In a report released today, The Risk and Insurance Management Society Inc. (RIMS) is calling for complete disclosure of revenue streams from placing insurance products.
The push for transparency outlined in the report is meant to serve as a guide in assisting risk managers to understand insurance broker
compensation and potential conflicts of interest.
The renewed calls for a so-called transparency in insurance sales echo a major debate playing out right now in the state of New York, where regulators are proposing a major, transparency-focused overhaul of compensation disclosure policies for the state’s agents.
RIMS says its ultimate goal in publishing the report — entitled “A Practical Guide to Insurance Broker Compensation and Potential Conflicts of Interest for the Risk Manager” — is to heighten members’ awareness of the potential pitfalls surrounding the insurance purchase transaction, so they can press for greater transparency in their negotiations with brokers as well as for regulatory reform in their own states.
“In ideal settings, insurance brokers and risk managers are working very closely toward a common goal — marketing the insured’s coverage to achieve optimal results within the commercial insurance market,” says Deborah Luthi, director, RIMS External Affairs Committee and director of enterprise risk management at Matheson, Inc. “However, because the industry has yet to mandate full disclosure, risk managers must be diligent in their broker selection process. This report gives them the tools they need, not only to successfully make that selection, but to drive a higher standard of conduct industry-wide.”
RIMS stresses that any compensation to the broker from insurers with whom the broker places client business must be transparent or eliminated altogether, thus ensuring brokers are acting solely in the interest of their client.
In addition, RIMS offers advice on types of insurance broker compensation, tips for crafting an effective request for proposal and Recommendations for delineating services to be provided and associated charges.
In connection with the report’s release, RIMS has released a revised position statement on broker compensation. The group, which represents nearly 10,000 risk managers around the world, is reiterating calls for risk managers to demand full transparency of all revenue streams by the broker in advance of any submission to market, purchase or placement of coverage and broker-marketed new products and services to carriers.
“While RIMS takes no issue with new products, there must be a separate agreement between the two parties which does not link these services to specific clients. However, if a broker receives payment from both the carrier and the buyer for placement of insurance products, all transparency requirements should adhere to that transaction,” Luthi said.
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