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Reactions to the investigations of New York Attorney General Eliot Spitzer into bid rigging by Marsh Inc. show just how far apart insurance buyer trade lobbies stand from insurance broker trade groups.

Trade groups like the Risk and Insurance Management Society Inc. and the Public Risk Management Association, both of whom represent commercial insurance buyers, have appeared markedly tepid in their responses to the Spitzer accusations. RIMS has called for "an open and honest dialogue," and for "complete transparency and full disclosure of compensation agreements."

"PRIMA expects and hopes," a recent announcement by the organization said, "the investigations will confirm that the illegal practice of bid rigging is uncommon in the industry and limited to a very few individuals ... who stepped outside the bounds of acceptable and ethical behavior."

Groups representing sellers, meanwhile, immediately went on the attack.

Contingency commissions, said Ken A. Crerar, president of the Council of Insurance Agents & Brokers, which represents big brokers like Marsh and Aon, "are both legal and proper, and they have played an important and long-recognized role in the insurance equation."

"We categorically challenge assertions that fraud, bid rigging and kickbacks are commonplace in the insurance brokerage industry," Crerar said, in recent public testimony.

He, too, called for transparency and disclosure, and said that the fee structure would evolve.

Robert A. Rusboldt, head of the Independent Insurance Agents & Brokers, was even more blunt. He said he was "outraged" by and termed "ludicrous," "preposterous" and an "oversimplification" accusations that agents may delay or discourage filing claims to secure incentive bonuses based on customer loss ratios.

He also called the idea that federal regulation of insurance is a panacea that will "magically" end these abuses "off base."

As for the National Association of Professional Insurance Agents, it moved to distance itself from the scandal by arguing that placement service agreements involving megabrokers "are not the same as compensation arrangements in other insurance market segments, specifically the retail admitted market."

As a result, regulatory requirements affecting the large brokers don't really apply to the small independents. The PIA urged that brokerage firms, not individual brokers, be allowed to negotiate agreements on a "client basis" as opposed to a "transaction-by-transaction" basis.

March 1, 2005

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