The chief executive of Catlin Group spoke at a London conference earlier this week. The conference was sponsored by Insurance Day. In London, the brokers and the underwriters they work with have been in a dispute over payments and what some consider, ‘contingent commissions’.
Contingent commission is a term to describe payment to an insurance intermediary by the insurer or underwriter based on the profitability (or lower than average loss) of the business the intermediary placed with them. This practice was addressed in the U.S. several years ago; After a New York Attorney General became involved, the practice was pretty much discarded in the larger firms.
Catlin Group’s chief executive commented in his speech, he was clearly against any form of contingent commission. His speech seemed to ‘reprimand’ the broker’s for conducting their business in such a manner. It didn’t go over well as it seemed to cause an increase of disagreement between the two groups.
In April, Lloyd’s performance management director sent letters to brokers and MGA’s informing them that additional insurer charges may be prohibited and could even be illegal under applying UK regulations. Other mentions of new additions to bribery laws, and the Financial Services Authority (FSA) requirement of prior written agreement between parties for most services.
The brokerage community in London is rejecting the changes. Additionally, there is some notable tension between the brokers, underwriters and insurers in other countries, even in the United States. The brokers state that all forms of commissions are acceptable as long as there is clearness with the clients; which they are.
Others commented that honesty and disclosure when working with your clients is the key. Chief executive of Catlin stated that if brokers could be more competitive and open about their processes, the insurers could see what they do and what it’s costing; in turn making it easier for the underwriters and MGA’s to determine the most efficient ways to handle the process.
