Despite N.Y. Attorney General Concern, CIAB Says Placement Service Agreements Not an Issue

April 26, 2004

The Council of Insurance Agents & Brokers commented that
Placement Service Agreements (PSAs) between commercial insurance brokers and the insurance carriers with which they do business are not an issue of concern in the industry.

New York Attorney General Eliot Spitzer last week subpoenaed information on the so-called PSAs from some major insurance brokers. PSAs, which also may be called contingency fee arrangements, are paid to brokers by carriers based on their overall relationship and the services provided by the broker for the carrier. PSAs are not linked to the placement of a certain policy.

Arrangements like these frequently provide a value-added benefit to the
commercial customer, who can benefit from the broker’s relationship with the carrier, CIAB said.

CIAB, which represents commercial property/casualty insurance brokers nationwide, said it believes the arrangements are being disclosed to commercial customers. The customers are entitled to whatever information they need about the arrangements to make an
informed purchasing decision, CIAB said.

CIAB has stated for nearly six years that it favors disclosure of PSAs, which are widely used and understood in the industry. According to CIAB, disclosure is the industry standard and is the best way to avoid conflicts or suggestions of conflict.

The Risk and Insurance Management Society (RIMS), which represents the risk management experts who negotiate for the companies purchasing commercial property/casualty insurance, endorsed a similar position in 1999 and has acknowledged the benefit of the arrangements for commercial customers.

CIAB has said it was not aware of any customer complaints relating to
the existence or use of PSAs.

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