Talk About Piling On!
There is a classic scene in the movie "Airplane" in which a passenger who becomes hysterical is slapped and warned to quiet down by a flight attendant, to no avail, only to be hit and shaken by a second "voice of reason." The camera pans down the aisle to reveal a line of passengers awaiting their shot, one of whom is holding a baseball bat.
I feel a little like that abused passenger these days, as the industrys top dogs line up to "slap" me for my "overreaction" to the probe by New York Attorney General Eliot Spitzer.
On Nov. 8, Bob Rusbuldt, CEO of the Independent Insurance Agents & Brokers of America, accused me in his "Final Say" column of "overgeneralizing" the case against contingency fees. This week, on page 26, Ernie Csiszar, president of the Property Casualty Insurers Association of America, accuses insurance media critics (such as yours truly) of being "shortsighted" and guilty of "knee-jerk reactions," "piling on" and "resorting to tabloid tactics."
Independent agents have been especially feisty, pointing out they dont have anywhere near the market leverage of the mega-brokers targeted by Mr. Spitzer (so far) and could never rig bids. They argue their profitability-based deals are beyond reproachand are even beneficial to clients.
(I guess these upstarts never heard the infamous admonition: "Never argue with someone who buys ink by the barrel!" But honestly, I welcome debate and will not hesitate to print opposing views.)
However, unlike that unfortunate passenger on "Airplane," I am not hysterical, and I am not prepared to concede the industrys spinthat only a few bad actors abused a system that is basically sound, and therefore there is no need for radical changes other than fuller disclosure. I believe we need more time to allow the Spitzer probe and related investigations to play out before coming to such a "knee-jerk" conclusion.
The industry went into denial the moment the Spitzer probe was announced last spring, confident the crusading attorney general would not find any wrongdoing. Now that Mr. Spitzer has begun exposing bid-rigging and blatant contingency fee abuse, the industry remains in denial, reassuring everyone that once a few rotten apples are removed, the harvest will be pure once more and we can go back to business as usual.
I dont think so. At least for the major brokerages and the risk managers they are supposed to serve, disclosure might not go far enough. There was already plenty of disclosure about side deals, yet sophisticated insurance buyers were still hoodwinked by unscrupulous brokers. The potential conflicts of interest and the temptation to cheat might be too great.
The Risk and Insurance Management Society seems ready to go along with a ban on such deals. In its testimony before a U.S. Senate committee, an official from the cautious risk manager group said that "in an effort to address the potential conflict-of-interest issue, RIMS would support a prohibition on the use of placement service agreements by insurers and brokers." The next step by RIMS should be a call to members to negotiate their own brokerage fees whenever possible, then offer a crash course to buyers so they know how to manage their new relationship with intermediaries.
One broker who wrote to support my calls for reform (but who asked to remain anonymous for fear of reprisal from insurers and producer groups), put it best: "Once sprayed by a skunk of this potency, no amount of perfume is going to make the industry smell better."
Sam Friedman
Editor-In-Chief
Reproduced from National Underwriter Edition, November 18, 2004. Copyright 2004 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.
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