Global Brokers, Global Clients: A New Operational and Ethical Context
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Global Brokers, Global Clients: A New Operational and Ethical Context James W. Hutchin Alba Advisors LLC, 1541 Farmers Lane, Glen Mills, PA 19342, USA. E-mal: [email protected]
Brokers’ reliance on ethical conduct as a critical element of their service package is not new. What has changed for a handful of brokerage firms is the extent to which, in response to client demand, they now operate on a ‘‘global basis’’, a phrase that has taken on multiple levels of meaning. An unintended consequence of this evolution has been the emergence of a series of challenges, some apparent and some not, to be managed in assuring ‘‘utmost good faith’’ as a consistent deliverable for all of a global broker’s numerous constituents. This paper will first analyze and then suggest some possible solutions for management of the very real risk issues arising out of the following factors for global brokers:
the increasing complexities of an already highly fragmented industry ‘‘gone global,’’ a scale of operations with which there is little experience, ‘‘utmost good faith’’ as not just a goal of company culture, but also the objective of process management, and management of sometimes seemingly confused alignments, or as some would argue, conflicts of interest. The Geneva Papers (2005) 30, 353–372. doi:10.1057/palgrave.gpp.2510036 Keywords: insurance broker; ethics; global insurance; contingency commissions; broker fees; placements
Introduction Compliance is a cost of doing business. A consistent display of ethical behaviors can create a competitive advantage. An enduring reputation for integrity is often, but sadly not always, one of the elements that constitute a ‘‘leadership’’ position for a company in any given industry. The world of insurance operates in a unique context in which complex transactions are designed to put a precise price on uncertainty and are then delivered through a highly fragmented industry. Broadly put, a broker’s role (both broker as individual and as organization) is to first create and then administer for a client a risk solution that draws as needed on the resources and capabilities available both internally, and in the industry at large. Precision put to uncertainty can only happen through multiple-party transactions, and that can only occur when reliance on your counter-parties is not at issue. As a result, these maxims concerning compliance, ethics and integrity take on a particular validity in the field of insurance and reinsurance intermediation (brokerage); ‘‘utmost good
The Geneva Papers on Risk and Insurance — Issues and Practice
354
faith’’ is not the quaint aspiration that some would label it, but rather an absolute operational requirement for functionality as a broker. Although it is likely that he did not have brokers in mind when he first scribed it, Immanuel Kant’s ‘‘categorical imperative’’, a moral principle by which to guide one’s actions in life, should be burned into the psyches of brokers everywhere: ‘‘I ought never to act except in such a way that I can also will that my maxim
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