Indeed, it’s a measure of just how skeptical Corporate America was becoming of the insurance industry that, even prior to Spitzer’s lawsuit against Marsh, some large clients of major brokerage firms had begun to hire a second insurance broker to assess the performance of their primary broker. Veteran broker Andrew Marks, president and CEO of MLW Services, says his New York firm has been retained by a number of companies in the past year to perform what he’s calling “risk-management forensic audits.” In one such case, he says, his firm was able to save the client $400,000 when it discovered that the client’s primary broker was seeking to place coverage for a worldwide risk with the London office of a U.S. insurer — in order to earn a commission that it wouldn’t have received placing the coverage domestically.
In time, such incidents may prove to have been more commonplace than most insurance buyers might have thought possible. Kramer, for example, observed in late October that a number of Anderson Kill’s clients had been coming to the firm with questionable details about their insurance programs in the wake of Spitzer’s lawsuit. “I can’t believe they’re isolated, and I don’t think it’s nothing,” she says. Marks notes that in another audit assignment he’s just undertaken, the client’s broker had divided the company’s $50 million in directors’ and officers’ liability insurance among five different carriers. “Now if you know the D&O market, you know the major carriers, the better carriers, can put out paper for at least $25 million of coverage,” he says. “So the question I have to ask of the broker is, why do we have five carriers? One answer, which I’ll not get from them, is that they are just trying to feed their five carriers rather than put the business with one carrier or the other for the best possible deal.”
Second opinions don’t come cheap but might be justified, given the potential savings. Marks says his firm might charge about 10 percent of the primary broker’s income, which in turn might represent about 1 percent of the insurance premium. Companies that are not prepared to hire a risk-management consultant or a second broker, though, can still take measures to better their chance of getting insurance coverage that’s been properly placed and priced: they can insist on meeting with their broker for assurances they weren’t overcharged, for example, and to see evidence that controls have been put in place to assure pricing transparency going forward.
Meanwhile, if contingent commissions truly created a conflict of interest for brokers between their clients and their insurance carriers, companies might wonder whether it made sense for their brokers to be negotiating their claims settlements with insurers in years past. In the view of claims-management consultant Rick Sabetta, managing principal at Risk Navigation Group LLC in Mendham, New Jersey, there’s little chance that doing so resulted in companies winning smaller settlements. In fact, he says, odds are the reverse was true. “Most account executives so covet their client base that they will do whatever it takes to retain their clients — especially their big clients,” says Sabetta. That includes leveraging the broker’s relationship with its insurance carriers to try to negotiate a better settlement on their clients’ behalf.