There's nothing wrong with a broker making a lot of money, especially in good times. But brokers have chosen to live and die by the commission system. And in an industry as cyclical as property/casualty insurance, that means there are going to be really good times, and really bad times.
There are other options. A broker could choose to be paid by a fee and many of the very largest accounts now demand fee-based relationships. Fees should be less risky, especially when the market is soft. But there is also less upside risk to a fee and I know few brokers, who, in their hearts, would give up that upside potential.
At the heart of a really good broker lies an entrepreneur, someone who is tough, exceptionally hard working, smart and maybe a bit flashy. Sometimes, however, even with that entrepreneurial spirit brokers push the limits of the compensation issue and make underwriters, if not clients, more than a bit teed-off.
I can't tell you how many stories I've heard from insurers about brokers who, after the negotiations are done, circle round back to tell a tale of how much more work they had to put into this deal to get it done. "You need to bump up the commission a percentage point--or two," is the line to the insurer. And, here we're not talking one or two basis points, we're talking hundreds of basis points.
Finally, and this is what I think does the most harm to a brokers' reputation, it's a little much to have a broker haggle about his or her commission, just before he steps into his shiny new Mercedes on his way to his summer house in the Hamptons or just before he leaves for the annual meeting of brokers at the Greenbrier--or, even better--at the annual Rendez Vous de September in Monte Carlo. We all have it tough, but puh-leese.
JACK ROBERTS is editor in chief of Risk & Insurance®.
February 14, 2008
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