RIMS “disappointed” some brokers reconsidering contingent fees

The Risk and Insurance Management Society said it is disappointed to learn some brokers are reconsidering their pledge to refuse to accept certain forms of contingency fee arrangements with insurers.
In response to regulatory matters and settlement agreements, many brokers pledged to refuse to accept placement fees from insurers on business where they represent the buyer, RIMS said in a recent public statement. RIMS applauded this action and supported the prohibition on the use of placement service agreements or other similar arrangements for the entire broker industry. We are disappointed to learn that some brokers are apparently reconsidering their pledge to refuse to accept these fees.
RIMS said it recognizes contingent commissions are currently paid on agency-generated business when the agent represents the insurer, not the buyer. Such practices have always existed in the insurance markets, RIMS says. However, for brokers and independent agents to accept these fees in transactions that are made on behalf of the buyer represents an inherent conflict of interest.
The recent investigations, admissions and fines demonstrate how these practices can be manipulated to the disadvantage of the insurance buyer.
RIMS goes on to say it supports the prohibition of compensation arrangements for any broker or agent acting on behalf of a buyer. Moreover, RIMS believes that all sources of compensation, direct and indirect, now or in the future, should be disclosed to clients without their request, the statement reads. This disclosure will ensure that the risk manager understands not only the cost of coverage, but any arrangements with specific insurance companies or any fees obtained by the broker/agent from markets approached on behalf of the insured.
The existence of compensation arrangements and the amount of potential compensation should be disclosed prior to placement of business and annually by line of coverage, RIMS says. Failure to disclose such arrangements runs counter to the spirit of partnership that risk managers seek to achieve with their brokers, vendors, and insurers.
RIMS is calling for an open dialogue among all parties on all issues of compensation, as well as all other aspects of the insurance transaction.