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The broker gets compensated for their services based on an industry average of 10 to 15 percent. An additional way they get paid is founded on the contingency payment made annually by the insurance provider which is established on the past years volume of business. Ashton & Ashton is presented with a potential conflict of interest situation with their client, who happens to be a world class museum, located in the
United States. In the past the brokerage firm provided the museum with insurance proposals, and they selected Haverford Insurance Company due to the reasonable rates and reliable coverage. With the museum selecting Haverford there was an addition benefit for A & A, they would receive 17 percent commission instead of the Industry standard. The time of year has come for the museum to renew their protection, so the broker solicited quotes from four insurance companies with the yearly fee ranging from $90,000 to $1 10,000.
In addition, the agent received an unsolicited estimate of $60,000 annually from Reliable Insurance Company, which is a small firm with an unstable financial system. Now the broker is faced with the decision to include the quote from Reliable. A conflict of interest is present whether or not the agent presents Reliable’s low proposal. The problem is whether the conflict should determine Ashton & Ashton’s options. The firm must decide what is in the best interest for their client and apply it. As the broker, you should give advice and not make decisions for your client.
So it would be in Ashton & Ashton’s best interest to offer all bids to the museum, by doing this will prevent your firm from being accused of not looking out for the welfare of your client. They should provide sound recommendations on the financial instability and lack of knowledge on how Reliable Insurance Company handles claims efficiently and effectively. If the museum still selects Reliable after the information that was provided by the agent, they should have the museum sign an agreement stating they do not hold Ashton & Ashton liable for any potential risks they may face with electing this company.
However, maybe after careful consideration the museum might decide against accepting the “low ball” offer which means they followed the advice of their broker. It is extremely important for Ashton & Ashton to avoid conflicts of interest regardless of any incentives. This will help with their firm’s reputation in the industry. On the other hand, if they are shown to always do the wrong thing when faced with a conflict of interest they will ultimately lose their client’ base and have a terrible reputation in the industry.