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Brokers that in effect adhere to the Risk & Insurance Management Society Inc.'s proposed business model on contingent commissions define agency business and broker business differently, but say it's not difficult to adhere to such a model.
RIMS has said while insurer-paid incentives are an acceptable form of compensation for agents representing insurers, "for brokers and independent agents to accept these fees in transactions that are made on behalf of the buyer represents an inherent conflict of interest."
"The way I think about it, when the total cost of risk for a client is less than $1 million, it's really unlikely they will have a risk manager," said Tom Golub, president and chief executive officer of Beecher Carlson Holdings Inc. in Atlanta. "That's just agency business. And the underwriting community defines it as agency business as well."
Unlike larger brokerage or risk management accounts that generally want to negotiate the underwriting risk transaction separately from the broker compensation transaction, smaller agency account buyers only care about whether Beecher can get them the best deal in the marketplace, Mr. Golub said.
Whether an account is fee-based or commission-based, it's all negotiable, he said. "Whatever is going to get us to the most efficient place for our customer is how we negotiate it."
"It's really not difficult to do," Mr. Golub said, referring to separating accounts into those that are paid contingents and those that are not. Because underwriters "almost always" have different underwriting units for risk management-type accounts and agency-type accounts, so the decision whether one account should be used in the underwriter's contingent calculations does not need to be made on an account-by-account basis. "Almost all the time" the accounts are going to separate underwriting units, he said.
Like Beecher Carlson, BB&T Insurance Services only accepts contingent commissions on agency accounts. But rather than size, the Raleigh, N.C.-based broker defines such accounts by the form of compensation it receives.
Since January 2005, BB&T accepts contingent commissions only when it acts as an agent of the insurer and receives a commission solely from the insurer, according to H. Wade Reece, chairman and president. If BB&T accepts a fee from a client, it does not accept any fees from the insurer.
The same policy applies to supplemental commissions, Mr. Reece said referring to the compensation plan introduced by some insurers earlier this year to replace contingent commissions.
If any part of the fee is paid by the client, the broker will ask the insurer to exclude the entire account from its commission calculations and will not accept a commission for it. "So it's fairly easy to determine and very easy to monitor that," Mr. Reece said.
Although some brokerages ascribe to RIMS' proposed business model, a majority of intermediaries continue to accept contingent commissions across the board, relying instead on disclosure. "I think a lot of (agents and brokers) are taking the approach that they are going to be transparent and they will continue to receive contingent commissions unless there is an insured that says it doesn't want them to and then they will address that issue specifically for that insured," said Bobby Reagan, president of Reagan Consulting Inc. in Atlanta.
Gloria Gonzalez contributed to this report.