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By CYRIL TUOHY, managing editor of Risk & Insurance®

Now we know why carriers lavish perks on their most important insurance brokers, even at the risk of further embroiling themselves in scandal, as American International Group Inc. did late last year when it sponsored broker junkets while at the same time asking taxpayers for a bailout.

"To see the share of a carrier's clients that strongly believe the insurer is financially strong drop from almost two-thirds to less than one-half based on whether they are serviced by Broker A or Broker B is a dramatic result," said Greenwich Associates consultant David Fox.

In one case, Bermuda-based ACE Ltd., the perceived difference among Fortune 500 clients varied by as much as 20 percentage points depending on their intermediary.

Among clients of the carrier's "best brokers partners," 64 percent agreed that the carrier was financially strong. Conversely, among clients of ACE Ltd.'s "worst broker partners," just 44 percent agreed that the carrier was financially strong, according to the survey.

The differential for AIG was 9 percentage points, and for commercial property insurer FM Global, 15 percentage points.

Greenwich Associates interviewed 1,188 companies with annual sales of at least $500 million in the United States and at least 250 million euros in Europe. The consulting firm also asked companies to evaluate their primary brokers and carriers on more than 30 distinct service performance factors as of the start of 2009.

RELATIONSHIP STRONGER THAN BRANDS

Companies' perceptions of carrier characteristics other than financial strength appear to vary to an even greater extent from one broker to the next, the survey also found.

For example, the proportion of insureds strongly agreeing that Travelers Cos. Inc. is "easy to work with" ranges from 75 percent of clients of one broker to just 31 percent of clients of another broker.

Although Travelers may be an extreme example, the results of the research reveal significant broker-to-broker variance in how clients perceive leading carrier performance in several categories: ethics, transparency and innovativeness.

Perceptions invariably affect the bottom line and the volume of premium carriers conduct with clients, which is why carriers go to such lengths to bend over backward to please "producers."

Fox noted that the research also found that perceptions of transparency and ease-of-working relationships have an impact on client satisfaction levels. He suggested that carrier marketing and branding campaigns are no match for brokers in swaying the perception of a client vis-à-vis carriers.

"Allowing these impressions to be so heavily influenced by brokers can undermine even the most expensive and comprehensive branding efforts," said Fox.

All of which may help explain why tone-deaf AIG managers last fall continued to host lavish retreats even as the company sought a second multibillion-dollar taxpayer handout, in addition to the $85 billion it initially received at the start of its financial meltdown last September.

RISK MANAGERS' LESSONS

For risk managers, the implications of the survey are clear, according to Greenwich: They are better off conducting their due diligence when it comes to choosing a carrier instead of relying too heavily on a broker.

A prior survey conducted by Greenwich suggested risk managers were about to do just that: Almost half of participating European companies and more than a quarter of U.S. companies said they plan to deal more directly with carriers over the next two years.

July 16, 2009

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