Q&A: Challenge and opportunityPosted On: Jul. 15, 2007 12:00 AM CST
Ken Crerar joined what is now the Council of Insurance Agents & Brokers in 1987 as vp of government affairs. He became its president in 1992.
Mr. Crerar spoke recently with Senior Editor Mark A. Hofmann at the CIAB's Washington office about current issues facing brokers and trends that are likely to shape the brokerage landscape of the future.
Q: What is the biggest single issue facing insurance brokers right now?
A. Right now, the biggest issue our members are facing and in the distribution sector in general is profitability. I think these guys are going through an enormous amount of change, and they're struggling to maintain levels of profitability during a period where the whole business model is changing, the markets are tighter.
There's been a decline in the market in the last 18 months in terms of pricing, so there's an incredible amount of pressure on the guys. I think their biggest challenge right now is profitability, and how their business model begins to change and develop over the next 18 to 36 months.
Q: Speaking of changes, how do you view the increased interest among private equity firms in the insurance business? Do you view this as a positive long-term development?
A. I don't see this as all that new--we have such a short memory in our industry. If you remember, there was a period of time back when Willis was bought by KKR. There have been plays on the equity side for a number of years. These are new players--I think that's the distinction. But KKR was a new player in the insurance sector when they stepped in and bought Willis a few years ago. USI was a private equity deal. So, frankly, I think it's great news. I think it's interesting that there's a lot of strong interest in the economic basis of the business. Distribution is being viewed as a successful place to put capital, that there's a return there.
I think that's good for the business. I think that's good for the industry. It kind of signals that we're not surprised about the amount of capital in the business--there's a lot of capital floating around. That focus on the distribution piece I think is interesting and bodes well for the industry.
Q: Turning to another issue--compensation--how well have brokers responded to the trend toward transparency?
A. In the whole area of compensation, I think transparency--we're really sort of proud of where we came out in this issue of transparency. We embraced transparency right up front. If you look at the issues surrounding compensation and transparency, transparency's always been the prescription to some extent in the financial services sector, whether you looked at the securities industry, the mutual fund industry. What did they do when there was new attention placed on them and some of their activities? They began to disclose and disclose in a broad way.
I think our industry has grappled with that. I think they have embraced it. Our members have embraced transparency. We believe that's a good thing. We're right out front on it.
We're frustrated, though. In the mutual fund industry and the securities industry, when it happened, what happened? If you look at it specifically, the securities industry had a regulator who stepped up to the plate and helped make sense of it.
What's happened to us has been we have a regulatory system that hasn't responded adequately. And it's not all their fault. There's political pressures put on the regulatory system by sort of protectionist local agents who want to keep things just as they are, and that just doesn't work. And so, the regulators have been unable to respond, the industry now has this morass of differing standards and opinions. Only one state even adopted the (National Assn. of Insurance Commissioners') model.
Q: How does the CIAB view the Risk & Insurance Management Society Inc.'s recent statement on contingent compensation?
A. Interesting statement--it's a marketplace statement, it's not a legal standard. We have a great working relationship with RIMS--we respect them; they're our clients. At the end of the day, they have all the power. They're the ones who make the determination of where the business goes--who they use in the marketplace. It's not our place to support or not support what RIMS says. RIMS has the power in the marketplace to determine who they do business with.