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Revamping contingent commissions as "supplemental" commissions, as some insurers are doing, doesn't make the arrangements any less objectionable.
As we reported recently, insurers Chubb Corp. and Travelers Cos. Inc., have developed new supplemental commission arrangements that provide brokers fixed commissions based on brokers' prior performance with the insurers. The insurers are not providing more details.
From the still limited information that is available, the new commissions appear to be little more than contingent commissions with a few tweaks to help them pass muster with state officials.
Advocates of the payments say that the crucial difference is that supplemental commissions will be based on historical profitability and volume rather than current and future figures. That's all well and good, but brokers will still be rewarded for serving the needs of insurers rather than the needs of their clients.
A second argument used in favor of the payments is that the commissions are fully disclosed. So what? Disclosing to a buyer that you're getting a bonus for placing their business with a particular company doesn't mean that you are doing your best to serve the needs of your client.
The whole issue comes down to what is the fundamental role of an insurance broker. If it is, as brokers say, to be a trusted adviser to risk managers, their compensation must come exclusively from the buyer.
Whatever they are called, the payment of extra commissions to brokers by insurers is not in the interests of buyers.