on the other hand, will be looking to ensure that the bidding process is more favorable to them," he said.

The changes are taking place in the aftermath of investigations into broker practices in the insurance industry by N.Y. Attorney General Eliot Spitzer which led to allegations of bid-rigging and price fixing by major commercial brokers who it was charged were paid off to steer customer to insurers who were part of the scheme.

Mr. Christiansen said in light of questions about the ethics of receiving compensation from both the insured and the carrier, brokers will have to redefine their role through service enhancement and greater transparency in the bidding process.

"If the broker cannot make the business case to the client that they add value to the transaction, they will not be able to make up for loss of contingent commissions," Mr. Christiansen said.

But it is too soon predict the end of the incentive arrangements, known as contingent commissions and placement agreements, that brokers arrange with carriers.

"These structures may make more sense than the current conventional thinking suggests," Mr. Christiansen said.

For example, a risk manager may face the choice of paying a 10 percent commission to a broker who will then collect a 2 percent contingency fee, or pay a 12 percent commission to a broker who collects no such fee.

"And the risk manager may say I will take the first one," he said.

In addition, relationships between brokers and carriers can sometime extend years and involve various infrastructure investments for which risk managers may realize that contingency commissions are appropriate.

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Broker, Agent Roles Faces Redefinition, Says Study

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