Insurance and reinsurance brokers have not always received adequate compensation for brokerage services, according to vice chairman of Sedgwick Group, Plc Quill O. Healey.

Mr. Healey, the chairman of Sedgwick's North American arm, was here this week for the monthly meeting of the North American executive committee.

He was asked about the critical complaint that in the continuing period of declining insurance rates, that some firms and some insurance buyers believe that brokers are seeking higher commissions for the placement of business.

His response: "It's clear that we haven't received enough. It is way too low.

When you look at the amount of savings we have brought to our clients over the past ten years, it is clear that we should be receiving much more remuneration than we have. It is true.

"As the prices came down, the commissions have come down. But our work hasn't changed. We deliver a legal contract. It takes a great deal of skill to make sure that we deliver what we say we are going to deliver.

"Frankly, we haven't been paid enough. We need to be paid for our work. It is one of the issues that is driving people toward the fee basis for compensation, instead of commissions.'' President of Sedgwick, Inc., Ronald J. Kutella said, "It's probably a stronger issue for the smaller, regional brokers as opposed to the global brokers.

"We have been moving to the fee based, time expense, recording justification for your work. As the premium dollars have come down for the same exposure, we've moved away from just being transactional, just being brokers, to giving advice at the same time.

"The clients want more service, but to provide that service we would say we want to go to a fee basis of compensation. And they want justification, which must be provided. With the amount of advice being provided, the compensation for the brokerage becomes a smaller part of the total fee.'' Mr. Healey said, "We are building toward a stage at which 50 percent of our income would come from fees, as opposed to commissions. We are being forced to do some things differently.'' "Sedgwick's strategy has been to grow our fee income business. Our claims management business has been growing substantially every year, where we manage alternative risk for major clients like General Motors and General Electric.

"Our employee benefit business has been growing as well. These things keep our income up, but the earnings growth is not coming from commissions.'' Sedgwick executives in Bermuda this week also used the visit as an opportunity to look into their on-Island operations.

Their Bermuda office, Sedgwick Management Services (Bermuda) Ltd., manages $4 billion of the assets for 65 captives, apart from brokerage and other services provided by the company.

Mr. Healey said that brokers are being forced into providing an expanded range of services to clients and it has become increasingly important to focus on the needs of the client.

Sedgwick Management Services (Bermuda) Ltd. president, Denville Reed, said, "Sedgwick as a group has been looking at re-engineering for more than 15 years. But more recently, we have had some new and exciting successes in captive management.

"We have obtained seven new ones this year and there are a couple more to come. It is having a good impact on the bottom line.'' Mr. Healey said that the captive movement is taking on a new form. In a soft, competitive US market, even in areas like workers' compensation, captives are being used for other purposes.

He said, "They are going in a slightly different direction into more of a financial vehicle, and doing other things than just those things that we thought of traditionally.'' Said Mr. Reed, "We have been developing a consultancy business. We have been looking at a wider catchment of opportunity, and taking over some of the functions, like risk management services that are being outsourced by firms.'' The Sedgwick executives also see long term gains for the insurance industry with the cementing of the European Union.

Mr. Healey noted, "The coming together of a common market in Europe will eventually have an effect on the insurance industry. But the North American market is the largest property casualty market in the world, with about $260 billion in revenue.

"We believe that you will see a movement, particularly in Germany, toward a more broker friendly environment in the property casualty arena.

"And as the countries of Poland and Czechoslovakia and others start maturing and building their businesses back, there will be opportunities in all of those places.

"There are cultural differences that it will take some time to resolve. But with trade barriers coming down for a common market, it will eventually help it come together as a single entity, and make it stronger which has to be good for the insurance business.'' Sedgwick is working on a quality initiative and seeking their ISO (International Standards Organisation) certification.

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