RMs Running Scared
In my editorial of Nov. 15, 2004, I asked "Where Is The Outrage?" on the part of risk managers after being cheated by their insurance brokers, citing allegations by New York Attorney General Eliot Spitzer of bid-rigging and contingency fee abuse.
A number of producers wrote to offer their take on the controversy. Below, I share with you snippets of the most provocative comments (offered anonymously, so as not to put them on the spot with their clients or carriers).
"I suspect we are not hearing more outrage from risk managers because many are hiding and hoping this all blows over before the CFO, general counsel or CEO begin to ask questions," suggested one Missouri agency president. "I think that more than a few risk managers never asked about the way the broker was compensated They don't want to raise the red flag out of fear that someone will find them less than zealous in their duties and replace them."
A broker in Georgia added that "the answer is plain and simplerisk managers put their faith in their insurance broker to get them the best coverage at the most competitive price with a solid insurance company. They don't want to know that they've been duped by their broker."
He observed that "human nature is very interesting when one finds out theyve been duped by someone in whom they've placed their trust. You either get visibly upset and angry, or you start quietly planning for the next renewal with the trusted broker left on the sidelines."
As a result of the Spitzer probe, he wrote, "I suspect the savvy and knowledgeable risk managers will put their insurance programs out for bid on the next renewal To permit the incumbent broker to bid the insurance program with no competition would just be adding fuel to the fire."
An agency principal from Washington State challenged buyers to shop around. "Where does it say that a risk manager can only go to one broker to buy insurance? Rather than jump up and down on your brokers desk, go to a different broker, or two or three, and check their costs. A risk manager who doesn't do that should be replaced."
This agent went on to assert that risk managers are not innocent victims of market manipulation. As sophisticated buyers, he said, they should have kept a closer eye on their brokers.
"If the risk managers had done their jobs, there would be no bid-rigging. You might have two or three brokers that would work together, but no rational individual would think you could get every broker in existence to be in collusion. Why should an entire industry be pilloried because insurance purchasers do not do their due diligence? You are implying that risk managers should go yell at their brokers when in actuality they should be keeping them honest."
The "big question," according to a broker at one of the big-four mega-firms, is "what will happen to the money" now that many brokerages are swearing off contingency fees. "Maybe carriers will raise [standard] commissions a point or twodon't count on it, though. Likely the savings will fall to the carriers' bottom line."
This reader raised an intriguing question. "If the big brokers disclaim contingents, but the medium and small brokers don't, that creates an interesting dichotomy in the marketplace. Will a broker who disclaims contingents have a competitive advantage versus a broker that doesnt?" Id be curious to hear readers comment on this conundrum.
In any case, thanks for the feedback, keep writing, and Happy New Year!
Sam Friedman
Editor-In-Chief
Reproduced from National Underwriter Edition, December 30, 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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