The Insurance Integrity Crisis: Where Is the Line?

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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 insurersboth 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 insuranceand 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.