INSURANCE BROKERAGE

ROBERTLEBLANC

L
Insurance brokerage is a profession that is both necessary and
mal known. Necessary, the continuation of this article will focus on it
to demonstrate. Little known, it is a fact, not only in the
public who has difficulty distinguishing between brokers and insurance agents,
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but also in more informed circles where value-added sharing
In the chain that goes from the client to the risk bearer, there remains vagueness.
Even before developing the missions of the insurance broker,
let's affirm that he is an insurance buyer and not a seller. The broker is
mandated by his client to choose and purchase on his behalf the lids
appropriate fixtures.
Very recently, AMRAE, the French Association of Risk Managers,
debated within itself about its own vocation and who should be it
member. Gathering exclusively risk managers since the beginning,
she thought it useful for its members and for development
the association itself, to open more widely to the professions of
risk. From now on, consultants and auditors or lawyers, as long as
that their activity is focused on risk management, mapping for
the ones, defense for better settlement in case of damage for the
others can be members of AMRAE. Brokers are not.
admitted. However, they intervene as consultants and auditors.
in the upstream phases of their missions, like lawyers in the
aval phases, and their presence is permanent..., but they are seen as
members of the vast brotherhood of insurance professionals, such as
allies or vassals of insurers, facing the client, not on their side...

Chairman of the Board, SIACI.

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 FINANCIAL ECONOMY REVIEW

The following developments are divided into three parts:

What is an insurance broker?
What does an insurance broker do?
What challenges, what perspectives?

WHAT IS AN INSURANCE BROKER?

To answer this question, after a historical reminder, we
will refer to different definitions, as well as to the regulation in
vigor.
Every time we attempt a time travel in terms of
in insurance, we have certain benchmarks, but the allowed ambiguity permits
to assert origins that are more or less ancient. Forms of solid
Proximity to tontines can provide life insurance.
two millennia of antiquity. In property insurance, there is a consensus on
general about beginnings with marine insurance, Paris on the arrival of
ships to good harbor, a few centuries before real estate owners
Crops do not group together in mutual insurance against fire.
The profession of broker is probably as old as the world itself,
less like trade, if we simply consider its role
intermediary between supply and demand. It will come as no surprise that
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the beginnings of insurance brokerage are attached to the development
maritime insurance; documents attest to the existence of
forty sworn maritime courtiers in Lyon in 1574. And it is in the middle of
from the 19themecentury, very quickly after the first developments of
property insurance, which appears in France and in other countries
industrial, terrestrial insurance brokers.
The Insurance Brokers' Union was created in 1896.
terrestrial brokers of the Seine Department; 102 brokers respond to the
convocation, 74 request membership, 63 are admitted. The history of this
the union develops up to us; become the SNCAR (Union
national association of insurance and reinsurance brokers), it has evolved towards
the FCA (Federation of Insurance Brokers) which brings together various
regional unions. The history is also marked by a split and the
creation of the SFAC (French Union of Insurance Advisors).
A definition of this profession that has naturally asserted itself to us is
data in France, as it should be, by Afnor: 'The broker is a'
natural or legal person having the status of a merchant and
authorized to present insurance operations; advice for the insured
for the finalization of the contracts that she negotiates freely with the
insurance companies of their choice, this person assists the insured
but she is most often the representative for the execution of contracts
and the settlement of claims.

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The European directive of 1976 also offers a definition:

The broker is a professional who connects takers.
(insured clients) and insurance or reinsurance companies without
to be restricted in the choice of these, with a view to risk coverage
to insure or re-insure, prepare the conclusion of insurance contracts
and possibly assists in their management and execution, particularly in
case of loss.
The European definition makes the broker an intermediary on equal footing.
distance between the insured and the insurer, whereas Afnor clearly indicates that the
the broker is the "advisor" of the insured and he "assists" the insured "whom he
is most often the representative. Most often? Could it be that
the broker is not an agent of the insured? The rules in force
In France, the famous 'brokerage practices' clearly set the
mandate obligations that brokers can invoke for
acting in the market, that is to say in front of the insurers. On the other hand, everything
as the policyholder's representative, the broker can also be a representative.
from the insurer for specific functions, such as collecting the
primes, when this task is entrusted to him.
It should also be noted that, as a merchant, the broker is
owner of one's portfolio. The more or less great sustainability
the links between clients and their broker are not insignificant in
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the valuation of this portfolio, but the history, particularly of the 10
recent years, has proven the value of brokers' portfolios.
The profession is regulated. In France, the authorization to present
insurance operations are governed by the Insurance Code, which
gives, in its article R511-1, the following definition: 'the presentation
an insurance operation is the act for any individual or
morale of collecting the subscription or membership of an insurance contract
France, or to verbally or in writing present the terms of a contract in
view of the subscription or membership." A broker can partner with a
another broker, in a co-brokerage where, for example, one is a provider
of business and the other broker or manager; the Anglo-Saxon markets
thus distinguishing between retail brokers or servicing brokers, in contact
clients and in charge of the service, wholesale broker or placing
brokers, wholesalers in charge of placement in the markets,
notably in London, where being a broker for Lloyd's is specific.
In these alliances, commission kickbacks are generally
expected. French regulations do not allow a broker to retrocede
of commissions to another authorized intermediary; of brokers
generally, any parties cannot benefit from kickbacks.
Current French regulations set age requirements,
nationality, professional qualification (recognized at the end of an internship
professional or by equivalence, based on experience in

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an insurance company) and respectability. It also requires a guarantee

financial and professional civil liability insurance.
A new European directive, normally applicable since
the beginning of the year 2005, but whose translation into national law is
not completed in France, sets in turn the conditions for exercise of the
insurance broker profession. Schematically, access to the profession
is easier than in France, but the practice of the profession is subject to
new requirements. The insurance intermediary must in particular
specify to each client in what capacity they are acting, and three possibilities are
planned: the first corresponds to the situation of general agents
or bank counters, where the intermediary presents only one offer
prepared by its mandate holder or employer; the second corresponds
to the normal functioning of a corporate risk broker, it is-
that is to say with very open consultation of almost the entire market;
third, which must therefore be explicit when it applies, corresponds
in the usual work of a broker for individual risks, it is-
say the choice of priority solutions (or, through the grouping process,
the development of solutions) applicable to clients, without consultation of
the whole market for each of them, and although being a broker,
the intermediary is not bound in relation to this or that insurer.
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WHAT DOES AN INSURANCE BROKER DO?
Agent of his client in general, at his service in any case, what does he do
The insurance broker, what are his missions? The answer is not
exactly the same depending on whether the client is an individual or a
company, depending on whether the matter relates to life insurance or property and casualty insurance.
Schematicallly, we always find the same steps:
the analysis of the client's needs, that is to say an analysis of their risks,
Because, even in life insurance, the reason for insurance is indeed the
risk;
the development of solutions, whether tailored for businesses
or whether it is about selecting an offer, from a wider range or
less wide;
the implementation of solutions, whether or not contracts are drafted
specific, that is to say conclusion and issuance of contracts, payment
of bonuses;
the assistance to the insured in the application of solutions, particularly in
cases of claims.
The broker is a value-added service provider. This should
to be obvious is not. And the traditional compensation method,
the commission as a percentage of the bonuses, constituting a figure
business activities not subject to VAT reflect the idea of pure intermediation.

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In the case of corporate risks, the service is more complex and

richer in specific added value, as there is only 'custom-made'.
Moreover, companies often wish to compensate the broker for
his actual work in fees, which is indeed a recognition of
this added value. The debate on forms of compensation for
courtiers will be addressed in the last section dedicated to challenges and to
perspectives of the profession.
Risk analysis, in this case, is becoming increasingly important.
Risk managers have a mission that goes beyond purchasing insurance.
France: they ensure the preservation of the operating account and of
Assessment in relation to external hazards, that is to say outside of risk
of the entrepreneur that the business leader undertakes; to do this, they draw up
increasingly often a risk mapping, with assistance
externally. Very concretely, the image of brokers mentioned in
preamble, partners or vassals of insurers, prevent them from
fully play the role that could be theirs in this work,
more entrusted to consultants and auditors considered as more
independent. However, regarding insurable risks, a job
the important analysis returns to the brokers, based on the statistics, but
also from risk visits conducted by their engineers. A particular case-
The risk analysis layer is that of the due diligence required of a
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brokered by the acquirer of a company, taking into account the status of the
risks and their coverage being an increasingly determining criterion
in an acquisition process.
The development of solutions for companies is a true responsibility.
design exercise. Siaci signs "creator of solutions", but that
could have been the slogan of the entire profession. It is often overlooked, but this
the role never belongs to the insurers. It is the core business of the broker
and the exercise combines theoretical analysis of statistics and approach
market opportunist. Indeed, a genuine actuarial work is
made to determine an optimal scheme for retention and transfer of
risks with, if applicable, a detailed breakdown according to the different
activities of the company in question. But all of this would mean nothing if the
The courtier did not, at the same time, have a precise idea of the relative appetite.
of the different subscribers for the different types of risks and of
intervention thresholds of each.
The implementation of solutions consists of actually placing the
risks, according to the designed scheme. The distinction between the two phases,
design and implementation is evident in the case of tenders
conceptual; the choice of the broker is made between the two phases, and the
The winner must uphold the commitments made during the
first. Adjustments are often necessary but, beyond
reasonable limits, the broker's credibility is at stake. One does not realize

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not counted, if we have not experienced it, of the mosaic that represents a
complex program; the transfer being first divided into lines
pure retention, captive, first line carried by insurers
generally from the domestic market and ensuring the service, lines
placed everywhere in the world and providing supplements
of capacity), each line is subject to co-insurance that can
involve many subscribers. It is not uncommon for the same
the risk bearer finds themselves with several "bricks" of the system,
in different lines.
The issuance of policies, as is often still said, that is to say of
contracts, is an important step in this implementation phase. According to
the markets, the clauses are more or less standardized. The tradition
French law places significant importance on specific clauses, including the
writing mainly falls to the broker, it is his responsibility, naturally-
of bringing together the insured and the insurer on its proposals; we are talking
of 'intermediary short'. A paradox of risk insurance
the company is that, traditionally, contracts are not finalized
how long after their taking effect, an agreement being however
found before the deadline, according to the various discussions led
by the broker; but after difficulties like that of the World Trade
Customers are more concerned about avoiding any risk of interpretation.
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tation and legitimately pressure brokers and insurers for a
less late issuance of documents; symmetrically, insurers
want to cash in the bonuses faster than before. The whole
Tasks assigned to brokers must therefore be executed more and more quickly.
In the case of international groups, most often, they are
global programs that are implemented by the group's headquarters, and
local police come to complement them as needed, particularly
to meet local legal or regulatory requirements. The implementation of
The solution space then includes the activation of the brokerage network.
so that each local police is correctly issued and it is returned
accounting of everything at the parent company.
Assistance to the insured in the application of solutions, particularly in
case of claims has always been part of the broker's profession. What
is becoming increasingly important, it is the provision of
statistics and especially tools for direct access to data. The big
courtiers have all made significant investments to position themselves
meet the requirements of their clients in this area.

WHAT CHALLENGES, WHAT PERSPECTIVES?

The job description highlighted a number of challenges.
Before we go back to it, let's start by setting the scene.

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There are thousands of brokers in the world. This profession very

diverse, even disparate, is dominated by a few major players
international. The top two in the world have more than half of the
total market. The sixth, which is also the first European,
Jardine Lloyd Thomson has only 2% of the total.
At the risk of being simplistic, it can be stated that the three major countries of
The main countries are the United States, the United Kingdom, and France. The specificity
from the London place, with its role of importing risks from
the whole world has given British brokers a special role
in the placement. Countries like Italy and Spain have been very
marked by the concentration of the profession at the initiative of
megabrokers. Germany is characterized by the maintenance of brokers
captives in all the major groups, which limits the scope of action
market brokers and certainly deprives German companies
solutions as optimized as elsewhere. Everywhere else in the world,
the four major integrated brokerage networks capture the essence of
management of major risks.
In France, there is a strong concentration at the top of the class.
Note: the top 10 brokers in the French market have more than 50% of the
total achieved by more than 2,500 brokers.
The concentration took place notably almost ten years ago.
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for years, around the two world leaders. After several years
calm, many observers are expecting new
evolutions, but there is no consensus on what they could be
to be.
The major challenge of this profession today is the remuneration.
of its actors. The historical commission-based remuneration has not
used to having brokers discuss their own compensation with their
clients. More and more, companies prefer the fee arrangement.
in which brokers have often seen the threat of turnover
more difficult to defend. Clients argue a paradox
that they denounce: the more expensive the bonus, therefore contrary to the interests of
client, and the more the broker earns. The paradox is there, but brokers in
they are more victims themselves than their clients; indeed, when the
the market is violently bullish, like in recent years, a lot
clients find that commissions do not keep pace with
premium increases; conversely, as soon as the market calms down, the pressure
competition among brokers quickly translates into a decrease in premiums,
always reflected in the commissions!
But, beyond this debate, the profession is affected by the stakeholders.
recent actions of the Attorney General of New York, Eliot Spitzer. Putting
due to different professional practices of the main brokers
Americans and, beyond these practices, the very existence of contingency

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commissions, he caused the payment of heavy transaction compensation

traditional (in hundreds of millions of dollars) and the layoff of
thousands of employees by companies that were not well-known
in effective strength. For the record, contingent commissions are
commissions paid by insurers to brokers, cross-sectional-
management, across an entire portfolio, based on various criteria
generally combining the increase in the volume of business achieved
by this broker with this insurer and the technical quality of these
business; this practice is historical in many markets, where
understood for small brokers; for industrial risks, some
excessive commissions are accused of creating conflicts
of interests, the broker being assumed to be more guided by the appeal of these
override in his choice of underwriters than by obligation
to optimize the placement for his client. There is no question here of
to judge the actors in question, but we can note that there are excessive commissions
directly related to the weight of brokers are factors of distortions of
concurrence in favor of the leaders of the ranking since, benefiting
from this resource more than their competitors, they can present a
more competitive fees; this phenomenon did not affect the subsidiaries
French from the concerned groups, as the surcharges have always
very limited in our market.
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Today, these highly publicized events push clients to
ask their brokers for more transparency regarding their compensation and
to probably subject them to more pressure. What is at stake
is not so much the fate of such or such actor, but the overall balance of the
profession; while a significant part of the revenue is
brutally suppressed, customer service demand will always continue
croissant, themselves increasingly outsourcing the processing of their
risks. However, the margins of the main players, public since they are
listed shares do not allow for the establishment of new ones in the current state.
balances. The profession (at least the major international players of
business risks) is faced with the challenge of a radical evolution of
Business model; the only sure thing is that brokerage will not cost.
cheaper tomorrow than yesterday for companies and the visible share by the
the client will grow even more than the total cost.
If some actors may be weakened, the profession is strong with a
assured sustainability. Indeed, we have seen earlier the richness of
missions of the corporate risk broker. Let us emphasize that these
missions cannot be disputed by anyone from outside the
profession.
On the insurers' side, the priority is the sustainability of the balance sheet; it is not
foreseeable to reconcile this requirement with that of continuity of
customer service, provided that this service includes an obligation to

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subscription. The insurer must always be able to say no, whereas the
the client's direct service provider is paid to find a solution; this
service provider cannot therefore be the insurer itself and must be a
independent intermediary.
Let's add the problem of co-insurances. This practice is very
developed in London, where the subscribers are distributed a lot
their risks statistically and traditionally take
small portions. In Paris, the subscription is more qualitative, but, during
for a long time, the size of insurance companies also made co-insurance
necessary; the concentration of the insurers themselves led to think
that co-insurance was doomed to disappear or, at least, to a great extent
to move back. However, the risks have continued to increase simultaneously, notably
in civil liability, and the search for abilities always requires
the use of coinsurance. In the banking world, the lead manages
his syndication business, but he has time for that, the risk
client failure never occurs in the first days of a
operation; in insurance matters, the placement across all of
definitive subscribers (apart from the "held covered" for a few shares,
to be replaced, sometimes, in the days following the deadline) must be done
at maturity; and one can hardly imagine the subscriber simultaneously giving his
quotation and search for colleagues with whom to share the bonus; the
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independent broker, once again, proves to be the only solution
pertinent.
On the client side, it is always possible to equip oneself with means.
interns having the same responsibilities as a market broker; this
formula, of which we have seen that it still has the favor of the industry
the Allemande also existed in France; it retreated under the pressure of a
general logic of outsourcing support functions of the majority
of companies; and the market broker remains convinced that, all
while being committed to the particular interests of each client, their action
simultaneous handling of different matters gives him experience and
levers that captive brokers can hardly have.
Thus, the profession is perfectly sustainable, at least in
business risks matter. For individual risks, the
development of sales at bank counters, direct sales or
still sales in inclusion (for example, car insurance at the same time )
time the car is at the dealership) are as many pressures
raised by traditional intermediaries. That being said, we note that
the developments are slow and, in fact, what these actors have been able to achieve has
little has been to the detriment of brokers.
The vocation of brokers, even on simple risks, is to
to adapt to their clients, not to offer them standardized products.
Alongside other forms of distribution that have, moreover, their

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reasons for being, brokers have a future, as long as they remain faithful
to their vocation.
The main challenge for brokerage may be to find sustainable solutions.
people capable of engaging in missions always
more technical and to maintain a commercial mindset and the sense of
customer service. None of the organizational models that have flourished in
the thread of time does not impose itself as a definitive truth. Beyond all the
necessary material means, and whichever the business models, it
What remains essential is the human dimension of this beautiful profession.

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LEBLANC 10 June 5, 2022