November 10, 2004 by Canadian Underwriter
Risk managers in the U.K. are adamant that the current system of contingent commissions to broker needs to be abolished. In a survey by the Association of Insurance and Risk Managers (AIRMIC), 93% of corporate insurance buyers say contingent commissions should be banned or at least investigated by the U.K. Financial Services Authority (FSA). And 64% say contingent commissions always create a conflict of interest.
Interestingly, another 68% say “administrative fees” paid for services performed by brokers for insurers should be compensated, but disclosed.
Further results of the study show general dissatisfaction with broker disclosure levels while 99% say there should be a clear indication of how much broker compensation accounts for insurance prices, but only 54% are satisfied with the current level of exposure of such payments.
U.K. risk managers say they and their boards are watching the investigation of compensation practices by New York Attorney General Eliot Spitzer closely. And 49% say they will consider changing brokers based on the outcome of the investigation. At the same time 37% say they prefer to deal directly with insurers rather than through brokers.
Brokers clearly have a lot of questions to answer, but so do those underwriters who collude with or encourage anti-competitive practices,” says AIRMIC chair Andrew Cornish. “Some risk managers, too, could and should be doing more to enforce their rights.