Six Feet Under?
If the situation among insurance buyers, brokers and carriers was compared to a television show, one that comes to mind is HBOs "Six Feet Under." Some brokers on the take have been buried by New York Attorney General Eliot Spitzerand the media. All will be digging out to regain the trust of the risk manager.
For years many risk managers have said they highly trusted their brokers. Some even saw them as a part of their risk management team. They were confident the broker was looking out for their best interests.
At various seminars there were discussions about the advantages of large versus small brokerages and the level of services they provide. But there was little mention of the brokers honesty, whether any conflicts of interest existed, or how the broker was paid.
Now, in light of Mr. Spitzers investigations, some risk managers are forced to face the fact that their brokerage was accused of bid-rigging and of steering business to certain carriers to secure an extra incentive fee, to their detriment.
Although dishonest brokers are most likely few and far between, buyers still must respond to queries from their upper management and demonstrate they are keeping an eye on their vendors. They also must answer their own nagging questions about whether their broker was truly operating in their best interest all along.
As several risk managers have pointed out, most complaints about broker conflicts of interest over the years largely fell on deaf ears. At the same time, they added, because contingent commissions were the norm, risk managers accepted them and did not raise a fuss when perhaps they should have.
Meanwhile, the industry stands poised in time, like a deer caught in high-beam headlights, unsure of which way to go. And the investigation is far from over. It could very well reach virtually every area of the industry before its over.
Buyers Ive spoken with agree that although painful, the investigation ultimately will be positive for the industry.
During this weeks annual conference of the Risk and Insurance Management Society, brokers, insurers and buyers will mingle just like every other year, but beneath the surface will be disappointment, mistrust and feelings of betrayal on the part of many risk managers. What can brokers do to get back in buyers good graces?
Brokers need to deliver the message that theyll do anything they can to rebuild the relationship and try to restore the trust many buyers have lost. They must be candid, honest and clear about who they work for and how they are paid. Changes in the standard fee structure and complete disclosure provide an excellent start.
However, reform of the broker-buyer relationship should not be a one-way street. Risk managers need to do their due diligence to make sure they keep their brokers honest.
One of the problems could be a lack of knowledge of just how brokers make a living. Here, RIMS can be part of the solution. The conference program includes several "hot" topics, such as "The Marsh SettlementShould Policyholders Opt-in?" on Monday afternoon, and on Tuesday morning, theres "Broker Contingency Fees: What You Should Know."
There also will be ample opportunity to hear and meet with brokerage executives at seminars and in the exhibit hall.
Whether the broker-buyer relationship is resuscitated to emerge stronger and healthier is at this juncture up to buyers as much as their brokerage partners. One thing is for certain, howeverthis will be an interesting year for renewals.
Caroline McDonald
Senior Editor, Risk Management
Reproduced from National Underwriter Edition, April 15, 2005. Copyright 2005 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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