ORIMS PD DAY: Keynote speaker calls for end to broker commissions

Broker commissions should be history, and broker compensation should come from the client rather than the insurer, says the keynote speaker to Wednesday’s Ontario Risk & Insurance Management Society (ORIMS) “Professional Development Day”.Felix Kloman, editor of Risk Management Reports told the audience a “Pandora’s box” has been opened by New York Attorney General Eliot Spitzer, but that the issue of contingent commissions, and even the overall ethicality of commissions in general is a long-standing issue. He notes that he was writing back in the 1970s about the inappropriateness of insurers paying brokers. Now the issue is front and center, and the industry has been exposed as “a business riddled with conflict of interest”. To those who say the response to the controversy over whether contingent commissions represent a conflict of interest is simply to disclose those commissions, Kloman answers that this is “analagous to having the police chief in your town disclosing that he has mob connections”. While these commissions are not illegal, they are unethical in his view. “Any income from other than the client corrupts a relationship,” he states. “It is too late for disclosure, it is a Band-aid it is not enough.”Kloman suggests several changes which should be made in the industry, beginning with an end to all commissions, except for agents who say up-front they work for just one insurer. Intermediaries should be paid fees negotiated with the client, with Kloman noting, “fees are no guarantee of ethical behavior, but I submit they will take away much of the incentive.” He also suggests clients should be allowed to place business directly with insurers if they wish to do so.However, Kloman does not hold out a great deal of hope that his suggestions will become industry standards. “Will the changes I suggest take place? Probably not.”