Posted On: February 2, 2005, 2:46 pm CST

Posted By: Chris

Excellent points, Larry. Apparently MMC went out and got quotes from B and C and asked that they be "increased" to the level of A so that there wouldn't be a measurable difference.

Aside from pricing, differences in coverages between A, B and C can also play a factor in which gets represented to the buyer. So does claims handling; many see one particularly large carrier as being slower in paying claims than other markets, so how does that get across to the buyer?

Do brokers and agents have an obligation to the buyers to fully outline what their complete compensation package truly is, whether commissions, contingency fees, etc? How do you explain to a buyer that the contingency checks may never get paid in the event of a loss large enough to wipe out the profitability of their book with the carrier?

Maybe the phrase "profit sharing" is what tiggered this review; it sounds like the broker or agent shares in profits of the insurer, without directly benefitting the client.

Also, I recall an "opportunity" at one mid-size NYC broker several years ago. The firm was approached by a carrier (now a part of another thanks to a late-day, pre-collapse acquisition) to participate in a special offshore insurance facility. The broker was invited to join with perhaps ten others to set up a 'paper' insurance company, who would be fully reinsured by the carrier.

Into this new company, each broker was encouraged to send their best (profitable) accounts. With lower overhead, each broker would share in the profitability of the new company without any up-front investment requirement. It also provided annual meetings in Bermuda; who could pass up THAT?

I'm not sure if this 'structure' survived the acquisition, but if anything smelled of collusion, this deal certainly did. But I am certain that enough brokers junped at the opportunity.

In the end I agree with your final comment. Companies - whether in our financial services trade or not - care less about their employees than their shareholders or their rep on The Street.

Would be great if we all had the abilities to run our own shops, or group together enough of the 'unfortunates' into another powerhouse. Firms that distance themselves from the questionable prectices will do well - especially if Spitzer et al don't find anything beyond smelling the blood in the water.