The middleman's muddle

Risk & Insurance, Jan, 2005 by Jack Roberts

With the fallout and wrangling about broker compensation, the issue only seems to get more confusing. But if there is one theme that might help clarify the confusion, it's "who is the customer."

For a pure brokerage operation, that's pretty clear. The broker has a fiduciary responsibility to represent the interests of the insurance buyer. An agent, however, generally has a fiduciary responsibility to represent the insurer.

The confusion emerges when agents represent more than one insurer and brokers act as agents and brokers simultaneously. These kinds of situations are all too common.

What seems to happen is the agents, who represent the insurer, portray themselves to the buyers as representing the buyers' interests. Even the rhetoric of an independent agent association tells would-be buyers that agents can get the best price and terms because of their multiple affiliations.

Because these conflicts can be so rampant, complete and open disclosure of all relationships and payment mechanisms should be the minimum standard. Yet, in the debate, agent organizations have complained about disclosure because it may interfere with making a sale.

Instead, I would argue, disclosure makes good business sense. If I found out I was paying hidden fees and commissions, I'd be mighty upset. That's just not a good way to do business with your customers.

Jack Roberts

jroberts@lrp.com