NU Online News Service, Oct. 14, 3:05 p.m. EDT

The Risk and Insurance Management Society Inc. released a report calling for complete transparency and full disclosure of all broker revenue from insurance placements and services.

The report, “A Practical Guide to Insurance Broker Compensation and Potential Conflicts of Interest for the Risk Manager,” is a guide to assist risk managers in understanding insurance broker compensation and potential conflicts of interest, RIMS said.

The ultimate goal of the report, the organization said, is to heighten members’ awareness of the potential pitfalls surrounding the insurance purchase transaction, so buyers are empowered to press for greater transparency in their negotiations with brokers as well as for regulatory reform in their own states.

“In ideal settings, insurance brokers and risk managers are working very closely toward a common goal–marketing the insured’s coverage to achieve optimal results within the commercial insurance market,” said Deborah Luthi, director, RIMS External Affairs Committee and director of enterprise risk management at Matheson Inc.

The report did not mention that broker compensation has been a controversial issue since 2005 when an investigation by the New York State Attorney General’s Office revealed that commercial insurance brokers had accepted undisclosed contingency payments from insurers for steering customers their way.

As a result of that probe, some major brokerages agreed to cease accepting contingent commissions.

Ms. Luthi said that because the industry has “yet to mandate full disclosure, risk managers must be diligent in their broker selection process. This report gives them the tools they need, not only to successfully make that selection but to drive a higher standard of conduct industrywide.”

The report stresses that any compensation to the broker from insurers with whom the broker places client business must be transparent or eliminated altogether. This is to ensure that the brokers are acting solely in the interest of their client.

Other topics covered within the report include:

o An extensive outline of insurance broker compensation types.

o Tips for crafting an effective request for proposal.

o Recommendations for delineating services to be provided and associated charges within a service level agreement.

In tandem with the executive report, RIMS also released today a revised position statement on broker compensation.

The statement reiterates the call for risk managers to demand full transparency of all revenue streams by the broker in advance of any submission to market, purchase or placement of coverage. It also addresses broker-marketed new products and services to carriers.

“While RIMS takes no issue with new products, there must be a separate agreement between the two parties which does not link these services to specific clients,” Ms. Luthi said. “However, if a broker receives payment from both the carrier and the buyer for placement of insurance products, all transparency requirements should adhere to that transaction.”