Senior-level insurance brokers in the United States, Bermuda and elsewhere fear ongoing investigations and changes to commission structures will unduly harm their industry according to a recent survey carried out by a US-based research firm. The brokers also staunchly defended contingent commissions and warn that if they are taken off the table, small brokers are going to have a hard time.

The surveyor Advisen Ltd. provides insight into underwriting, marketing and purchasing commercial insurance. It conducted the web-based survey over a two-day period in November by questioning 135 senior level insurance brokers about the current investigations into anti-competitive practices. Respondents were also asked to offer written comments. Over half of those polled work for the top four brokerage firms of Marsh & McLennan, AON, Arthur J. Gallagher & Co. While the vast majority of respondents were based in the United States, a small number responded from Bermuda, Britain and Australia.

Advisen said that both the survey responses and the written comments portray the brokerage industry as reluctant to scrap the entire contingent commission structure. They fear smaller brokers who rely on these commissions ? but lack the market leverage to abuse them ? will suffer greatly from lost revenue and ultimately may be forced out of the market, potentially stifling competition.

?Brokers see a new industry dynamic emerging from the investigations, including a more open transaction process and a more hands-on approach from many clients,? said David K. Bradford, executive vice president of Advisen. ?Respondents deeply resent the stain on the entire industry resulting from current investigations and strongly assert that they act in the best interest of their clients, rejecting the notion that contingent commission agreements influence their choice of carriers.?

One regional broker told his researchers: ?We feel that the arrogant behaviour of some people at the very largest brokers and insurers damages everyone and not just in the pocketbook?but in reputation.?

Another told Advisen?s researchers: ?Contingent income was not a conflict for 99.9 percent of insurance brokers in the country who always strive to serve their clients? needs.?

A clear majority of the brokers told Advisen researchers that the investigation of these and other practices will force some change in the industry.

Nearly 77 percent of the respondents said they anticipated a requirement of higher transparency for the industry while almost all them believe state regulators will require greater disclosure.

Mr. Bradford told that some brokers also suggest there are going to be changes in the dynamics of the transactions themselves.

He said: ?A number noted that the risk managers would be taking a more active role in each stage of the process and several suggested that brokers would be compensated specifically on services provided rather than just a packaged fee or commission. A couple suggested that there would be a split between the placement function and the consultative function and what had traditionally been the full domain of the broker is going to be divvied up between different brokers and between brokers and consultants. The projections of what it would look like in future varied somewhat but there was a very strong feeling that the dynamics of the process were going to be very different.?

Most brokers also predicted that changes arising from the current investigations would translate into an increase in the total cost of risk for clients or that the total cost would at best stay about the same. The brokerage executives also predicted that their own revenues would either decrease or stay the same.

?The controversy is clearly going to change the industry, but the brokers who participated in our research believe that contingent commissions are a valid and important source of income and the commissions do not detract from most brokers? obligation to act in the client?s best interest,? Mr. Bradford said adding that he was somewhat surprised at the tenacity with which so many brokers defended contingent commissions, particularly the profit based commissions as opposed to the volume based PSA commissions.

?It came through again and again that this was something they were not readily willing to part with and didn?t feel there was really a need to.?

One broker told Advisen researchers: ?I think there is an unintended consequence less competition. The smaller brokers and agents will be driven out of business if they lose contingent income.?

Another broker said in his response: ?My first reaction, as the person that manages profit sharing and contingencies for our agency, is that this is a complete overreaction and a ?lumping? of unrelated issues ? i.e. linking bid rigging, an unheard-of practice, with legitimate management of revenue streams. We try to use contingencies and profit sharing to build stronger relationships with carriers for the benefit of our customers.?

On the flipside, Mr. Bradford said that brokers expect the playing field will end up more level between the smaller brokers and the larger brokers who do weather the storm particularly since the large brokers have sworn off contingent commission income.