Following the recent troubling national headlines, insurance brokers are not likely to be No. 1 on the list of most trusted professions. The very public investigations by the New York Attorney General’s office into the financial dealings of some of the insurance industry’s biggest players has left the industry reeling and consumers questioning the integrity of insurance brokers.
The customers hurt by the scandal are primarily very large companies with complex insurance needs. However, the scandal promises wide-ranging implications for the entire industry, eventually trickling down from the commercial coverage for large companies to personal lines.
The good news is that the scandals have raised consumer awareness of how the industry works. For small to mid-sized regional brokers, business has always depended on customer trust and loyalty. The industry scandal involving the national insurance brokers gives customers seeking property and casualty insurance more reason than ever to carefully select their broker and a very good reason to look to the smaller and mid-sized brokers to meet their needs.
Full disclosure of the compensation arrangement between insurance brokers and the insurance companies underwriting the products sold by them remains the best solution. As brokers move away from commission-based products they move toward restoring faith in the industry.
Now under the gun, the large national brokers are being forced to reform. Everyone in the industry supports regulation; however, the debate remains whether it should come from the federal or state level. Industry experts predict that Congress will take a hard look at federal regulation of the insurance industry in the next session. The National Association of Insurance Commissioners (NAIC) has issued a draft of legislation, and a number of insurance companies and brokers have self-imposed changes on their compensation practices.
Locally, the Rhode Island state Senate and House of Representatives have approved bills to require insurance brokers to get their customers’ “documented acknowledgment” that customers are aware of any compensation the broker receives from a carrier or third party. This R.I. initiative is based on a model drafted by the National Association of Insurance Commissioners; however, the local initiative applies only to new policies.
It is a step in the right direction; and states lacking this type of protection will no doubt begin the process of doing so. And, from our perspective, this is a good move.
As a purchaser of insurance, what can you do immediately to protect yourself? Initially, you can ask your provider for complete disclosure even if your insurance broker isn’t required to tell you. As a client, you can exercise that right. Secondly, do some research on the insurance broker you are thinking of using. Find out their track record. Are there skeletons in the closet? And seek the advice of someone in the industry who you trust, who can provide you with the straight facts on what’s going on and how you can best be served.
The insurance business is a service business, and many small and mid-sized regional insurance brokers operate on the belief that customers have the right to know how much they are being compensated. While full disclosure is soon likely to become law, for many insurance brokers it has always been good business practice.
