A question of commissions
The question of commissions in insurance is sensitive, in relation to the amounts which are paid to brokers. Insurance brokers for ports and terminals are specialists. They can earn as much as 20% of the premium paid, especially if there is a chain of intermediaries involved.
They come in two basic sizes, small and specialized based usually in a single office, or large and multifaceted and based in a maritime centre near you. AON, Marsh and Willis all have good people in these roles and they would be unbeatable if they could get to grips with the problem of the profit centre doctrine. I am the AON man in the marketplace and I know my customers well. The major international markets for port insurance are in places like New York, London and Rotterdam. So in order to access them I may perforce have to use my office in the city concerned and thus share my brokerage with them. Such offices are called wholesale offices. They are not always very popular with the offices in the field and the worst thing you can say about them is that they have a tendency to tell the retail or primary broker what he will get, rather than accommodate them as their internal customer.
What do such brokers earn for their troubles? 20% is quite common, 25% is not unknown and I have seen a West African port authority’s middlemen get 35% before the underwriters concerned lost faith and let it go to competitors. In some places the port is an exotic part of local government and they are insured using the sometimes exotic customs of local government. Other customers in other places insist on paying an agreed fee which bears no necessary relation to the amount of premium paid. A handful of the largest port groups dispense with an insurance broker altogether and act as their own intermediaries and negotiators.
Attorney General Spitzer in New York has ushered in a new era in the ordering of broker commissions. Before, brokers and underwriters might agree that an additional amount of brokerage was payable when the broker hit some preestablished target during the year. These were known as MSAs or management service commissions, and all sorts of people paid and received them regularly without suffering any undue pangs or misgivings. They were basically extra payments rewarded for marketing success. No More.
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