Marsh, Aon Evenly Split With Top Market Shares

Insurance brokers Marsh and Aon hold an almost equal amount of the brokerage market, with Marsh holding a slight lead, according to a survey of risk managers.

Risk managers surveyed for the “Broker Services and Remuneration Study” released last week by the Risk and Insurance Management Society and Advisen, Ltd. said they use Marsh and Aon most frequently, with the two brokers together accounting for about two-thirds of the insurance programs placed through brokers.

Willis held about 14 percent of the market, according to the survey, with Lockton and Arthur J. Gallagher rounding out the top five.

The market share figures are based on policy count and do not reflect market share by dollar volume, according to the report. David Bradford, executive vice president and editor in chief of Advisen, said Marsh's market share is in the upper 30 percent, while Aon placed in the lower 30 percent.

The broker portion of the survey is part of the “2008 RIMS Benchmark Survey.” This is the first time the survey has examined in depth the relationship of risk managers with their brokers.

A total of 1,519 participated in the survey, with more than 1,300 participants answering questions about the broker and risk manager's relationship, Mr. Bradford told National Underwriter.

Among other findings, Advisen reported that 70 percent of the survey respondents said that fee arrangements are the most popular form of broker compensation.

Eighty-one percent of companies with revenues greater than $10 billion have fee arrangements, while the fee-commission compensation structure is split about 50-50 for small accounts with less than $100 million in revenue, the survey found.

The fee structure arrangement is most popular with information technology industries, closely followed by consumer staples and telecommunications companies. On the low side, about 50 percent of the education industry opts for fee structure, according to RIMS-Advisen.

Fee arrangements can vary from a low of $15,000 all the way up to $10 million, but the average fee runs about $483,000, the survey said.

Mr. Bradford told NU that the questions about broker relationships in this year's survey were added in response to numerous requests from risk managers to develop benchmarks for broker services and pay.

Risk managers say they benefited from the competition for broker services in 2007 with fees and services undergoing “tremendous change” from competitive pressures and advances in technology.

Some said the demise of contingent commissions among larger brokers imposed by regulators and state attorneys general has worked to their favor, according to Mr. Bradford.

In the past, he explained, there was little transparency on brokerage charges and it was difficult for risk managers to negotiate price without understanding the payment structure. That has changed, along with competition for accounts.

The result is cost savings on insurance, he said, because more customers are paying fees than commission, allowing risk managers more control over those costs.

According to the survey, most risk managers–67 percent–believe the brokerage market is more competitive than three years ago. However, when asked if broker compensation has dropped over the past three years, the results were evenly split with 46 percent in agreement that it has and 46 percent saying it has not.

The survey also found that 96 percent of risk mangers use a broker to place their insurance programs. Sixty-eight percent said they are paying brokers an overall placement fee not specific to any coverage.

From previous surveys, Mr. Bradford said risk managers are doing more shopping of their accounts, but not necessarily ending up moving them as they get concessions from their current broker. While more risk mangers are splitting up portions of their risks with other brokers, they are not making a wholesale move of accounts away from their current broker.

The RIMS Benchmark Survey for 2008, as it has for past years, also reports on trends in the total cost of risk per $1,000 of revenue. Overall, the total cost of risk fell 12 percent in 2007, but results varied by line of business. (See NU Online News Service, April 18, for more discussion of cost trend by line.)