Broker associations weigh in on commission controversy

Associations representing Canadian brokers says allegations of “hidden commissions” being paid by insurers is unfair to reputable, professional brokers.
The Insurance Brokers Associations of Canada (IBAC) and Ontario (IBAO) have released statements responding to events in the U.S., as well as a call by the Consumers Association of Canada (CAC) for government to investigate what it calls “secret commissions” here in Canada.
In a statement, IBAC notes, “brokers have nothing to hide, member brokers [of IBAC] freely declare that they are compensated on a commission basis with the potential for contingent commission.”
“The compensation of insurance brokers be it sales commissions or contingency commissions does not influence the decision-making processes or recommendations of reputable insurance brokers,” says IBAC CEO Dan Danyluk. “Professional brokers will focus on buying insurance from an insurer that combines product, service and price, therefore doing the best job possible for their clients on a day to day basis.”
He stresses that brokers work for the client, not the insurance company, and that good brokers know the way to build strong relationships with insurers is to serve their clients well. He adds that contingent commissions which recognize the quality of business placed with an insurer are measured “over the long term” and not guaranteed.
The statement follows more than a week of turmoil in the U.S., beginning with New York Attorney General Eliot Spitzer filing civil charges against broker Marsh, and the announcement that two executive from AIG and one from ACE had pled guilty to charges relating to “bid-rigging” and other fraudulent placement practices.
Danyluk notes that such fraudulent practices as bid-rigging are “repugnant to reputable brokers”, but should not be viewed as industry-wide practice. The IBAC statement points to a recent report of the Canadian Competition Bureau which found no evidence of anti-competitive practices in the Canadian p&c insurance industry. He adds that provincial regulators in Canada oversee such issues as market conduct, sales practices and other broker conduct.
In a statement, IBAO echoes these comments, with CEO Robert Carter noting that amongst insurers, commissions are similar enough that there is really no advantage to a broker placing business with one company over another based on commission. And, he adds, “regulators are fully aware of the commission arrangements including contingent commission that in no way is excessive or unusual.”