Risk managers see no boost in broker fees despite loss of contingency revenue
Despite investigations by New York Attorney General Eliot Spitzer that led to charges of bid-rigging and fee abuse by Marsh, the brokerage is still rated as the best of its kind overall by risk managers at jumbo firms, a survey by a leading analyst found.
However, the survey–conducted by Banc of America Securities–also found that a growing number of risk managers are seeking to divide their business among several brokers. In addition, broker fees remained flat despite the abandonment of insurer contingency fees by the three largest brokers–a move prompted by the Spitzer probes.
"I thought that maybe the sentiment toward Marsh would have decreased a little bit more, given the scandals that are going on," said Brian R. Meredith, senior property-casualty insurance analyst with Banc of America Securities in New York.
Marsh's popularity remained number one, with 46 percent of respondents citing the New York-based firm as "the best insurance broker overall"–down only slightly from 49 percent a year ago.
"The fact that it has only deteriorated by three percentage points was surprising," he said, adding that the high approval was due to the personal relationships risk managers enjoy with their broker, as well as the strengths of the Marsh franchise.
Indeed, he said he is not surprised Marsh has remained in the number-one slot. "It is still the largest insurance broker in the world, it's still got the largest platform in the world, it's still got a tremendous amount of experience and great services," Mr. Meredith said. "Arguably, it is one of the few companies with the ability to service a global company."
He noted, however, that "there has been a fair amount of turnover [at Marsh], which is a concern." Part of the reason for the turnover, he said, may be due to substantial layoffs following the firm's $850 million settlement with Mr. Spitzer's office.
"Hopefully that subsides," he said. "To the extent the relation with the service team is significantly disrupted, it gives [insurance buyers] a reason to put out a request for proposal to a new broker."
According to the survey, Aon was ranked second with 15 percent (up from 14 percent last year), while Willis was third at 6 percent (up from 5 percent).
Although 87 percent of risk managers surveyed reported no increase in their broker fees, "as we get further away from the regulatory issues plaguing the industry, we believe that more insurance brokers will start asking for commission and fee increases," Banc of America Securities said in its survey analysis.
The survey queried buyers from 52 firms–nearly three-quarters of them with market capitalization over $5 billion, and the rest with at least $1 billion.
Flag: Q&A
Head: What Do Risk Managers Say?
Among the questions posed to risk managers from 52 big firms, Banc of America Securities asked, over the past six months:
o Have you increased the number of insurance brokers you use?
Yes: 19% No: 77% Other: 4%
o Has your insurance broker increased or attempted to increase your commission or fee rate?
Yes: 13% No: 87%
o Have there been significant changes to your broker service team?
Yes: 46% No: 52% Other: 2%
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