Nearly 700 Buyers Express Concern About Conflicts of Interest Level of Disclosure And Anti-competitive
Practices No Immediate Plans to Replace Brokerage Firms
New York, November 16, 2004 – Commercial insurance buyers want significant changes in insurance transaction practices and are concerned about contingent commissions and other brokerage firm activities currently under investigation, according to a new survey of nearly 700 risk managers conducted by Advisen Ltd.
An overwhelming majority of insurance buyers want to change the current pricing and transaction methods in the industry, essentially overhauling the present systems for buying commercial insurance. Nearly 75 percent of the buyers called for more standardization and transparency and almost 68 percent said their company needed greater access to pricing and other transaction details. Almost all respondents also said they had discussed the controversy with their senior management.
“Clearly risk managers perceive a need to transform big parts of the industry, but they seem to blame the system rather than their brokers,” said David K. Bradford, executive vice president and editor-in-chief of Advisen. “The winds of change are surely blowing and right now they’re blowing in the direction of greater market transparency.”
The majority of respondents (54 percent) also said they are concerned that contingent commissions represent a conflict of interest and 57 percent of the respondents believe their brokerage firms do not fully disclose all sources of income related to insurance transactions. The survey also found that nearly all of the responding buyers (99 percent) are familiar with the recent lawsuits filed by New York State Attorney General Eliot Spitzer and a 52 percent majority of these buyers are concerned that their brokerage firms may have participated in anti-competitive practices.
“Risk managers clearly believe that some issues are detrimental to the industry, but the issues about competitive practices may be isolated to specific firms,” said Mr. Bradford. “In fact, in written comments volunteered from many risk managers, several expressed concerns that smaller brokerage firms were being unfairly maligned and the industry should not throw out the baby with the bath water.”
A clear majority of insurance buyers do not foresee changing their brokerage firms and expressed mixed views on the impact the controversy would have on total cost of risk and the quality of brokerage services they receive.
Nearly two-thirds of the respondents said they were not yet considering changing brokerage firms, and a quarter of the respondents said that they had been contacted by a competing brokerage firm. Forty-five percent said the controversy would have no impact on quality of service. Thirty-three percent thought the controversy would increase total cost of risk, 20 percent said it would decrease total cost of risk.
The survey was conducted through anonymous e-mails between November 10 – 12, 2004 by Advisen, a provider of specialized information, analytic and benchmarking tools for commercial insurance professionals. Advisen queried over 4000 risk managers and 684 responded (a response rate of over 16 percent). The vast majority of respondents (81 percent) were executives who make insurance decisions on behalf of their company. All results remained anonymous throughout the survey and tabulation.
More than half the respondents also offered written comments on the impact of the controversy and transparency in the industry. The survey results will be encapsulated and analyzed in a forthcoming brief from Advisen that will be available in the coming days to Advisen subscribers. The brief will also contain many unattributed responses from risk managers who volunteered their extended comments.
About Advisen
Advisen Ltd. provides insight into underwriting, marketing and purchasing commercial insurance. Advisen’s web-based workstation incorporates real-time analytics and research on over 1.5 million companies, and 70 industries. Advisen currently serves nearly 350 leading commercial insurers, insurance brokers, risk management departments of major corporations, and other related organizations. Proprietary offerings of the Advisen service include Benchmarking, Custom Templates for Company Work-ups, Company and Industry Research, Loss Analysis, Management Portfolio Analysis and Policy Comparisons.
