True Independent Advice
Updated: Aug 25, 2020
My heart goes out to independent agents who need outside advice. These are tough times. The consolidation of the market has caused, at least on the surface and only partially, many entities that would otherwise be advocates for independent agents to find themselves with material conflicts with those they are seeking to advise.
Sometimes agency owners see these conflicts of interest and other times they do not. Someone said to me when we were discussing this situation that a disclosed conflict of interest is one thing, but an undisclosed conflict of interest is an entirely different issue especially if the undisclosed conflict of interest is difficult to discern.
An obvious example of a conflict of interest between carriers and agents that has not, on the surface, caused many problems involves state agency association conventions. The conflicts are for the most part disclosed because the carriers sponsoring the conventions are proudly displaying their banners throughout the convention space. These conventions are for the agents' benefit, yet carriers pay a large share of the price tag. Historically especially, this conflict has presented no material issues for agents. The conflict has been minor, especially at the conference level, because any conflicts were/are typically outweighed by the benefits to both parties.
I have heard some people opine recently that with so few agencies left, especially ones of a size that can afford more significant dues, some associations may be having a difficult time advancing their members’ positions over carriers' demands. The impression is that carriers are now paying too large a portion of the associations' budgets resulting in some agents feeling their needs are being inadequately addressed for fear, at the association level, of losing carrier financial support. I do not know if this is true, but I know it is true that some agents feel this way. With the consolidation of agencies, the budget constraints felt by associations also makes sense, so the possibility is plausible.
Another example of potential conflicts of interest involves some networks and clusters. In theory, these organizations are designed to advance their members' welfare and business success. Many do a great job with this but for some, it appears that the members' best interests are potentially in conflict with the true goals of the people running the networks. This one is easier to check but checking will cause conflict. However, one only needs to see that organic growth increases for members upon joining a network or cluster and the balance sheets of the network/cluster in particular, depending on the network design, to see if the individual member(s) is/are solid. The balance sheet is what insurance is about so checking balance sheets is a reasonable request.
A different type of conflict exists between agents and some consulting firms. Consulting firms can either be consulting firms or business brokers, but not both, without creating material conflicts of interest. The bread is usually buttered on the business broker side because business brokering pays far, far better than consulting. Where the two conflicts sometimes intersect is when a carrier acts, to the arguable detriment of its agents, based upon the advice of agency consultants who are earning a business broker's fee for providing advice to the carrier. Another example is when a business broker uses information gained under a consulting contract to facilitate a sale or even opens the door to a sale. Pure consulting firms like mine, consult with firms that compete with one another. I personally consult with agents/brokers and their carriers. Sometimes the agents' goals conflict with the carriers' interest.
Maybe the most obvious conflict of interest involves carriers going direct or certain management systems sharing data that result in the carrier or others competing for your clients which is pretty obvious and destructive.
Another example, that is interesting in and of itself, are cloud service agreements. Many of these agreements hold the agency responsible for the provider's problems. Does that even make any sense? Yet that is the way many of the agreements you have signed probably read.
As conflicts of interest may become more abundant due to the shrinking number of agencies, I suggest you thoroughly understand the relationship you have with those providing advisory services, markets, or data sharing services to you. It is important that you understand the difference between a disclosed conflict of interest and an undisclosed conflict of interest. Ask the questions and read your contracts.
NOTE: The information provided herein is intended for educational and informational purposes only and it represents only the views of the authors. It is not a recommendation that a particular course of action be followed. Burand Insurance Education, Burand & Associates, LLC and Chris Burand assume, and will have, no responsibility for liability or damage which may result from the use of any of this information.