Risk managers are much more demanding these days about what they are getting for their payments to insurance brokers, one industry consultant says.

“The strategy today calls for risk managers to know exactly what they are getting charged,” according to Andrew J. Barile, principal of the Rancho Santa Fe, Calif.-based consulting firm bearing his name. “Clients want to get money back. A broker who is supporting a [major] fee now has to go into detail to justify that fee. Now, all of us have to explain our value.”

Services, he indicated, are subject to negotiation and can be used as marketing tools for retention purposes. However, the need for services can differ with the size of an account–which can also help determine the price for those services.

In an age where transparency is a growing concern, risk managers need to know all the facets of their insurance business and be in a position to answer all cost questions their CFO, treasurer or CEO will likely ask.

Ultimately, brokers need to spell out for the risk manager how costs break down for their account, particularly if additional fees are being incorporated on top of straight insurance placement commissions.

“It is not a cut-and-dried situation,” noted Mr. Barile. “It depends on the circumstances and how the business compensation takes place. You can't give a broad brush on compensation.”

While risk managers are looking to be more informed, they are also seeking brokers who are specialists rather than general service providers, according to Albert Lloyd and Patrick Linnert, executive vice presidents with the consulting firm Marsh Berry Inc., based in Willoughby, Ohio.

Specialists, said Mr. Linnert, have a better story to tell clients because there is a team behind them supporting the services they offer.

However, the pair pointed out that it is not contingent commissions that support these service teams. Instead, principals in brokerage firms fund these teams by giving up renewal commissions, putting it toward the cost of running the services division.

“By and large, it comes out of the producer's pocket,” said Mr. Lloyd.

“These services are funded by the broker,” agreed Mr. Linnert. “All of the brokers are on a pretty level playing field.”

As far as contingent commissions are concerned–for those who still receive such compensation–many agencies and brokerages end up using the money to cover operations for the year, and it is often spent before it even arrives, they noted.

Mr. Linnert said that while many brokers still do take contingents, the mega-brokerages that can no longer accept such fees have in some cases been able to negotiate higher commission rates from insurers to compensate.

However, some brokers have managed to keep offering value-added services to attract and keep clients by either reducing producer compensation, or by setting up house accounts of a certain premium size, with the renewal commission invested back into the firm, according to Mr. Lloyd.

“Clients want to get money back. A broker who is supporting a [major] fee now has to go into detail to justify that fee. Now, all of us have to explain our value.”

Andrew J. Barile, Consultant

Special Reports /

Risk Managers Pay Closer Attention To Broker Costs

Related Stories

Recommended For You