Posted on 15 Oct 2009
The Risk and Insurance Management Society, Inc. (RIMS) on Wednesday announced that it is releasing its executive report, "A Practical Guide to Insurance Broker Compensation and Potential Conflicts of Interest for the Risk Manager." The report calls for complete transparency and full disclosure of all revenue streams associated with the placement of insurance products, and serves as a guide to assist risk managers in understanding insurance broker compensation and potential conflicts of interest.
RIMS' ultimate goal in publishing this report is to heighten members' awareness of the potential pitfalls surrounding the insurance purchase transaction, so they are empowered to press for greater transparency in their negotiations with brokers as well as for regulatory reform in their own states.
“In ideal settings, insurance brokers and risk managers are working very closely toward a common goal—marketing the insured’s coverage to achieve optimal results within the commercial insurance market,” says Deborah Luthi, director, RIMS External Affairs Committee and director of enterprise risk management at Matheson, Inc. “However, because the industry has yet to mandate full disclosure, risk managers must be diligent in their broker selection process. This report gives them the tools they need, not only to successfully make that selection, but to drive a higher standard of conduct industry-wide.”
The report stresses that any compensation to the broker from insurers with whom the broker places client business must be transparent or eliminated altogether, thus ensuring brokers are acting solely in the interest of their client. Other topics covered within the report include:
* An extensive outline of insurance broker compensation types;
* Tips for crafting an effective request for proposal;
* Recommendations for delineating services to be provided and associated charges within a Service Level Agreement (SLA).
RIMS also released a revised position statement on broker compensation, in tandem with the executive report. In reiterating the call for risk managers to demand full transparency of all revenue streams by the broker in advance of any submission to market, purchase or placement of coverage, the statement also addresses broker-marketed new products and services to carriers. “While RIMS takes no issue with new products, there must be a separate agreement between the two parties which does not link these services to specific clients. However, if a broker receives payment from both the carrier and the buyer for placement of insurance products, all transparency requirements should adhere to that transaction,” says Luthi.