Download - Insurance Brokerage
Insurance Brokerage• Review of the insurance distribution system
• The brokerage business– Background – Recent events– View of a broker
• Scott Strickland• Senior Vice President• Brown & Brown of Washington, Inc.
– Thoughts for the future
Insurance Distribution System - Background
• Independent agents and brokers– Agents– Brokers
• Exclusive agency system
• Direct marketing sales
Insurance Distribution System – Background - 2
• Role of insurance producers – Some stats
• How many producers in the U.S.
• Is it changing
– Personal lines v commercial lines• Agents
• Brokers
Insurance Distribution System – Background - 3
• Insurance distribution– Agent v broker
• The distinction
• Real v theoretical
– What do customers think• Agent v broker
– What do companies think• Agent v broker
Insurance Distribution System – Background - 4
• Who are insurance brokers– There are national and regional firms– Names in the news
• Marsh
• AON
• Willis
• May others large and small
Top 10 U.S. Insurance Brokers and Revenues2003 (generated by U.S. clients)
Rank Company 2003 Revenues*($ millions)
1 Marsh & McLennan Cos Inc $5,250.6
2 Aon Corp. 3,232.5
3 Arthur J. Gallagher & Co. 1,082.2
4 Willis Group Holdings Ltd. 1,022.0
5 Wells Fargo & Co** 800.5
6 BB&T Insurance Services Inc. 604.7
7 Hilb, Rogal & Hobbs Co. 551.3
8 Brown & Brown Inc. 545.3
9 USI Holdings Corp. 352.3
10 Lockton Cos. Inc. 289.1***
Insurance Distribution System – Background - 5
• What is the role of an insurance intermediary– Traditional – Changing role of the intermediary
• Responding to changing customer needs
• Value added services
Brokers’ Involvement in the Insurers’ Value Chain
Source: Swiss Re Economic Research & Consulting; Sigma No.2/2004
Traditional core function of brokers
Services for insurers
Services for policyholders
Product development
Marketing/ sales
Brokers assist in providing data for underwriting
Brokers keep records for policy-holders
Brokers represent policy-holders
Under-writing
Policy issuance/
maintenance
Brokers assist with modeling and actuarial services
Traditional core function of brokers
Sometimes delegated to managing general agents
Frequently delegated to agents/ brokers
Brokers provide DFA, financial modeling services and 3rd party asset management
Brokers provide run-off services for insurers
Asset & Liability management
Claims management
Insurance Distribution System – Background - 6
• How are insurance intermediaries compensated
• Who pays for all this– Commissions– Fees– Special arrangements
• Customers
• Insurance companies
Recent Events -1 • Eliot Spitzer, New York Attorney General
– Investigation into contingent commissions– Charges of bid rigging– Marsh & McLennan Companies– Other companies involved
• AIG
• ACE
• Zurich American Insurance
• The Hartford
• Munich American Risk Partners
Recent Events - 2
• Ending contingent commissions– MMC– AON– Willis
• Refunds of commissions to clients
• Employee terminations
Recent Events - 3• Transparency and disclosure
– What’s important• Cost v benefit
– Industry response• CIAB• RIMS• NAIC• Financial Services
– Sarbanes-Oxley– GLB
Recent Events - 4
• How are agents and brokers regulated– State regulation– Financial services modernization
The Future of Insurance Brokerage
• Some thoughts on changes in the industry– Products and services– Distribution channels – Intermediaries – The economics