The Risk and Insurance Management Society (RIMS) has issued a policy statement on industry compensation and placement practices.
RIMS said it strongly supported the position that broker compensation and placement agreements should be transparent, with all sources of compensation, both direct and indirect, disclosed without client request.
It said disclosure would ensure that risk managers understood not only the cost of coverage, but any arrangements with specific insurance companies, or any fees obtained by the broker from markets approached on behalf of the insured.
Disclosure should include compensation or fees related to the broker's overall book of business, as well as those fees related to specific offices, to individual primary and excess coverage, and to reinsurance placements, it said.
Existence of compensation arrangements should be disclosed prior to placement of business and annually by line of coverage.
“Failure to disclose such arrangements runs counter to the spirit of partnership that risk managers seek to achieve with their brokers, vendors, and insurers,” said RIMS.
“Because of the complex nature of insurance transactions, a special trust relationship built on a foundation of truth and honesty must exist between broker and client.”
It added: “Disclosure of agreements and relationships with insurers is an important part of the integrity of this relationship. Risk managers should evaluate the impact of contingency fees on their program or marketing process based on that disclosure.”
RIMS said it believed that broker compensation and insurer selection should be governed by the principles of complete transparency and full disclosure without client request.
