Academic Pans Litigious Approach To Broker Reform

By Allison Bell

November 17, 2004 at 07:00 PM

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A risk management professor is questioning whether a barrage of regulator subpoenas and lawsuits is the right way to change commercial insurance broker compensation practices.[@@]

Some brokers and insurers may have participated in bid-rigging arrangements and other abuses that really are illegal, according to William Feldhaus, an associate professor at Georgia State University's business school.

But payment of commission overrides, or commissions contingents on the performance of a producer's block of business rather than a single case, "has been around for decades," and many larger clients already take commission overrides into account when negotiating ordinary broker commissions, Feldhaus said in an interview.

This may be a good time to improve compensation disclosure, or even to scrap the commission override system entirely, Feldhaus says.

But Feldhaus says he believes state regulators may be letting worries about criticism of the state insurance regulation system affect their response to broker compensation concerns.

"I would have hoped that there would have been a better way of handling this thing without litigation," Feldhaus says. "This litigation is just going to cause a heckuva lot of unnecessary expense."

In the long run, customers probably would be better off if regulators, insurers and brokers simply got together to put more checks and balances in place, Feldhaus says.

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