In response to my March 10 blog entry, "What Goes Around, Comes Around," Gary Wolcott, director of communications at the Professional Insurance Agents Western Alliance, lamented about how much damage Eliot Spitzer did to innocent independent agents with his crusade against big broker abuse of legitimate contingent compensation deals. I invited him to elaborate, and his musings follow. While he may be preaching to the choir, his commentary on Mr. Spitzer's legacy are worth repeating. Read on, and please share your own take.
Spitzer’s Legacy Leaves Independent Agents Damaged
BY GARY WOLCOTT
Eliot Spitzer resigned after only 14 months as New York’s governor in the wake of a prostitution scandal. Yet in spite of the negativity surrounding Mr. Spitzer’s exit from politics and his controversial career as a crusading attorney general, he did some very good things for insurance and for the financial services world in general, although many innocent independent agents paid an unfair price.
Mr. Spitzer cleaned the clocks of insurance and brokerage firms “allegedly” committing the serious crimes of bid-rigging and cooking the books. (We must use the word “allegedly,” because under the settlements, the companies did not admit guilt.)
However, Mr. Spitzer’s legacy is an entirely different matter.
My association—the PIA—agreed with Mr. Spitzer and others who went after these wrongdoers. Criminal behavior in this industry should not be tolerated at any level.
Unfortunately, he and other regulators jumping on this bandwagon were so busy headline-hunting that they didn’t see—or probably even care about—what their actions were doing to the insurance industry.
The real losers in Mr. Spitzer’s crusade are the nation’s independent insurance agents—the honest, law-abiding businesses that made the companies Mr. Spitzer took on rich. So, what did Mr. Spitzer do?
To start with, he took away those “evil” contingent commissions. His push to prosecute caused insurance regulators to put the squeeze on insurers and independent agents via new disclosure regulations and the loss of legal contingency fees.
Regulators all started screaming for tough new laws, when it was obvious that the tough old laws worked just fine. What was needed was exactly what happened. Someone came along willing to enforce those tough old laws. Enter Eliot Spitzer. The companies committing the crimes were caught. They were punished. That’s the purpose of law.
Now we have tough new laws. If the matter wasn’t so serious, it would actually be laughable. As we all know, criminals will skirt the tough new laws just like those companies did with the tough old ones.
Meanwhile, what crimes did independent insurance agents commit? None. Yet without thinking twice, Mr. Spitzer and other regulators took away a big part of our livelihood.
Later they increased the face slap when those same regulators started to relax the contingency commission thumbscrews on some of the “allegedly” guilty firms.
Apparently justice does not flow downhill. While the companies caught a break, contingencies for independent agents were not restored.
Yes, we agree, the fines these firms paid were huge and they stung the bottom line, but they are large corporations with many resources. Most independent agents losing contingencies do not play in that ballpark. Larger agencies were able to work around the loss of 2 percent, but some smaller agencies could not—and faced with that loss of income, they went under.
Who really got hurt by the Eliot Spitzer crusade? Independent agents.
Another outcome of Mr. Spitzer’s narrowly focused actions was to put insurance under a microscope. We all became criminals in the eyes of the public.
Then along comes Hurricane Katrina, former Mississippi Sen. Trent Lott and lots more trouble. And who got hurt here? Insurance agents who care deeply for their clients, move heaven and earth when catastrophe strikes—people who are really heroes to consumers in a crisis.
That’s the legacy Eliot Spitzer leaves this industry. While the firms Mr. Spitzer took down continue to make billions, the independent agents who are pillars of their communities, whose generosity funds many a charity, whose civic pride leads them to accept leadership positions in their cities and counties, whose employment of thousands of equally honest individuals that contribute much to this nation’s economy are reviled.
Where is the justice?
Yes, Mr. Spitzer was kind to insurance as a governor. But so what? He and colleagues who leaped at the chance to get those insurance bad guys never defended the little people who take good care of their clients and who work so hard on their behalf.
In their headline-hunting haste, these officials forgot that these mega-brokers do business with the small businesses of this nation. As was stated earlier, we are the people whose hard work made those corporations rich. We’re also the people who pay a large share of the taxes that support these crusaders. We’re the people who put you—Eliot Spitzer—into office.
And now fate’s fickle finger is pointing the other way. Today there are hundreds, maybe thousands of insurance professionals having the last laugh. Eliot the Great has been humbled. Destroyed. His career is over.
It’s a shame, and such a waste. Government needs Eliot Spitzers. It needs people who stand firm and consider crime to be crime. We need people who espouse these values and keep them. We need fearless crusaders to take on big corporations and their big-gun lawyers.
But we—the people—also need government leaders and regulators with vision beyond the next office they seek. Eliot Spitzer used insurance and other financial institutions to go from attorney general to governor. During his campaign of reform, it doesn’t appear that he much cared about who he hurt to get there.
What is really important for the insurance industry and the public is what we learn from the world’s Eliot Spitzers.
Yes, we need crusaders, but we need crusaders to be fair and honest. We need men and women fighting for change to see the world in 360 degrees, and not in such narrow terms.
Crusaders need to know that there are trustworthy people at the point of sale that can be deeply hurt when changes are made to punish people at the top.
What do you folks think? You may comment below.
(Gary Wolcott is director of communications of the Professional Insurance Agents Western Alliance, based in Vancouver, Wash., representing four PIA chapters—Oregon/Idaho, Washington/Alaska, Montana and Arizona/California/Nevada and New Mexico. He may be reached at garywolcott@piawest.com.)
Comments (5)
I disagree with Gary Wolcott. Independent agents were not the only losers. The entire industry was hurt by the greed and power hungry actions of Eliot Spitzer, and others working closely with him. The biggest losers are the consumers.
When you look at a corporation, you must take a minute to realize that it employs thousands of individuals. When Spitzer came after Marsh & McLennan and other major brokers and insurers, rather than seeking out the individuals who committed crimes, he caused thousands to lose their jobs, lose their investments and their retirement income.
The loss suffered by employees and stock holders of Marsh and these other corporations was no less severe than the loss to the independent agents.
There may have been crimes committed, although very little if anything has been proven. There were definitely unethical behaviors uncovered. The individuals and the managers directing them should have been the targets, not the corporation. But Spitzer needed to make a name for himself.
There is nothing illegal or even immoral about contingent commissions. Agents and brokers, big and small, earned those commissions. Where the industry as a whole erred was not being more transparent about their income.
Hopefully many lessons have been learned.
Posted by Lisa Hachmann | March 27, 2008 1:31 PM
Posted on March 27, 2008 13:31
As owner of an agency, here's the bottom line on the effect of Spitzer and other state regulators.
Two of our lead insurers--in addition to Travelers, which was directly implicated in the "alleged" bid-rigging--took advantage of the Spitzer environment to eliminate contingents even though they had no involvement in the allegations. One wrote personal accounts only for us.
These egregious actions saved these corporations a major annual expense under the guise of "transparency" and political correctness.
What we got for less than a quarter of a representative contingency was the "fixed value based" bonus contract.
I'm glad Spitzer has fallen--a monstrous hypocrite really only out for his own future.
But the insurers took advantage of the situation to damage us, and it's unlikely they'll reverse their actions.
Posted by Anonymous | March 27, 2008 1:44 PM
Posted on March 27, 2008 13:44
"It needs people who stand firm and consider crime to be crime."
Sure, but when did the idea of sharing profit of your business partners, based on some controllable (increased sales, retention of business, etc) and other uncontrollable actions(claims, lost business, etc) become a crime? Under Eliot "Torquemada" Spitzer, that's when!
One can only hope that both of the perpetrators, Sptizer and his "facilitator"--are persucuted and prosecuted to the fullest extent of the law. I think prostitution is illegal. Or, maybe not when conducted under the auspices of politics?
Posted by Jack J. Maniscalco | March 27, 2008 2:01 PM
Posted on March 27, 2008 14:01
I think one key is mentioned by 'anonymous' above, that is glossed over too often.
The insurance companies clearly took advantage of the opportunity to stop paying contingent commissions. And you can be sure they will figure a different way to get the money to those larger brokerages who were receiving the improper payments all along.
But the savings of not having to pay out to all the smaller agents will make what's left seem like chicken feed.
Posted by Aaron Stein | March 27, 2008 3:13 PM
Posted on March 27, 2008 15:13
Elliot Spitzer shined a light on the obvious ethical problems inherent in the promise of contingent commission payments by carriers to independent agents and brokers. But the same ethical problem exists in the straight "percentage-of-earned-premium" commission arrangements, too.
The ethical problem is that the buyer is deceived if he or she (and I will use "he" for both sexes hereinafter) is led to believe that the agent or broker whose sole remuneration comes from carriers is really motivated by the buyer's best interests.
This is an issue not limited to a few megabrokers who institutionalized a bid-rigging system driven by a hunger for more contingent commissions. It's inherent in the basic model under which independent agents and brokers get paid in this country.
A correction process was started on only contingent commissions, and if it continues to the rest of the system, (which I doubt), it will certainly be painful to those that rely on the corrupt model.
Mr. Spitzer only took it part way, for whatever his own motivations may have been.
There is less of an ethical problem when the insurance salesman clearly and honestly discloses to the buyer that he works for a single carrier and will recommend only its products. Then at least the buyer is on notice that he is on his own to drum up some competition to improve his chances of getting the best available deal.
But when the agent or broker has choices among multiple carriers as to which ones to seek quotes from, promises the buyer to orchestrate an effective competion for his business, decides what to present to each carrier, decides which quotes to present to the buyer, and how to characterize the plusses and minuses of each carrier and each quote, and which one to recommend--all the while knowing that his sole remuneration will come from one of those carriers, and knowing what each carrier is respectively offering him for steering the buyer to that carrier, well, the financial motive, means and opportunity to act in his own interests instead of the buyer's are just too screaming obvious to belabor further.
Brokers I talk with are fully aware of this conflict. They struggle with it and usually seek to do the ethical thing when the lucrative thing might be a different choice. But the remuneration system pushes them in the unethical direction.
I can think of only a few ethical systemic options in this situation.
(1) Issue agents'/brokers' licenses only to saints, or
(2) Institutionalize a mandate for agents and brokers to tell buyers that "I do NOT work for you; I work for myself; and you would be well advised to get other quotes from at least one other agent, broker or carrier, too"; or
(3) Allow no remuneration or favors of any kind (golf outings, etc.) to be paid by carriers to independent agents or brokers, who instead would charge the buyer fees for procuring quotes and providing other professional services to him. (The "saints" option seems a tad unreliable.)
Only then can the buyer have some assurance that the system itself (or at least this part of it) is not rigged to his disadvantage.
Posted by Mikk | March 30, 2008 10:33 AM
Posted on March 30, 2008 10:33