Conning: Probes May Radically Alter Insurance

Conning: Probes May Radically Alter Insurance

By Daniel Hays

NU Online News Service, Nov. 12, 2:09 p.m. EDT?Ongoing investigations of broker-insurer dealings will cause a big shift in the way clients interact with both carriers and their brokers, according to a Conning Research & Consulting executive.[@@]

Stephen Christiansen, research director and senior vice president at Conning, said the inquiries underway could have the potential to cause "radical changes between clients and intermediaries and insurers."

He said the Hartford -based firm is studying the situation with an eye to possibly issuing a report on the situation.

Conning's focus on the question follows New York Attorney General Eliot Spitzer's filing criminal and civil charges alleging that the brokerage unit of Marsh and McLennan Inc. combined with major insurers to fix and inflate prices for unwitting customers in exchange for kickbacks from carriers disguised as contingency commissions and fees.

As a result, many insurers have announced they will drop contingency fee agreements, and mega-brokers Marsh, Aon, Willis and Arthur J. Gallagher have said they will no longer take such incentive payments. Other brokers are continuing to collect the contingency fees.

Mr. Christiansen that in the wake of the changes that have been occurring, if brokers confine themselves to being 100 percent representatives of buyers in seeking the most inexpensive quote, then "insurers will be struggling to make sure they are getting full information they need so they can write business at a reasonable [profit] margin."

Insurers, he suggested, will no longer be able to count on brokers for all the information they need to evaluate a risk, and "they are going to have to find additional information resources."

Mr. Christiansen cited personal lines insurers' use of credit background to evaluate risks as an example of how insurers can obtain additional information about a risk from a resource not related to a broker or agent.

He forecast that the change in relationships would mean "insurers are going to be more proactive in getting information and understanding the risk better."

At the same time, he said, brokers" are going to be challenged. They will potentially be getting less compensation for more work. There will be more transparency and more disclosure."

For brokers, defining the service they provide and explaining and articulating their value-added will be "a communications challenge," said Mr. Christiansen.

Another result of the investigatory scrutiny, he said, is that "it looks like insurance is in for a period of greater regulation--de facto if not de jure."

Conning is a unit of Swiss Re.