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Risk managers should be skeptical about the new "supplemental" compensation that at least two insurers plan to pay brokers. For one, the limited descriptions of the plans that have been offered by Chubb Corp. and St. Paul Travelers Cos. Inc. fly in the face of the new era of transparency that was supposed to result from the Spitzer investigations and settlements.
More importantly, what can be gleaned about the plans raises serious questions about potential conflicts of interest. While technically not contingent commissions, it appears that the supplemental compensation will be tied to the profitability or volume of business that brokers bring to insurers, albeit on a historical basis. In other words, it would seem that brokers will be encouraged to place business with certain insurers for reasons other than serving the best interests of their clients.
Of course, the insurers are only one side of this equation. It is a little disturbing that the major brokerages, which previously accepted contingent commissions and then, in some cases, damned them with the zeal of a convert after being caught abusing them, have been silent about whether the new compensation will be accepted.
The demise of contingents has clearly hurt the financial performance of many brokers, and it is understandable that they would be searching for ways replace the lost revenue. Replacement strategies, however, should not compromise their position as trusted advisers to their clients.