I was alarmed by your headline "Marsh sparks UK reforms" (News, 28 October). The article seemed to suggest that placement service agreements (PSAs) were all bad and that we should bow to the inevitable 'full disclosure' of earnings sooner rather than later.
Until I read the full text of the complaint against Marsh by New York attorney general Eliot Spitzer, I had not heard the term PSA. I had heard of 'profit volume and growth' deals though, which are surely PSAs by another name?
It is clear from reading the summons it is not the fact that these agreements between the insurers and Marsh existed that made Spitzer pursue Marsh. Rather, it was the fact that Marsh allegedly actively pursued its revenues under such agreements at the expense of the client.
In my experience 'profit volume and growth' deals are really good news for customers. Here's why:
No regional broker would ever sanction a deal with an insurer that was at the expense of its client. More often than not such brokers would encourage the 'new' insurer to be more competitive and to provide wider cover than was previously available to encourage the client to chose to change
There is no evidence to suggest these deals add the cost of 'profit share' or 'over-rider' commission to the client premium. After all, their justification for making such payments is to recognise the cost differences between alternative distribution channels, and to reward those that are more reasonable with what is a lower net rate
While most international brokers will work on a fee basis with their customers, this is as an alternative to commission, and therefore payments under a 'profit volume and growth' deal could be construed as due to the client. But most provincial brokers work almost exclusively on commission, where the client decides whether or not the total price (which includes the broker service) is acceptable or not.
If you're not persuaded by any of these arguments then think on this - do you believe that insurers would agree to write home insurance via banks and building societies with an unlimited sum insured at very competitive premiums if those institutions were not prepared to grant exclusivity to the insurer? The insurer and bank both benefit from the deal, but the customer gets something that otherwise wouldn't be available to him. If he doesn't think it's the right product at the right price, he shops around for an alternative. That's the sanction that any customer has.
So let's not condemn the whole system just yet, by consigning all such deals to the scrap heap. If we remove all incentives for brokers and insurers to work more cooperatively, then we need to consider a return to the tariff market, where the price of the product is the same and other factors determine the selection of the carrier and broker. Does anyone really think that would be better for customers?
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