Schlafende Hunde soll man nicht wecken

Leading German insurance managers interviewed by Commercial Risk Europe do not seem to be overly worried about the fact that brokers take fees from them and payments from insurers at the same time, so long as such payments are transparent. One leading insurer in the German industrial insurance market did say, however, that there are still too many examples of brokers that demand payment for services that are at best ill-defined. At the end of the day it seems unlikely that the EC will come under any pressure from the German industrial insurance market to make a U-turn on its recent decision to continue to exclude the market from the Insurance Mediation Directive (IMD).hideThe overall feeling is that risk and insurance managers with larger German companies are big enough and sophisticated enough to look after themselves and do not need help from regulators. Gregor Köhler, CEO and President of Pallas Versicherung, the insurance arm of Chemical giant Bayer, said: “I don’t think that the EU should prohibit insurers from paying brokers. There is already too much regulation in the area and we don’t need more. What we really need is complete transparency for clients. A client should know if a carrier pays his broker certain commissions. It should be up to the client to decide if he wants a contract with a commission or not.” Hans-Jürgen Allerdissen, Managing Director at Deutsche Verkehrs-Assekuranz-Vermittlungs, the insurance arm of Deutsche Bahn, agreed with Mr Köhler. He said he has ‘no problems’ with commissions ‘as long as I know how much the broker gets and as long as I can be sure that no contingent commissions are paid’. “When I am comfortable about that, nothing but the price matters in the end. The question whether the insurer or the client pays is not so important since in the end it is always the client who pays,” he said. Alexander Mahnke, CEO of the Business Unit Insurance at Siemens Cross-Sector Financial Services, agreed that risk managers do not need more regulation in this area. “A good broker should act like a consultant: first listen to the company and then tell them what they need.” But he added that, in a fully net system, this ‘consulting approach’ would be more transparent. The brokers themselves also do not want to see more regulation, say that the market is heading towards a more fee-based consulting future naturally and that any problems can be sorted out between the brokers, customers and insurers in a sensible way without the need for outside interference. Florian Karle, Managing Director of Südvers, said that commissions are a ‘mixed calculation’ and that the German government and the EC should not confuse the need to protect individual consumers with big industrial clients. “Some products like pensions will not be bought any more when the German government forbids commissions in favour of fees. The result will be a much bigger problem than possible conflicts of interest when brokers are paid on a commission basis. The goal of all the political action is to protect consumers. However we are not dealing with private clients, but with industrial customers who are able to protect themselves.” Mr Karle pointed out that, in Germany at least, consulting on a fee basis is the main form of remuneration with big industry clients. But he also stressed that the same assumption cannot be made for medium and smaller-sized insurance buyers. “The question is if this will also be true in the business with medium-sized companies. Most of this segment is running on a commission basis and no one is bugged by this,” he said. “Our point is that we do not participate in price dumping when it comes to fees. I can give you many examples of mandates we abstained from because the fee was not appropriate. We want to earn money and if that is not possible we cannot provide service,” said Mr Karle. On the topic of insurer payments to brokers Mr Karle was relaxed. “In Germany you can be sure that there are payments from insurers to brokers apart from the usual commission, but these are small things like a subsidy for admin costs or a small bonus for good claim ratios. Clients are made aware of these payments on request,” he said. Dr Leberecht Funk, Partner at the Funk Group in Hamburg, said that commissions have become less important naturally over time because the transactional part of the business has shrunk in favour of risk consulting and the design of creative risk solutions and tools. He did suggest, however, that brokers should perhaps charge more for the more demanding consulting work. “The consulting part has become more challenging and complex. We should be able to compare the content and quality of our services and thus our revenues with what business consultants, lawyers or accountants charge for. In that sense, the remuneration for our services for larger corporate clients can be called inadequate and there should be room for improvement. Transparency and quality services will help. Branding your quality performance is so essential in order to achieve this goal and to differentiate from the grey mass of traditional intermediaries,” he said. Dr Funk added that, in his view, it is not wrong for insurers to pay brokers for services provided so long as there is not a conflict of interest and the services are clearly identified. “There are numerous constellations where it is beneficial for the client when insurers and brokers deviate from their normal definition of duties. To cater for industry clients (and also to avoid double work) insurers frequently outsource certain functions which, according to the general definition of duties, belong to the domain of insurers. And for more standardised businesses the reverse might be true and effective,” he said. “We need to make this transparent to our clients on a case-by-case basis and create an understanding that this is in their interest. Furthermore they should have the choice to opt out. If we follow these principles there is no material conflict of interest that should void remuneration by the insurer for such specific services in addition to fees charged to the original client,” continued Dr Funk. Walter Schenk, member of the executive board at Vienna-based broker GrECo, said that brokers should be allowed to work on a fee basis or on a commission basis so long as it is transparent. “We do not mind disclosing commissions. Brokers need to make their performance and prices transparent to customers. Brokers need to explain the additional value they offer to their customers which is worth a certain price,” he said. Mr Schenk said that his brokerage records its ‘work input’ for clients and discloses these notes to them at least once a year. “If you talk to corporate clients, which are also in business, they know that a certain effort costs a certain price. Our experience has been good at that level. And if someone thinks they can get the same performance for half the price—good luck to them,” he added. Oliver Cullmann, Managing Partner, Gebrüder Krose, said that it is difficult to generalise about whether the level of payment for brokers’ services is adequate. He added that this can only really be judged in connection with the policy, the effort involved and the client segment. “Clients and brokers should agree on the kind of payment individually. This is true especially for large corporate clients, where only professional players are employed. They should keep their options open, as open as possible. From our point of view only one party should pay money, either the customer or the insurers. The payment of contingent commissions should be possible only in exceptional cases,” he said. Stefan Nill, Director at broker Leue & Nill, said he thinks that brokers do a lot for their clients as well as for the insurers and the current system of commissions has been ‘proven and tested’. “There are brokers that take services off insurers and others that do not. One has to create a sensible balance. It is all about transparency for the customers,” he said. “Considering the payment for brokers—it is adequate. Those who cry and complain the loudest do the least. Our business is one in which you can create profit, if you keep your house in order. I do not want to see any changes in that system,” he said, rounding up the market consensus neatly.

Schlafende Hunde soll man nicht wecken

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