While insurance companies are calling upon state officials to coordinate their responses to the various brokerage compensation and other inquiries, independent insurance agents are worried about how the insurers themselves are responding to the pressure for disclosure of agent and broker compensation.
The leader of the Independent Insurance Agents and Brokers of America told a Virginia group that the last thing agents and brokers need is the confusion and cost of every insurance company imposing its own disclosure requirement on agents.
“My number one concern now about the reaction to (New York Attorney General) Spitzer is the companies’ reaction,” Robert Rusbuldt, IIABA chief executive officer, told the IIA of Virginia annual convention meeting at the Landsdowne Resort in Leesburg. “If you are an agent with 12 companies and they all have different disclosure policies…your agency will become a Bosnia.”
He indicated that IIABA supports the disclosure of any brokerage fees to clients but is opposed to companies forcing agents and brokers to comply with a hodgepodge of individual disclosure requirements.
He suggested that a better approach might be for insurers to issue generic statements in support of independent agents that make it clear that the company pays agents for their business, without getting into specifics and without requiring agents themselves to do anything.
“These types of statements don’t ask agents to do anything and are not as big a concern,” he said.
Rusbuldt said that in the wake of the probes begun by New York Attorney General Eliot Spitzer, insurers and some agents and brokers have been facing a “mind-boggling” array of subpoenas and document requests. Some IIABA members have had to hire attorneys, he said. “We are supposed to be going out and getting business but instead we are creating business for attorneys,” he lamented.
But for the most part, regulators and lawmakers in the states have not rushed or over-reacted with burdensome laws or regulations concerning compensation, according to Rusbuldt, who added that California might be the exception.
Congress is just now beginning to look into the various insurance issues, including compensation and finite reinsurance, he noted.
Since the Spitzer charges were first made public, Rusbuldt said IIABA has been in “full battle gear” to defend incentive compensation paid to agents, which he termed “as American as apple pie.”
IIABA has also been working to coordinate with insurers and other groups, Rusbuldt maintained. The most recent industry effort was the release of a study from The Wharton School of Business that upheld the value of insurance intermediaries as well as contingent commissions that have come under fire.
Among the Wharton study conclusions is that “although contingent commissions, like most business practices, can be misused by the unscrupulous, in general this type of incentive compensation plays an important role in aligning incentives between buyers and insurers and thus facilitates the efficient operation of insurance markets.”
That study was funded by the American Insurance Association.
Rusbuldt said a second study by University of Georgia and Florida professors is due out any day.
The IIABA leader also reiterated his group’s opposition to federal regulation of the industry, calling attention to a letter sent this week by a coalition of insurers in support of an optional federal charter.
“Companies have some very legitimate efficiency concerns about the current system of state regulaltion,” Rusbuldt acknowledged. “But the companies are wrong in their solution.”
He argued that a program of federal standards to bring uniformity and efficiency to the states is preferable to a new federal bureacucracy. For agents, he noted, the optional federal charter structure would be even less efficient than the current system because they would face two sets of regulations, one for the companies they represent that choose the federal charter and another for those under state rules.
He suggested that insurance companies behind the federal charter are in a “dream world” if they think it would mean less regulation, commenting that if a candidate like Sen. John Kerry (D-Mass.) were to be elected president, insurers would face more regulation “in two seconds.”