By MATTHEW BRODSKY, senior editor/Web editor of Risk & Insurance®
PHILADELPHIA---Just like risk managers--who strive to be more than mere insurance buyers--brokers want to make sure you know they do more than just secure the insurance transaction. Brokerage and insurance leaders, speaking at a recent industry event, made it plain that brokers bring as much value to insurance carriers as they do risk mangers on the other side of the deal.
How else can they earn all those commissions?
With the continuing contingent commission uproar, there is some cynicism perhaps about just how much value insurance brokers provide to carriers. But brokers can provide market intelligence about products and pricing, peer data and proprietary tools to ensure that markets are handed the risks they want, said Chris Roak, managing director at Marsh and head of its Philadelphia office.
"It keeps a competitive market very much alive," he said.
For providing these services, brokers could earn additional revenue besides its usual retail commissions, through streams such as the now-dreaded contingent commissions but also the supplemental and enhanced commissions. Both of these are different than contingent commissions, Roak said, because they are known at the time of an insurance placement. Supplementals are paid on benchmarks achieved in the prior year, while enhanced commissions are paid on agreed-upon fixed percentages based on the total business placed with a carrier.
Providing a carrier's perspective, Zurich's Joe Murphy made it plain that the global carrier accepts all types of commissions, though not all brokers are compensated the same. That's because different brokers bring different expertise and differing amounts of value to the table, said the regional executive for the mid-Atlantic for Zurich,
Few brokers that Zurich deals with earn supplemental, enhanced or contingent commissions. But when they do, they earn them.
"It saves us money," Murphy said.
Murphy values brokers who know the best services and products to provide to specific clients. They open their book to carriers and offer up only the clients that match the carriers' needs and appetites.
"We want those to be presented to us," Murphy said.
Otherwise, Zurich would need to hire in-house sales to do this job that brokers provide better.
"We will continue to defend our ability to pay different kinds of compensation," Murphy added.
(It should be noted that, in taking contingent commissions, which is still "a very ticklish issue," said Murphy, that Zurich has "cleaned up its back office" and implemented "tremendous controls" to ensure that Spitzer-era abuses such as bid-rigging do not occur.)
As for risk managers, brokers can help them identify the cost drivers behind the risk they transfer and the risk they retain, according to Peter Austen, regional partner at Willis. For the latter, after all, the risk manager then takes on the role of the insurance underwriter and must be able to price the retained risk as well as know what any losses would be "worth" to his or her organization.
And while many brokerage firms want risk managers to "believe in" the brokerage's industry practice leaders, said Sam Coburn, senior managing director and national risk management practice leader at New York City-based brokerage Frank Crystal & Co., risk managers should seek value beyond this--through claims advocacy, risk control and the broker's expertise on the client's current business situation, such as if it's involved in an industry wracked by mergers and acquisitions or if it has a distressed balance sheet.
"We need to know all of the aspects of your risk," Coburn told the audience.
Members and guests of the Delaware Valley chapter of the Risk and Insurance Management Society (RIMS) packed the meeting room at the Union League in Philadelphia to listen to Coburn and the other panel members at the chapter's annual Broker Forum
September 16, 2010
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