February 16, 2005 by Canadian Underwriter
Reports of the death of contingent commissions may be premature, according to a new report by Conning Research.
In a study of relationships between brokers and insurers, Conning finds this dynamic is being transformed by investigations into compensation and other industry practices. However, Conning director of research Stephan Christianson notes, “it is not necessarily a given that contingent commissions are gone for good, particularly in some market. These structures make more economic sense [for clients] than current conventional thinking suggests.”
For brokers, the investigations now mean they must prove their value relative to agents, he suggests. “To regain a profitable business model, the broker needs to redefine its role through service enhancement and, of course, greater transparency in the bidding process.” This is the only way to overcome the loss of contingent commissions if they cease to be an industry practice. “If the broker cannot make the business case to clients that they add value in the transaction, they will not be able to make up for the loss of contingent commissions.”
For insurers, the situation may provide an opportunity to become more directly involved with clients, he adds.