By Cedric E. Stephens, ContributorQUESTION: I have bought insurance through brokers for the last 10 years. I am now thinking of switching directly to an insurer. The broker's service which was poor at the outset has got worse. My premiums, on the other hand, have increased by over 200 percent since 2000. When it comes to claims, my brokers are a bunch of jokers! I have had to bypass them to obtain settlement at least twice. Am I making the right move? H.C., - Montego Bay, P.O., St., James.
ANSWER: Brokers are under fire everywhere! Consultant, Ainsley Deer, feels that a " consumer rebellion is mounting against providers of service " Last month, a Reuters report said that Americans with over US$5 million and more in assets to invest were avoiding investment brokers like the plague. They felt that these pros were not giving them unbiased advice. Most of those polled did not trust publicly-traded companies, financial statements and independent auditors. I know nothing about the last three. But, from my experience, there are persons here who quietly hold some of the same negative views about insurance brokers.
The broking business has always been driven by deal-making. Deals generate premiums. Brokers make their earnings on premiums. Customer service is only important to the extent that it creates value to the firm. If the customer benefits, good; if not, tough luck. Once the ink on a deal has dried it's on to the next case. Not everyone thinks this way. President of the Chartered Insurance Institute, Rick Hudson is one. He feels that broking is changing " into more of an advice-driven business " Some brokerages share the same roots with insurers. There is nothing wrong with this. It becomes dicey when persons who sit on the boards of brokerages also sit officially or unofficially on the boards of the related insurers or vice versa.
This creates all sorts of problems for insurance buyers. Brokers hold themselves out as providing independent advice. What happens in the case of a conflict between the insurer and the broker in the event of a big claim? With all the misdeeds in the business world I am very leery of dealing with firms that say one thing in public and do another behind the privacy of their boardroom doors. With the Berlin Wall now part of the scrap heap of history, I no longer pay attention to the myth of the corporate bamboo curtain!
There are probably very good reasons for the 200 per cent hike in your premiums. For one, you have had losses. Claims usually cause premiums to rise. This happens as surely as nights follow days. Secondly, premiums for most types of insurance have been on the increase over the last three years. If the movement in your premiums followed the normal pattern I expect that most of the increase to have occurred between 2000 and 2002 followed by a 'moderate' increase this year. Had your broker been earning his keep he would have told you about this. That they were part of a global trend. What is more he/she would have shopped around on your behalf to get the best deal and presented you with choices. After all, with the state of the economy and Christmas around the corner, everyone would like to save a few bucks. Bypassing a broker is common practice. The process is called disintermediation. It has become very common in recent times. It is not limited to the insurance industry. For example, some airlines have stopped paying commissions to travel agents for selling tickets. One can buy directly from the airlines. Hotel stays can be booked over the Internet without a middle-man.
In Europe, a new style insurance industry sprung up around the idea of companies catering directly to needs of insurance buyers. They do so without brokers and agents. One insurer became so successful that some companies and a group of brokers formed their own companies to enter that market. Locally, some insurers are quietly making plans to set up operations to exploit the weaknesses of brokers who now control nearly 70 percent of the market. If you cannot find a firm of brokers to meet your needs, disintermediation is an option. That is, if you are willing to invest the time to do your homework.
Cedric E. Stephens provides impartial advice on risks and insurance. If you need free information or advice to solve a problem, write to The Financial Editor or, contact Mr. Stephens directly at aegis@cwjamaica.com
