Broker Industry Change Inevitable: Greenberg
By Susanne Sclafane
NU Online News Service, Dec. 2, 1:20 p.m. EST?American International Group Chairman Maurice Greenberg predicted at an industry analysts meeting yesterday that large retail brokers will have to significantly change their operating models to survive.
Speaking at a Global Reinsurance Conference meeting in New York hosted by Lehman Brothers, he also raised the possibility that retail brokers' ownership of reinsurance brokerage operations might come to an end.
Drawing a parallel to the airline industry, he distinguished between "old model" airlines that are either in bankruptcy or going into Chapter 11, and the "new model" Jet Blues of the world that operate with "lean operations and less fees." The new model airlines are doing well, he said.
In the broker world, "there will be change," he said, noting that the trend of larger brokers losing business to small counterparts has started already.
"Many insureds are unhappy with what happened," he said, referring to allegations that Marsh Inc. and other brokers were involved in bid rigging. He concluded that of those brokers who survive the scandal "those that do?will be leaner and more responsive to the fiduciary relationships that they have with their insureds."
Mr. Greenberg made his predictions after describing other types of changes–like those that would involve the disclosure of contingent commissions by brokers to their insureds. Such changes are being discussed in countries beyond the United States, he observed.
Change, he said, "is in motion" already. "What the end-game will be is hard to say," he said, going on to raise the question of whether a retail broker will be able to own a reinsurance brokerage firm that is "getting its business principally from the same [primary insurance] companies that wrote retail accounts."
"There are a lot of questions to be answered. I don't know the answers. But change is underway," he said.
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