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Editorial: Battling brokers risk losing focus

Nonsolicitation agreements

Ongoing disputes between insurance brokerage firms and their former employees are proving a distraction to transformations happening in the brokerage arena.

A string of recent court filings show some quite bitter arguments between brokerage firms and producers over alleged breaches of nonsolicitation and noncompete agreements.

As we report on page 20, while the agreements can be hard to enforce, particularly in states such as California, those difficulties don’t appear to be diluting attempts to stop departing employees from taking business with them when they walk out the door.

Often, both sides see right as clearly being on their side: Brokerage firms feel that the ex-employees benefited from their brands and resources to win or maintain accounts; individual brokers resent implications that they are somehow tied to a firm in perpetuity.

While most of the disputes are settled, they can still have lasting effects in an era of consolidation when some of the individual brokers inadvertently find themselves back with their old employer after a takeover.

Caught in the middle are risk managers. While brokers and firms fight over who has the right to keep servicing clients, risk managers face choices over what is most important — their relationship with individual brokers or the brokerage firms they contract with.

A simple answer would be for them to use their leverage as buyers and move to another firm altogether. But as the number of brokers capable of servicing multinational accounts shrinks through mergers and acquisitions, that becomes less of an option, particularly for large clients.

All this is taking place against a backdrop of increasing sophistication in the brokerage sector. As we report in our annual profiles of the top brokers on page 25, the past year has seen an acceleration in M&A activity, which in part is being driven by a need for brokers to offer better, quicker services to their clients. Some longstanding brokerages — not always small firms — realize that they need to make significant investments in technology if they are to continue to compete in an increasingly digitized sector. As a result, some are choosing to cash out or become parts of bigger organizations with more resources.

Brokers, still the key business partners of most commercial buyers, have the opportunity to make those ties even stronger by offering greater risk management insights and services through those technology services. But if the ties are weakened through public fights over who has the right to keep cashing the commission checks, there are many technology-empowered firms outside the business itching to step in and disrupt the whole process.

There are good reasons for both sides of the poaching disputes to work out more realistic employment contracts that value what everyone brings to the table and keep the focus where so many brokers assert it should be: on the client.






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