Cedants may not care how their broker is remunerated, but that doesn't mean conflicts of interest are okay
Joe Plumeri is absolutely right. The only way to stop conflicts of interest is for brokers to stop taking contingent commissions.
He has again laid a marker in the sand. As the wheels of global financial reform continue to turn, the scrutiny facing the sector is unprecedented. The Willis boss led the way in ruling out contingent commissions post-Spitzer reform, but the latest regulatory stance from New York suggests that big brokers look set to gain considerably from a reversal of the position.
The reason he is right is that the reputation of risk carriers is under threat and clients are asking questions like never before. After all, what does full disclosure look like? How long is it going to take to explain that while Berkshire Hathaway plugs away? Its boss has a majority stake in Munich Re, performed a sweetheart deal with Swiss Re at the heart of the crisis, and owns half the world.
Meanwhile, what do the people who know all this anyway – the cedants – really want from their broker partners? For starters, they want a cosy, long-term relationship built upon trust, financial strength, shared expertise and mutual understanding.
They also want informed insight and advice, so that come December they can pass on the right messages and safeguards to their own corporate clients.
Then, throughout the year, they value and welcome entrepreneurial, creative capacity plays, investment advice and risk management manoeuvres that can make a difference.
But do they really care how their broker partner is remunerated, as long as it reasonable? Maybe not, but that doesn’t mean conflicts of interest are right.
Brokers will tell cedants, clients and whoever will listen that the value of such contingent deals works to increase professionalism and, as a result, service levels, value and harmony along the way. Now they’ve just got to hope that the regulators and big business continue to buy that argument in the long term, because right now, it doesn’t seem to stack up.
Tom Broughton, editor-in-chief, Global Reinsurance