The Insurance Integrity Crisis: Where Is the Line?

by Donald Light, November 12, 2004

Abstract

San Francisco, CA, USA November 12, 2004

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Some of the insurance industry's best-known firms stand accused of serious misconduct. Distribution business models and market share are up for grabs. Celent believes insurers and brokers must articulate the line between acceptable and unacceptable behavior to defend or attack successfully.

In a new report, ?, Celent classifies the flood of accusations and allegations into two broad categories: broker/agent conflicts of interest, and enabling false financial statements. The report identifies what is still unknown about the breadth and depth of the crisis and discusses the legal, financial, market share, and image risk implications facing insurers and brokers.

The report differentiates among behaviors that are clearly wrong (crossing a bright clear line), debatable (near a fuzzy line), and possibly defendable. It concludes by describing the implications for brokers and insurers—both the guilty and the innocent.

"Every leading brokerage firm and insurance company must come to the realization that its image has just sustained serious damage, regardless of whether its own behavior was culpable," says Donald Light, senior analyst in Celent's insurance group and author of the report. "The media, public, and legislatures generally do know and do not care about distinctions among brokers, agents, and insurers. To them it is all ‘insurance’—and right now ‘insurance’ has a very bad odor."

Celent's report recommends that brokers and insurers that have engaged in wrongful activities go public and clean house quickly. As the entire industry abandons contingent commissions, there is suddenly a small hole in most large brokers' revenue and a large hole in their profits. One of the few positive aspects of this crisis is that it creates an opportunity for insurers, brokers, and agents to rethink how value is created and shared in the distribution process.

The 18-page report contains one figure and one table. A table of contents is available online. 

of Celent Communications' Property/Casualty Insurance and Life/Health Insurance research services can download the report electronically by clicking on the icon to the left.  Non-members should contact info@celent.com for more information.

        

Send mail to info@celent.com with questions or comments about this Web site.

Celent is a research and advisory firm dedicated to helping financial institutions formulate comprehensive business and technology strategies. Celent publishes reports identifying trends and best practices in financial services technology and conducts consulting engagements for financial institutions looking to use technology to enhance existing business processes or launch new business strategies. With a team of internationally based analysts, Celent is uniquely positioned to offer strategic advice and market insights on a global basis. Celent is a member of the Oliver Wyman Group, which is a wholly-owned operating unit of Marsh & McLennan Companies [NYSE: MMC].

Media Contacts

North America
Michele Pace
mpace@celent.com
Tel: +1 212 345 1366

Europe (London)
Chris Williams
cwilliams@celent.com
Tel: +44 (0)782 448 3336

Asia (Tokyo)
Yumi Nagaoka
ynagaoka@celent.com
Tel.: +81 3 3500 3023

Table of Contents

 

San Francisco, CA, USA November 12,  2004

The Insurance Integrity  Crisis

Return to report Abstract

 

EXECUTIVE SUMMARY 3
INTRODUCTION 4
WHAT IS GOING ON? 5
WHAT WE STILL NEED TO KNOW 8
WHAT ARE THE EXPOSURES? 9
WHERE IS THE LINE? 12
IMPLICATIONS 15
OBJECTIVITY & METHODOLOGY 17

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