A Conflict of Interest or Acceptable Payment for Services Performed?
Part Two
So what is fair?
Contingent commissions are not new. They have been around forever. I personally have no issue with broker’s getting these commissions based on volume. They do perform services for insurance companies that either directly or indirectly benefit the consumer. I do not think they should be denied compensation for services rendered. What I do want is transparency and full disclosure of all income generated from my account and full disclosure on the details of each insurer agreement.
If any broker refuses to disclose this to you, then find a new broker! There is no legitimate business reason that they can not disclose this to you as their client. The fee that your broker receives does in fact ultimately come from you. You as the client have every right to make an informed decision when deciding on whom to do business with. This is a practice and a requirement I have demanded from my brokers as a Professional Risk Manager for many years. In fact, it is a practice that we mandate from every broker my firm places business with on behalf of our clients. These costs along with premiums and direct commissions are components of your Total Cost of Risk (TCoR). In order to understand the effectiveness of your risk management program, all the components of your Total Cost of Risk (TCoR) need to be identified and then managed.
My recommendation is that whomever you have negotiating the insurance for your firm, you should ask your broker to fully disclose all their compensation as a result of doing business with you. If you are not sure what to ask for or to make sure it is appropriate, then engage the services of an independent risk management advisory firm. No insurance broker is ever independent nor do they act as your risk manager (they are there to sell you insurance and they still get fees from insurers therefore their opinion is potentially biased). Unless you feel totally confident in asking all the right questions, then engage an independent advisory firm that will assist you in getting all the answers you need to make an informed decision.
