The agent/broker compensation model is poised to change, with a departure from commissions based on profitability and volume incentives.A poll of attendees at The Conference Group's 16th annual executive conference for the property/casualty industry in December revealed insurance executives expect changes in the brokerage and regulatory models to have fundamental and long-lasting effects on the industry.
These changes will be marked by downward pressure on industry compensation, with pricing likely to increase and the emergence of more disclosure.
The conference was sponsored in part by PricewaterhouseCoopers LLP, Standard & Poor's Rating Services, Sidley Austin Brown & Wood LLP, Cochran, Caronia & Co. and The Black Diamond Group, LLC.
The conference produced several relevant findings about the state of the property/casualty industry, but the one that governs producer compensation was magnified-particularly in light of a lawsuit filed in October by N.Y. Attorney General Eliot Spitzer against Marsh & McLennan (see "NAIC, NCOIL Draft Model Laws; Industry Reps Respond," page 8).
Spitzer charged the New York-based insurance brokerage firm with receiving payoffs from carriers for steering commercial business their way, rigging fake bids, and cheating corporate customers out of receiving advice in their best interest.
With this suit casting a pall over the industry, 86% of attendees expect a move away from commissions with profitability and volume incentives. More specifically, 46% of attendees predicted broker/agent compensation in 2005 will shift to straight commission with expense reimbursement, and an additional 40% predict there would be a shift to straight commission with no volume-based component.
Federal regulation
A majority of attendees (53%) thought that given the new regulatory model that is emerging, federal regulation will receive a big push in the 2005 Congress. Regulatory inquiries and public disclosure changes are expected to have an impact on market share among the top five brokers, with 42% of attendees predicting that intermediaries will lose market share influence.
The survey revealed that in 2005, reinsurance renewals are most likely to include more competitive D&O (directors and officers) products, with overall renewal rates declining worldwide.
Additionally, 74% of attendees estimated that between 10% and 30% of SEC registrants in the industry will become vulnerable to a "material weakness" in complying with Sarbanes-Oxley Section 404 (internal control reporting) in 2005, underscoring additional compliance burdens for the industry.
Also, while 41% of attendees believe that a view into 2005 of the property/casualty industry will include "more of the same," an almost equal number (38%) felt that 2005 will see strong companies getting stronger.
The Conference Group, Newark, Del., specializes in live, audio and Web conferencing to a variety of industries, including legal, health, financial, energy and manufacturing.
