A View From The Press Box

Sam, I agree with your concept and proposed solution, but I cannot let this go without commenting on Don Bailey's plea at the New York hearing.

It is nothing less than laughable when the big brokerage firms complain about the lack of a level playing field against the "Main Street" brokers.

Since time immemorial, it has been the smaller brokers who have not had a level playing field against the national firms, given their clout with carriers (which they used unabashedly) and their infinitely greater resources.

And to suggest that they can't compete on price with the small guys because of the contingent commissions they (might) receive is equally laughable.

When was the last time a broker voluntarily reduced his commission to get a lower price on an account because he was confident about receiving a contingent commission three months after the end of the year? Mr. Bailey is living in a dream world of his own creation.

From a consumer perspective, all contingent fees create potential conflicts of interest and should be banned.

That would level the playing field in a way that protects consumers.

Further, transparency of the commission should also be required, with full disclosure of the commission on each product offered.

It is high time that commissions be published so that consumers can see that some life insurance commissions exceed 100% of the first-year premium!

The whole system of carrier-paid commissions (contingent or otherwise) is fraught with well-known conflicts of interest. To minimize or remove them, I'd suggest consideration of the following 3-way system for producing income for producers:

Let there be 3 classes of producers; "captive agents," "independent agents" and "brokers."

1. Captive agents operate solely in the interests of the single carrier that they represent, and they should be required to disclose that fact to buyers, along with the implications of that relationship. The carrier may pay the agent whatever compensation the agent and carrier agree on--salary, commission, bonus, etc. No disclosure of agent's income to the buyer.

2. Independent agents should be required to disclose that they are appointed agents of whatever carriers they represent; and that as such, they are loyal to the interests of the carriers, not the buyer.

Carriers should pay these agents whatever compensation is mutually agreed on between them - commissions, bonuses, contingent commissions, whatever. No need to disclose that compensation to buyers - they have already been warned that they need to look after their own interests and not rely on the agents.

Buyers need to protect themselves by getting quotes from at least 2 different agents; but whether they actually do so is up to them.

3. Brokers purport to be loyal to the interests of the buyer, not the seller. That representation also should be disclosed in writing to buyers, along with a fee schedule for the broker's services for the buyer. Carriers should pay NOTHING to a broker for acting as the buyer's representative.

Premiums charged for insurance for which no compensation is paid by the carrier to the producer should reflect that reduction in the carrier's expenses. Brokers would get paid by collecting their fees from buyers.

I like Bob Hunter's passion and Mikk's technical delineation, although I follow a more practical route.

Many states do not distinquish between an agent and a broker when it comes to licensing and expertise. While I know NARAB may alleviate this lack of uniformity, I fail to see where upfront commissions/fees can't serve as the sole means to compensate the retail agent or broker.

There is no question in my mind that when an agent/broker places coverage (especially if they are a principal and know how their carrier agreements read), their back end revenue IS a consideration. I think it is especially relevant with a middle-market and small-size agency.

Carriers are as much a part of the problem as any agent/broker. All of the players are looking to increase market share and premium volume, and will enact whatever incentives they can to achieve such.

Human nature (greed to be more precise) then alters this landscape, often to the detriment of the customer.

I firmly endorse full transparency and a uniformity of broker & agent licensing. To expect the consumer to be privy to and knowledgeable of the differences between an agent's loyalty (carrier) and a broker's loyalty (client) is unrealistic and naive.

Sorry, Sam, I agree with Bob Hunter on this one.

The proposal you have made creates another Big Brother agency or committee to have oversight.

In my simplistic view, it is better not to need the oversight by removing the contingent fees completely. Greed creeps back whenever possible because there will always be the few for whom most of us must pay the price.

To Bob Hunter: First, we're not talking about life insurance. Secondly, should people who sell washers, dryers, and all kinds of other merchandise be required to disclose their commissions, co-op advertising rebates, sales success trips, and other incentives?

The consumer is free to shop elsewhere if he has any question about the validity of the price, and the same is true of the insurance consumer.

To Mikk: Your notion that an agent should disclose that they represent carrier X is correct, but your conclusion that therefore they represent the interests of the carrier and not the insured is totally off base.

There are thousands of agents throughout the country that act as both agent and broker and do an excellent job. Most brokers realize that markets are important and therefore integrity is required, but they also realize that their income flows from their customers whose interests they had better serve well if they are to retain the business.

To Philip Lieberman: I do not doubt that there are thousands of agents throughout the country who usually resist the temptation to self-deal, for which the commission system provides them with means, financial motive and opportunity.

The possibility that the buyer may seek a competing quote from another agent helps them resist. However, it seems a shame that, to do the right thing, they have to resist the incentives that the system offers them.

Obviously, not everyone has resisted successfully; that's why the bans on contingent commissions were imposed on the big miscreants that got caught. We ought to have a system that offers incentives that do NOT need to be resisted!

Do you not find it ironic that for those same national brokers, enhanced middle-market commissions, 16% richer than those received by the majority of agents and brokers, have been negotiated and are payable on many lines of insurance placed? (17.5% versus 15% seems to be a fairly typical enhancement).

These are certainly pay-for-play enhancements. While they may not apply to fee accounts, in reality, many fee accounts were also excluded from contingent payments either by client instruction or by ineligibility from the carrier profit-sharing, due to the placement either being a national/risk management line of business or a loss responsive line, defined as ineligible.

I think the playing field is pretty even now. Full disclosure was always the right and correct thing to do.

Unfortunately mixing that up with what might not have been in the best interest of the client was confused along the way.

I am perplexed at the notion of not being rewarded for utilizing the IIAAB's best practices of operating your business.

Just because you have a couple of " BAD APPLES " in the Big Apple does not mean that all professional insurance agents are dishonest. The analogy is no more accurate than the notion that because my neighbor committed a crime, I am also guilty of a crime and should pay the same penalty.

Should you be denied a bonus yourself for quality as an editor, and the fact that advertising or readership rose during a particular year? Rewarding those who operate without integrity is already addressed by your contract.

We all read the news of the lack of "INTEGRITY" of a former governor. Does this mean all governors are corrupt? Of course not, and not all insurance professionals are corrupt, either.

I want to do business in all facets with someone in my life who is successful. Those who work their hardest should be rewarded for that effort. Anything less smells of failed political experiments in other governments around the globe.

In the face of having behaved in an unethical, selfish & immoral manner regarding bid-rigging & related activities, the referenced brokerage firms "rolled over" much too easily in a rush to close the (legal) doors relating to probable prosecution and punishment.

So it was that they accepted Spitzer's mandated (albeit unconstitutional) punishment of "no more contingency commissions!"

Just as the mega-brokers had acted selfishly in their despicable bid- rigging activities, they persisted in their selfish ways by looking out for themselves only in accepting Eliot Spitzer's deal!

Once it came to light that, in unrelated ways, Eliot Spitzer himself participated in unethical and immoral activities, all those mega-brokers realized that they didn't have to make the deal they did!

Having made it, however, those same brokers insisted that all brokers must suffer as a result of the mega-brokers' greed, selfishness, ineptness and lack of moral fiber!

These mega-brokers, as misbehaved as they were, should at least have had the wisdom and insightfulness to have fought Spitzer and his attack dogs, in the same way Liberty Mutual fought Spitzer (AND WON).

Don Bailey of Willis displays incredible nerve in his continued insistence that all other brokers (all honest, hard-working and ethical) be punished for the embarrassing behavior of his firm! Contemptible!

As far as your own position of giving the mega's a "probation" period, I say, let them compete on the uneven field that they themselves created. This should be their real punishment.

If they survive, my hat goes off to them. If they don't, that's business.