Collusion May Result In Higher Premiums
Sydney Morning Herald
Saturday November 27, 2004
Companies, sports clubs and schools could be paying up to 30 per cent more for their insurance because of sweetheart arrangements set up by some insurance companies as rewards for brokers who put work their way, according to a cost consultancy.
The claims come at a nervous time for the industry because of the shake-up of insurers in the United States following an investigation about anti-competitive activity by firebrand US attorney-general Eliot Spitzer.Local industry chiefs claim that intense competition, new rules on transparency and industry self-regulation ensure that brokers act on behalf of their clients in trying to find the best price, rather than acting as de facto agent for the insurer. But Ken Armstrong, managing director of Expense Reduction Analysts, claims the fee charged corporate clients by brokers is in many cases only a small part of the real cost of taking out cover.Mr Armstrong said that some brokers could be charging their clients a fee, but also be receiving undisclosed commission payments from the underwriter that could boost their payment by as much as 30 per cent.Last month, the nation's three major brokerages, Aon Holdings, Willis Group and Marsh - all local divisions of US-based global groups - banned contingency fees and moved to strengthen clients' rights."[The US investigation] has resulted in a lot of reflection," said Bruce Bollom, chief executive of Willis Group (Australia).Aon Holdings (Australia) chief executive and managing director, Peter Harmer, said its payment system was clear cut, with corporate clients paying fees and any additional commissions rebated to the client. Australian Securities and Investments Commission executive director Ian Johnston said rules governing transparency differ depending whether it is a retail or wholesale client. Brokers are under a legal obligation to tell their retail clients how much they are being paid and whether it is by fees or commission. There are no specific guidelines for wholesale clients, other than acting "efficiently, fairly and honestly." Mr Johnston said the onus was on the consumer to ask their broker the total cost and form of payment. Mr Armstrong said some brokers charged a fee and did not reveal additional commission payments flowing directly from the sale, or how it might boost additional commissions based on the volume and profitability of business placed by the broker with the underwriter. Mr Armstrong also criticised "bucket" arrangements, under which brokers have arrangements with underwriters to "place some of their client's business into those 'buckets' instead of 'marketing' the policies to the insurance industry as a whole".
© 2004 Sydney Morning Herald