November 15, 2004 by Canadian Underwriter
With testimony underway in a U.S. Senate subcommittee hearing into broker compensation practices, one broker representative says the notion that insurers and brokers should have an “adversarial” relationship in order to best serve clients is “misguided”.
Former Council of Insurance Agents & Brokers (CIAB) chair and Baltimore broker Albert Counselman told a subcommittee of the Senate Government Affairs Committee that it is actually in the best interest of clients, particularly large commercial clients, for brokers to have strong relationships with insurers.
“Over the course of the last several weeks, some have suggested that the broker’s job is to canvass every available product from each and every carrier to identify the ‘best’ carrier for that particular client and to then zealously represent the client in an adversarial negotiation process against that carrier,” he says. However, he notes, the cheapest coverage is not necessarily the best coverage and many large commercial policies involve working with multiple insurers across many layers of coverage. He adds that other factors financial security, willingness to pay claims, reputation go into selecting an insurer, factors which have nothing to do with the lowest price.
“At the end of the day, the carrier partners with the client through the broker-intermediary not as opponents but in a cooperative way to insure the risks that client presents.”
Counselman adds that all brokers have been damaged by the allegations of bid-rigging made against Marsh by New York Attorney General Eliot Spitzer, because they are involved in relationships based on trust. However, he says the allegations have “cast a pall over an entire industry and besmirched the reputations of honest brokers throughout the country”.
He goes on to say that the issue of bid-rigging, clearly an offense if committed, is separate from that of contingent commissions, a long-standing industry practice which should not create a conflict of interest if full disclosure is used.