Evan Greenberg

In the London and other wholesale insurance markets, the practice of some brokers bundling similar accounts into high-volume portfolios to be more efficient and attract underwriters while still expecting bigger brokerage commissions has “gone beyond reasonable,” Chubb CEO and President Evan Greenberg said, expanding on a criticism he made about “abusive” broker activity in his annual letter to shareholders.

Greenberg said the practice of collecting mid-to-small accounts or those in a class of business into one portfolio is used to attract underwriters who will do things to lower pricing and change terms and conditions that they “otherwise wouldn’t do” if the accounts were individual risks.

Also, despite the practice supposedly being more efficient for the broker and underwriter, and despite the price going down, the broker’s compensation goes up. “What’s the logic of that?” he asked, then added:

“Frankly in this world digital world where there is greater efficiency and transparency, what industry or business do you know about where prices are going down but intermediary percentage of the dollar of what’s being placed cost goes up? That’s what’s occurring and … I don’t think it’s advisable.”

Greenberg said he does not think the practice is good or sustainable for the industry. “I say this because I care about this industry,” he said during remarks on a call with analysts concerning first quarter results showing net income of $1.09 billion, compared with $439 million for the same quarter last year.

At the same time, Greenberg stressed that Chubb is “an agency and brokerage company” and he believes that agents and brokers play a “necessary and vital” role. “If they didn’t, there wouldn’t be a long-term place for them; they would disappear,” he said.

Original Comment

In his letter to shareholders as part of Chubb’s 2016 annual report, Greenberg had written this:

“… Another sign of a soft insurance market is the abusive behavior on the part of some brokers who enrich themselves at the expense of both their customers and underwriters. Cloaked in the mantra of ‘customer best interest’ or ‘treating customers fairly,’ they seek the cheapest price and broadest coverage at commission terms that by any measure are excessive.

“Forcing underwriters to succumb to the lowest common denominator is hardly in the customer’s, or industry’s, best interest. These predatory behaviors, which have shown up around the world, and in London in particular, are simply unsustainable from an underwriting perspective and will come back to haunt these brokers: there will be customer and regulator backlash, or worse. Remember, distribution can be disintermediated.”

U.S. Agents

His further comment with analysts on his letter appears to square with how his opinion was interpreted at least among retail brokers in the U.S.— that it does not have to do with them.

A spokesperson from the Independent Insurance Agents and Brokers of America told Carrier Management that the remarks did not refer to brokers and agents who deal with Chubb in the U.S., and that the company had assured the association as much.

“In a conversation between IIABA’s CEO, Bob Rusbuldt and Evan Greenberg, CEO of Chubb, about his recent comments in the press, Mr. Greenberg assured IIABA that his comments were in regards to the London wholesale market and not about Chubb agents or brokers in the United States,” the IIABA’s Margarita Tapia told Carrier Management. “Mr. Greenberg reassured IIABA that there are no changes whatsoever contemplated for Chubb agents in the United States.”

London broker groups declined an opportunity to comment.

Litigation Inflation

In other comments on his call with analysts, Greenberg expressed concern about inflationary effects on loss costs, especially in professional lines.

He cited a growing plaintiffs’ bar and increased litigation over mergers. “There’s not a merger without a lawsuit on both sides,” he said.

Also, he said employment practices liability insurance (EPLI) is also being targeted, with more claims evident in higher-paid professions. “It seems as part of every layoff, another benefit you get is an EPLI payment,” he said.

John Keogh, Chubb chief operating officer, said whereas 15 or so years ago there were a handful of plaintiff law firms driving the litigation, today there are dozens “going to work every day with an ambition to make money and create new theories of liability in corporate America.”

Keogh said litigation funding is also having an effect and that the litigation trends are also surfacing in Australia and the United Kingdom, not just in the U.S.

*This story appeared previously in our sister publication Insurance Journal.