But intermediaries may need to look in new directions for income if they want to change opinions
Of all the components in a business value chain, intermediaries have the worst public image. At best they are perceived as cunning wheeler-dealers, and at worst unscrupulous traders who will stop at nothing to make a quick buck at the expense of the market.
Politicians, the press and the public alike cannot resist bashing brokers or using them to score points. While former New York attorney-general Eliot Spitzer also had large insurers in his crosshairs, his accusations of bid-rigging were more squarely aimed at, and had the biggest impact on, brokers.
The poor image of the intermediary is not limited to the insurance industry. There have long been accusations that big investment banks use the information they glean from client transactions to inform trades undertaken for their own account.
And, just as insurance brokers have been accused of placing business with the insurers that pay them most contingent commissions rather than those that offer the best deal for clients, so too have stockbrokers been charged with executing trades on exchanges that pay the best volume-based rebates rather than the ones offering the best prices.
While brokers deserve some criticism, they currently get too much. The accusations flying around belie the fact that they do a difficult job very well, and have earned their position between buyers and sellers not through bullying and subterfuge, but by providing an indispensible service.
However, intermediaries sometimes do themselves few favours. It is clear why brokers are currently seeking additional revenue from underwriters through providing consultancy and other services. Their traditional fee and commission revenue is under pressure from intense competition and soft insurance prices, respectively, and they possess data and knowledge that can be extremely valuable to insurers.
But perhaps they should look elsewhere for new sources of income. Seeking payment from insurers, no matter how strictly the services provided are ringfenced from regular broking activities or how the payment is justified, is only likely to reinforce the view that brokers are profiteering and not putting clients first.
Some have suggested that brokers are seeking more payment from underwriters because they are undercharging clients. Changing this will be an uphill struggle. Clients are cash-strapped themselves and are used to paying the current rates. But they will be all the harder to persuade as long as brokers are also getting paid by insurers.
It may be initially painful, but perhaps it is time for brokers to wean themselves off hand-outs from underwriters.
