In my 30 years of experience in the insurance industry, the number one conflict I have felt the entire time has been the pressure on brokers to compromise their representation of clients due to the compensation arrangements. I have worked in my family’s mid-sized agency with roots in the 19th century, so I have a sense of history here.
I believe that the ONLY way to eliminate the conflict of interest would be to have insurers reduce the premiums by the standard commissions as a discount and to have brokers charge their clients a service fee as the sole compensation for placing and servicing the risk.
The discount would have to be regulated the same as compensation to prevent rebating, but it would provide benefits over the current system of standard and contingent commissions.
This would would reward the brokers who provide superior, value-added service to their clients. Agents who are licensed as such would represent the carriers with which they have contractual commission arrangements and make this clear when binding coverage, thus clearly defining two categories of representation for the consumer.
Nothing would prevent a single brokerage firm from acting as both agent or broker on different risks, but each risk would be clearly defined one way or the other and compensation set as either brokerage or agency type compensation.
This would be a bit of a throwback to an earlier time, but it would clarify the compensation and mitigate the potential for market blocking, bid rigging and dual compensation standards, assuming that the rates or cash flow programs are filed legitimately with state regulatory authorities.
Donald Pachner
Pachner & Associates, LLC
Bedford, NY
In my 30 years of experience in the insurance industry, the number one conflict I have felt the entire time has been the pressure on brokers to compromise their representation of clients due to the compensation arrangements. I have worked in my family’s mid-sized agency with roots in the 19th century, so I have a sense of history here.
I believe that the ONLY way to eliminate the conflict of interest would be to have insurers reduce the premiums by the standard commissions as a discount and to have brokers charge their clients a service fee as the sole compensation for placing and servicing the risk.
The discount would have to be regulated the same as compensation to prevent rebating, but it would provide benefits over the current system of standard and contingent commissions.
This would would reward the brokers who provide superior, value-added service to their clients. Agents who are licensed as such would represent the carriers with which they have contractual commission arrangements and make this clear when binding coverage, thus clearly defining two categories of representation for the consumer.
Nothing would prevent a single brokerage firm from acting as both agent or broker on different risks, but each risk would be clearly defined one way or the other and compensation set as either brokerage or agency type compensation.
This would be a bit of a throwback to an earlier time, but it would clarify the compensation and mitigate the potential for market blocking, bid rigging and dual compensation standards, assuming that the rates or cash flow programs are filed legitimately with state regulatory authorities.
Donald Pachner
Pachner & Associates, LLC
Bedford, NY