Buyers must be wary of broker payments

It's still too early to tell whether the latest attempt by brokers to wring extra payments from insurers will result in conflicts of interest, but insurance buyers should be cautious before they OK the new fees.

As we report on page 1, Marsh last week announced that it has amended its settlement agreement with the New York attorney general's office to allow the brokerage to charge fees for services it provides to insurers, provided the fees are disclosed to the brokerage's clients.

It is unclear what services Marsh believes insurers should pay for and how those fees will be calculated.

At first glance it seems quite reasonable that one business should be able to charge another business for services rendered, but given the recent history of insurer payments to brokers and the expectation that brokers serve solely their clients, any insurer-paid fees should be carefully examined.

Before they give their approval for the set-up, clients should be comfortable that the fees are structured in such a way that they give no incentive to brokers to place business with one insurer over another--simply disclosing the amount of a fee and the service it is linked to does not necessarily mean conflicts of interest won't arise.

While it is understandable that Marsh and its rivals are looking for ways to recover the significant revenues that they gave up when they swore off contingent commissions, the brokerages' clients should not let those considerations color their judgment.