banner ad
Experts Logo

articles

Website: Robert (Bob) Underdown

Broker Contingency Commission - Good or Bad?

By: Robert E. Underdown AIC, ARM
Tel:(480) 596-9552
Email Robert E. Underdown

View Profile on Experts.com. Profile on Experts.com.


Much has been written about Eliot Spitzer, the New York State Attorney General, and his actions against major insurance carriers and brokerage firms.

Many sales systems have an incentive structure built in for exceeding production goals. In the insurance industry, contingency commissions are generally paid based on the volume of business placed with a particular insurance company. The fact that a broker has a contingency-type contract with a specific insurance company can be of great value to the insured resulting in a lower price for the insured. Thus, contingency commissions are not inherently bad for the ultimate consumer.

The real issue is one of disclosure. Good business practice dictates the need for full disclosure between the insurance broker and the insured. This should be covered by a broker service contract as part of a well-designed insurance procurement process. For example, any contingency commissions received by the broker can be an offset to fees paid by the insured. The contract should also spell out the type of audits to be preformed to document payments received by the broker.

Another step to assure that the insured receives the most cost effective program is to incentivize competing brokers to put forth their best efforts. This competition should be tightly controlled with each step being closely directed by the insured.

How Do We Prevent Surprises with Broker Contigency Commissions?

The answer is full disclosure of any contingency fee arrangements and an understanding of how they will be handled as specified in the broker service contract between the insured and the insurance broker. Thus, the issue of broker contingency commissions can be addressed simply with forethought on the part of the insured's risk manager or the person responsible for insurance purchasing and the insured's external auditors.

In addition, the external auditors should be made to properly design their confirmation process to cover all fees and commissions. This approach to insurance procurement combined with competitive bidding will assure the best possible price and coverage for the insured and provide a level of comfort for the corporate directors that they are fulfilling their fiduciary duty.

Feel free to contact me with any questions you have regarding insurance, insurance coverage issues, broker service contracts and any other property and casualty questions.


Robert E. (Bob) Underdown, AIC, ARM, is an Insurance and Risk Management consultant who provides Insurance Expert Witness testimony nationwide from Scottsdale, Arizona. Bob is a former risk manager with more than 20 years' experience in claims and risk management.

See Mr. Underdown's Profile on Experts.com.

©Copyright - All Rights Reserved

DO NOT REPRODUCE WITHOUT WRITTEN PERMISSION BY AUTHOR.

Related articles

Wayne-Citron-Insurance-Expert-Photo.jpg

1/3/2019· Insurance

End-of-Life Issues & Impact of Loss on the Insured

By: Wayne Citron

For the first time, end-of-life issues and the impact of the loss on the insured is the topic. Most of my writings concern insurance in one form or another. I have discussed the many types of insurance, what to look for in each policy, what coverages are available. I've written about what to expect from an insurance company, an agent, or a broker.

Guy-Hatfield-Insurance-Management-Expert-Photo.jpg

8/28/2017· Insurance

The Expert Dilemma

By: Guy C. Hatfield

I have been active as an insurance agent/broker for 40 years. 20 years ago I was referred to an attorney by a fellow CPCU colleague to be a so called "expert". The case involved an agent who failed to provide workers compensation benefits to an ongoing commercial concern. I was hired by the plaintiff's attorney to opine on the conduct of the agent. Since this was a fundamental error on the part of the agent, the case was soon settled in favor of the plaintiff. This was my introduction to being an expert. I found I enjoyed the experience and it was a nice contrast to sales and insurance administration.

Edward-Priz-Workers-Compensation-Insurance-Expert-Photo.jpg

7/10/2015· Insurance

An Unregulated Workers Compensation Insurance Market Poses Problems

By: Edward Priz, CPCU, APA

Recently, a former Director of the Illinois Department of Insurance wrote an Op-Ed piece, decrying recently proposed legislation that would require insurers to file changes in Workers Compensation insurance rates with regulators before using those rates with insurers. The proposed legislation would also allow the Department of Insurance to disapprove rates if it was determined they were excessive.

;
Experts.com-No broker Movie Ad
Unicourt Logo Button

Follow us

linkedin logo youtube logo rss feed logo