CIAB Says Placement Service Agreements --PSAs-- Not an Issue, Notes Disclosure is Industry Standard.

Business Editors

WASHINGTON--(BUSINESS WIRE)--April 26, 2004

The Council of Insurance Agents & Brokers said today 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, The Council said.

The Council, which represents the leading commercial property/casualty insurance brokers in the country, 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 been on the record for nearly six years as favoring disclosure of PSAs, which are widely used and understood in the industry. Disclosure is the industry standard, The Council said, 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.

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

The full statement issued by The Council follows.

"New York Attorney General Eliot Spitzer has issued subpoenas to several leading insurance brokers relating to Placement Service Agreements (PSAs).

PSAs are not linked to placement of a specific policy but are paid to brokers by carriers based on their overall relationship and the services provided by the broker for the carrier. It is the industry standard to disclose these arrangements to commercial customers.

The Council of Insurance Agents & Brokers has been on record for nearly six years as favoring disclosure of PSAs, which are widely used and understood in the industry. As is always the case, disclosure is the best way to avoid conflicts or suggestions of conflict.

The Council represents the leading commercial insurance brokers who write more than 80 percent of the commercial property/casualty premiums in the United States annually. It is not aware of any customer complaints relating to the existence of PSAs or lack of knowledge on the part of commercial customers about those arrangements.

Commercial property/casualty customers are sophisticated buyers of insurance. The Council has confidence that they are aware of these arrangements and understand their purpose.

A broker is charged with finding the best risk coverage solutions for his or her commercial customers. It is incumbent upon brokers to research the market fully and present a range of options, then work with their customers to find the coverage that meets their needs, both in terms of cost and scope.

A commercial customer works with a broker who can provide value-added services because of his or her access to markets and ability to negotiate favorable terms and conditions. Commercial insurance products are not commodities; they are customized risk transfer tools. The best broker for a given customer or group of customers is the one who has a relationship with the carriers that have the products that serve those customers best."

The Council of Insurance Agents & Brokers is the voice of the market leaders and the premier association for commercial insurance and employee benefits intermediaries in the United States and abroad. From its headquarters in Washington, DC - with programs conducted throughout the nation and world - The Council represents the largest, most productive, and most profitable of all commercial insurance agencies and brokerage firms. Only the top one percent of all agents and brokers qualify. The Council's members in more than 3,000 locations, place 80 percent -- well over $90 billion -- of all U.S. insurance products and services protecting business, industry, government and the public at-large, and they administer billions of dollars in employee benefits. Since 1913, The Council of Insurance Agents & Brokers has worked in the best interests of its members, securing innovative solutions and creating new market opportunities at home and abroad. Web site: www.ciab.com