Why can\’t the RIMS boys and girls be honest about contingent commissions. It\’s no secret the big three public brokers have realized between 1/3 and 1/2 of their revenues from contingent commissions. To give this up without an adjustment in their compensation means a real hit for their stockholders. The truth of the matter is the RIMS crowd wants to capture the savings at the expense of the brokers and not pay them additional compensation to make up a single cent of their reduction in income. This greed on their part is justified by claiming that contingencies are in conflict with agents and brokers in looking out for their client\’s best interest. Following the Spitzer witch hunt and the brokers and employees involved in bid rigging, any agent or broker would be lunatic to engage in bid rigging in the future. Rewarding businesses for performance is as American as \”Apple Pie\”. There is nothing in and of itself wrong with rewarding performance. Bid rigging is illegal without question. One would have to assume as a result of the Spitzer investigations and criminal charges that this activity is over. If RIMS is opposed to Contingencies, then they should agree to make up a substantial portion of the lost income with flat fees for service so that no broker has to suffer a 50% reduction in income for the same level of service. If rewarding business for performance is inherently a conflict of interest, then every AG in the US needs to go after every business in existance that pays bonuses or incentives to their sales staff. After all, the argument should apply to all businesses that receive incentive rewards. Any rewards paid make any product or service cost more to the comsumer.
I am a new producer presently in class for my ARM. RIMS statement makes me ask WHY? Will I become ignorant too? I know the contingent commissions enables the agency to hire and train new producers in the industry which has provided me an opportunity. I do not place business \”knowing\” where contingencies come from. With reduction in commissions, more law suits, and no contingency? Why would anyone begin in this industry.
Contigent commissions allow the agent to play a role in the underwriting process. With good underwriting, it helps to keep the rates low. It also keeps the agencies in business. If these risk managers don\’t want good risk management to be rewarded or agents to be properly compensated, then they will find fewer of us in this industry. I think we would like to be looked at as more than sales people, the clients think a lot more of us as well when we are concerned about their business risk.
I find it interesting that those who are now rejecting contingent payment programs are the ones that caught by Spitzer and were slammed. I support contingent compensations and believe it is a direct reflection of the quality of the business I submit to my insurers. I do not have broker fee income and this program allows me to offset fixed operating expenses. What were these guys saying about contingencies a couple of years ago? Yah, you know the answer. They can kiss off and I will continue to glady accept what I have earned……honestly and without bid rigging or any other underhanded tactics
I am heartened by the moral stance taken by Willis and Marsh as respects contingent commissions. Maybe that will stop the abuses perpetrated by those large international brokers who manipulated the market, forced the hands of their vendors, worked in the best interest of themselves and not their customers – who WAS that, anyway? Oh, never mind.
The response would be a fair one, as long as no RIMS member accepts discounts based on size of premium. Make it all undiscounted manual premium, then agents and risk managers can share in making ethical, quality risk decisions. (HA).
I find this most recent position self serving.
If quality of business placed with a carrier is meaningless then you will see that reflected in increased pricing.
Are risk managers so dumb that they can be \”duped\” by a broker into taking an inferior or over priced product? I don\’t think so! Personally, I don\’t care for the contingent commission approach. I would prefer a higher \”normal\” commission, but, since when is a incentive based compensation program evil? I can\’t think of an industry that doesn\’t use incentive compensation with its sales force.
The part that troubles me is \”Failure to disclose such arrangements runs counter to the spirit of partnership that risk managers seek to achieve with their brokers, vendors, and insurers.\”
Partnerships? OMG, you may have to get outside of your comfort zone and contact another broker? Heaven forbid. Bottom line…if you don\’t trust your current vendor to get you the most competitive price for the most comprehensive coverage, then it\’s time to switch vendors.
I am a small, main-street independent agent and I disagree with the notion that contingencies cause a conflict of interest. The contingencies make sure I don\’t start placing marginal business (read: overly susceptible to loss) in preferred companies. I don\’t have the ability, due to competition, to \”bid rig\” or steer business. Many of my competitors have the same companies as I and the companies give everyone the same quote.
I do not deal with risk managers because the companies I insure are smaller.
While I agree that the bid-rigging/steering scandal that happened is unethical and greedy, I lay much of the blame on the highly paid, highly educated risk managers that allowed them to get away with it simply because they were too lazy/busy to contact another broker/company for alternative quotes. This is what your being paid for RIMS members…if you don\’t understand the insurance business, then you can\’t do your job effectively.
(Doc\’s Poetry Corner Wrap-Around) town of Los Gatos Community Hospital, Los Gatos, CA.
Patient Debbie, Debra, Deborah recites a poem about how she is a teapot after an auto-mis-hap, (Insurer-State Farm) but is making progress according to her psychiatrist. She thought she was a toaster oven the week before.
CAN YOU NAME THE PSYCHIARIST?
1. Dr. Squid
2. Dr. Clams
3rd runner up: Dr. often making wildely exagerated claims.
I have worked as an Underwriting Manager for 3 Companies and as a Marketing Manager for 4. I can remember delivering Profit Sharing checks to agents with only a few Hundred Thousand in written premiums on the books and the check was for $78,000.00 because…. they reached the minimum W.P. to qualify and had E.L.R.\’s in the 10% bracket.
Those checks are not just for \”steering\” business but, require a profit margin that is \”difficult\” to reach at any rate levels that the companies have filed in each state. And, it\’s not just the \”Big Boys\” that get them. Agents as small as $100,000 in premium volume can attain check with some companies if, they make a PROFIT.
I feel that the agents that complain about them probably either arn\’t even a agent (Just a \”broker\”) or don\’t even know what is involved in trying to make a Underwriting Profit for the company that they have a contract with because, they don\’t have a \”contract\” to protect.
State Farm Ins. also uses the SSI/SDI Office with their brand if of, Dr. Scratchansniff. High off Lottery winnings! right there with Foundation Health, Health Nets Corporate MGR\’s.
I have an idea….
All of you cheated RIMS members just agree (contractualy) to pay 10% of your net insurance cost to whatever broker you wish – FLAT, UP FRONT, BEFORE THE EFFORT BEGINS. Pay like you do for a chair, a grapefruit or a prostitute – up front. Who needs contingent revenue then?
Thankfully, I do not need to deal with them. I wonder if the companies they represent make such disclosures to their customers?
If the Risk Manager was properly performing their duty to their employer or client they would seek out the most competitive offers of insurance and premium. What should the client care if the broker made 10% or 50% commission on the risk as long as the product was the best available in the marketplace.
Just as we may earn rewards at year end for helping a company achieve a profitable year, I am sure many risk managers receive year end bonuses from their employer for a job equally well done. Are they willing to forgo this bonus?
Let\’s also take this to the next step – Wall Street. Thank you stock brokers for pushing the stock of the week on us and making millions in year end bonuses based on your success of pushing failed stocks on the elderly or the big pension fund. Is Wall Street willing to give up their year end bonuses?
It is time to set the record straight. First this was a bid rigging issue then an issue of upfront pre-payment of bonus commission for the promise to place profitable business during the year. This was never an issue of paying a bonus commission for a past job well done. This was an issue of paying off the large brokers to obtain large blocks of business, tomorrow!
Let\’s make the playing field level. Pass a Federal law that states, every time a product or service is sold a disclosure must be made regarding additional benefits paid to the sales force.
Example:I recently had a new furnace/air conditioner appliance installed in my home. When I called the HVAC dealer to settle up I was told that the owner(My insured) was on an extended vacation provided by the manufacturer of the unit I purchased. Should I be offended by this lack of disclosure Mr. Spitzer.
The list of bonus plans are endless. don\’t even get me started on auto dealer incentives. Or how about furnature stores, mortgage brokers, contractors who come in under bid, all the way down to lawn mower sales people.
I really don\’t think the Government should open up this issue unless we are ready to go for it accross the board.
Don\’t you just love it when these leaches yell foul? May they should give up all those free lunches and dinners, gifts, golf games and other perks they get from their brokers! Biggest parasites in the business.
I want to buy the best coverage at the lowest price. I pay my broker a percentage of the price I pay. In other words, the more I pay for insurance (against my interest) the more money the broker makes (in his/her interest).
Perhaps the whole thing should be done on either an upfront cost basis or a bill by the hour basis.
…we\’d take the plunge and eliminate commissions as a method of Broker remuneration in their entirety. Brokers could charge transactional fees, an hourly rate; or be put on a retainer by the client. Brokers could command an appropriate amount that reflects their level of expertise and the service levels that they provide – just like laywers or accountants. Insurance premiums would drop from Gross to Net, Expense Ratios would decrease, profitability for carriers would go up and even greater pricing competition could occur. Carriers could explain the adjustments they would take on growth to the \”Street\” as a transitional period to improve the cost of doing business. The entire conversation about commissions would come to an end. Yes, some Brokers wouldn\’t be able to cope and would close their doors, but that\’s called the free market.
Congrats to all of you who have responded to this article. Too bad those who came up with the declaration won\’t read it. They are so ignorant of the way the independent agency system works they can\’t possibly take an informed stance. In our agency, producers have no clue as to where we stand profit sharing wise with our carriers. This eliminates even the possibility of conflict. Who would do this anyway? You have to present the best value to your customer/prospect or you don\’t make the sale. Period.
Thank you to both \”MD\” and \”Buyer\”. You guys are exactly correct. Receiving commission from an insurer for sale of their product aligns the prodicer\’s interest with the insurer – not the insured. Contingent commissions are even worse when it comes to misaligning the interests of brokers and their alleged clients – insurance buyers. There is no way around this conclusion even if \”…this has always been the way we\’ve done it.\” Commission based compensation favors producers who make lots of sales – NOT brokers who offer the best service & most expertise to their clients. But the entrenched brokerage community achieved \”success\” by sales – not technical competence. So the management of most brokerages is in no position to encourage change (in compensation mechanisms) in the interests of their clients.
I think Rims profiteering from this convention is considerably worse than any contingent commission. If you disagree with RIMS position, hit them where it hurts. Boycott their over priced convention.
All this talk about doing away with incentives for providing an above average service is BS. The big brokerages got caught with their hands in the cookie jar for bid rigging, demanding up front contingencies for placement of business etc.
The vast majority of insurance agents do not work for Brokers. They represent solid companies, provide a professional service and do not engage in the type of antics that precipitated this mess in the first place. They are honest, hard working agents. One would think that there is enough collective intelligence to seperate the brokers from agents but I guess that might be asking too much. Maybe if there was no commission and no remuneration paid for the agents service, the brain trusts would think that the conflict still exists.
I wonder just how many risk managers had their pockets padded from preferred placement with their brokers?????
Why don\’t the risk managers start by cleaning up their own large publically traded companies. When they get Executive Pay and back dating stock options taken care of and start returning more money to the stockholders rather than putting insurance contingency savings in their own over paid pockets, then we can look at our industry which for the most part is the backbone of support for this country.
Or would they rather we contribute to putting more people on the street so that we can pay even more welfare?
There are more important issues that need attention then breaking a small agent\’s back.
Why don\’t the risk managers start by cleaning up their own large publically traded companies. When they get Executive Pay and back dating stock options taken care of and start returning more money to the stockholders rather than putting insurance contingency savings in their own over paid pockets, then we can look at our industry which for the most part is the backbone of support for this country.
Or would they rather we contribute to putting more people on the street so that we can pay even more welfare?
There are more important issues that need attention then breaking a small agent\’s back.
Further questions? What does Debbie, Debra, Deborah have in common with Wayne Gretzky, American River College Foundation, Award Service Inc., PH:, BIC Ins., Foundation Ins. Occidental College, Yarra Park, Melbourne, 1956 Summer Olympics, Bob Gutowski?
1. Daniel G. Herns, ESQ.
2. Other versions by above Author\’s of Workers Compensation Insurance, Bailey\’s Industrial Oil and Fat Wallets, Oyster Point, IMC.
3. Pacific Northwest Foundation, Health Group of PIGS.
The majority of these RM\’s were padded for their \”decision\” to place the City of Los Angeles Liability with a certain carrier(s).
These guys sit around and \”think\” about what is wrong. THEY FEEL FULL TRANSPERENCY IS NECESSARY\”. I want that from car dealers, banks on annuities, brokerage houses on annuities, reverse mortgages, etc.
Full disclosure accomoplishes exactly what? IN CA., it would allow the customer to negotiate lower income for the broker due to Prop 103 and regating being stupidly legal. The lawyers are causing most of this and the RM\’s are thinking like them.
Sure, NOW that they got caught, they want to stop the practice to level the playing field with those of us that did not commit felonies.
Spitzer caught you guys throwing your weight around and now that weight will mean less than before. Ha ha your own fault.
I think the RM\’s are similar to HR Dept.s, necessary when you have extra cash but the first to cut when you do not.
Retail agents are \”field underwriters\” and should participate in profits. Frontline commissions are being reduced daily with the majority of the workload now pushed upon the producer. What carrier has a \”data input\” dept. anymore? Why? Because I am doing it. For less commissions than before. Carriers do not have collection problems anymore because they are using my bank accounts! I pay bank fees for them to easily and cost free collect their premiums. I earn every dime of any contingency I am paid.
Might as well as this type of revenue to the list too.
I see agents making more revenue on their premium financing transactions than the actual premium finance company.
Some of the big boys are doing away with this but some agents/brokers are downright greedy.
If you want to call a spade a spade RNR, re-read your own comments first. I quote, \”your command of economics and finance is almost as impressive as \”Risk Adverse\”\’s command of the English language. Perhaps you don\’t realize that you (or any broker) doesn\’t work for free – ever.\” I believe \”economics and finance are almost impressive as\”…of course, \”you doesn\’t work for free\” is a good one too. No one is perfect RNR, but apparently in your mind we can only hope to be as educated and enlightened as you one day. In terms of your hourly charge proposal as the great economic plan, let\’s think about that…everytime an Agent or Agency employee works on your account or answers the phone to deal with you or any issue related to you, you are okay with that Agent/Agency pulling out a billing sheet(such as an attorney) and noting the time. My guess is that when the bill came you would just whine about it, try to duck paying it, and then try to get another Broker to grant you some free hourly credit in the hopes of getting your business. Good luck on that one being realized.
Probably the best point here. The RM is the boss in this whole relationship. Good RM\’s tend to seek out and find good Agents/Brokers. Those RM\’s realize that those selected Agents/Brokers provide enough value to their job and company that their compensation is earned and justified. When those RM\’s beleive they are not getting enough in regard to what the Agent/Broker is being providing and being compensated, find a new one! Simple. But for those RM\’s that just value the lowest price and commissions, you should stop trying to find the best insurance professional, you are wasting your time and theirs. This level of Agents/Brokers(and these can be found in the 1 man/woman shop to the largest Brokers) would rather focus on providing so much more..and you just don\’t value that.
It\’s in the millions! Just visit MSN money insider trading.look up any companies symbol and you\’ll see the tons of cash this people pocket at policy holder expense.
When I saw the headline of this article, I thought it had to be misleading as I could not imagine an organization within the industry to be against productivity. After reading the article, it is unbelieveable. With the overhead involved, it is absurd to expect anything except productivity based income. In reading many of the posts, it is obvious that most understand that this RIMS proposal is sheer foolishness.
In deference to full disclosure being called for by Risk Managers – third-party audits of any corporate entities insurance and risk management program by qualified insurance and risk management consultants should be mandatory.
The stock holders need to know if you, Risk Manager, are earning your pay. Come on – what are you afraid of?
Just another case of holier than thou folks who do not understand the workings of the average agency production process (where most producers sell on price or superior coverage)The know it alls are happy to grab the bashing club from Spitzer and smugly sit back satisfied that they have saved the world from the unscrupulous insurance agent.
As we all know this is a very competitive business. If an agent is not motivated to provide the best service at the lowest cost, he/she will not be in business for very long. I can\’t believe that the fact that insureds have the option to seek alternative proposals is the agent\’s prime motivator is not more clearly considered in this whole debate.
What is Next for insurance agents? No commisison, no incentive to produce a solid book of business?
Why pick on the insurance agents? Are tehy going to pass laws now where you have to see certain doctors. lawyers, accountants becuase those who are doing a good job for their clients getting the bulk of the business? Insurance agents work hard and get less pay per hour than other professionals, plus compete with our companies who now sell products direct.
Where is our future?
Bob
This is essentially a useless argument on all sides – for or against contingent commissions – until the risk managers willing agree to an audit of their insurance and risk management programs by a UNBIASED third party.
If it is found that the entity for whom the risk manager works is getting the best and broadest coverage at the best possible price – then what difference does it make if contingent commissions are paid.
If, however, it is discovered that the risk manager is getting inferior coverage and/or a higher price than should be expected – then the risk manager isn\’t doing his/her job – again, what difference do contingent commissions make, it isn\’t the brokers fault the RM \”settled\” for inferiority.
When risk managers WILLINGLY allow their programs to be reviewed by an outside consultant – then they can make the argument against contingencies – until then, this is all just a SMOKE SCREEN!
Do you – Risk Manager – prefer dealing with an \”AGENT\” or a \”BROKER?\”
An \”Agent,\” by definition, works for the insurance company as its – agent. How the insurance company pays its agent is NONE OF YOUR BUSINESS.
A \”Broker,\” by definition, works for the client – and has no authority to bind the insurance company to anything. \”Brokers\” don\’t have contracts with the insurance company writing the business – so maybe you, RM, do want to know how much is being paid as it directly affects the price. Since the \”Broker\” doesn\’t have a contract with the insurance company – contingent commissions aren\’t part of the equation.
Before you \”knee jerk,\” I realize these are historical definitions that have lost their differentiation and have become interchangebale – but the point is WHAT POSSIBLE DIFFERENCE DOES IT MAKE TO YOU, DEAR RM, HOW I GET PAID IF YOU ARE GETTING THE BEST COVERAGE AND PRICING?
Just thought I\’d ask because if you do away with contingent commissions, prices WILL go up – \’cause agents just won\’t care what they place with the carriers and as losses go up – so do prices.
Not the agents the CEO\’s/CFO\’s of the companies.
The agencies have suffered tremendously in the past few years.Now everything is supposed to be accounted for.
Don\’t know what happened with the 4 e-mails but I needed to add this.
Why is it that someone with perfect credit and no debt and no moving violations any incidents at all has a auto premium range from $550 to $850 a year all with the same coverage?
TX – The way I look at it is — a broker (I am a broker) makes $X working on one deal. That $X must pay the broker for all the time he/she spends working on deals that fail to close. It must pay the broker for any work done after the deal closes – like issuing certs. So, a broker\’s effective hourly rate cannot be the $$ made on a deal divided by the hours worked on that one deal. Its $$ made annually divided by hours worked annually. On this basis, most brokers probably make $100-300 per hour, I\’d guess. Whether the consumer wants to pay brokers a fee for service vs allowing brokers to be paid by carriers depends, I suppose, on things like buyer\’s perception of broker\’s professionalism, buyer\’s perception of conflict of interest when broker paid by insurer, etc. Unsophisticated buyers may think that it costs them nothing when brokers are paid by commission – but that is, I believe, completely wrong.
IF they REALY believe in this compensation issue
100% of their compensation to their broker wouls be fee only
hourly on annually
then they would require all companies not to pay either profit commission or regular commissions
Risk Managers should never accept an exclusive for a Broker or Agent to market the account if Contingent Commissions are still in play.
However when client losses materially affect Broker or Agent\’s income how can they be so saint like to provide exactly the same advise as they would without contingent commissions? I believe they are mostly honorable persons and companies, but not Saints.
Contingent commisions have been a part of the compensation formula for Insurance companies and their agents for over 100 years. This formula exists in similiar formats in most industies. Does Coke compensate the distributer that sells one case of coke a year, the same as they would compensate the distributer that sells 2 million cases a year? No, that is correct.
I have an idea, lets do an investigation on how lawyers are compensated. Perhaps they should recieve a flat $ 200 fee for every case they take, regardless of the complexities or parameters of that case. Maybe 40% is too large a % of a settlement. Better yet, lets have them pay the defense costs of the defendents in frivilous lawsuits, that is common sense, we havent seen an investigation into that, have we. Lets also investigate every Risk Manager and how they are compensated, and how the sales people in their organization\’s compensation plans are handled. Cheers to Mr. Kelly & Liberty Mutual for standing up to this witch hunt. Our compensation is not your business and yours is not my business. Please let the Market decide! Thank you.
Just how many of these delightful CEO\’s accept a \”contingent\” payment of stock from the companies they are the executives of? Much more that their \”salary\”. They get to keep stock options, etc. long after they have left the battlefield & laugh at the struggling survivors trying to straighten out the mess they left. What about transparency or just taking it away?
The biggest protest against \”Agent\” Contingencies has come from one of the biggest violators and abusers of this age old system; Plumeri from Willis. Just because his company acted inappropriately and participated in bid rigging schemes, and was subsequently fined $50MM, doesn\’t mean that rest of the industry is guilty. Its good to see that the most of the industry has agreed to go to full compensation disclosure of all product income and is now accepting contingencies. Elliot Spitzer was right in exposing Marsh,AON,Willis and the insurance carriers who were the abusers of a good system. The corrections, in terms of full income disclosures,are being made in our industry and it is time to move on. There is no reason to continue litigating and legislating this matter any further.
Mike
I hear you and can see your logic RNR, but consider the end result of allowing a Client to ask for one proposal with commission, one with an hourly rate, and one with a fee. How different do you think each would be from one another? Ask the Insurance Carriers to cut Profit-Sharing with Agents/Brokers and certainly that savings will go directly to the Clients right? Not on a Shareholders dime it won\’t. This is getting way away from the core subject, we\’re not here to debate what our industry should or shouldn\’t do. However, we are here to let RIMS know that their opinion on our industry\’s compensation methods crosses a line and furthermore means jacksquat to us or anyone else for that matter. When a 1000 member organization decides to aggresively spout off and criticize the payment practices and ethics of an entire Industry based on a handful of Brokers steering and colluding with a handful of Carriers(something which is separate from Contingent commissions and Profit-Sharing), knowing that this statement will bear little to no weight in our Industry and will certainly not result in a change in our Industry, I have to believe RIMS intention is more publicity and of a self-serving nature than constructive and respectful of what I do daily.
Again….WHO CARES as long as compensation is performance based.
It is funny. They ones complaining are the ones with ultimate control. If you don\’t like how Aon, Willis, Marsh or anyone does business…DON\”T CALL THEM!!! Believe me, if they don\’t like your business they won\’t write YOU. Free Enterprise is also free choices. If your superiors are overriding your recommendation then it is their problem.
I agree, if RM\’s are doing their job correctly, outside audits should be no threat. However, if they are keeping business with their buddy who sends them on a beach trip every year (oh, you know it happens), then I think they should be afraid of the findings.
Full disclosure is fine – as long as everyone is disclosing the income, perks, and free vacations.
Maybe the Independent Insurance Agents & Brokers of America and other Agent organizations should issue a statement that any Risk Manager earning over $50,000 regarless of their duties, their expertise, and the exposures they manage is getting paid too much? Or even a step further, that 70% of the Risk Managers out there that Agents and Brokers deal with could be replaced with a rock. Nah, we wouldn\’t do that. Why? Because it\’s not our place to issue written, publicized statements about another industries livelyhood and earnings! I would have loved to have been at that RIMS Board meeting…He guys what should we do today? I know, let\’s issue a BS statement that fully impacts another industries employees ability to feed themselves and their families! Yeah, beats trying to justify our own jobs to our employers for another year! Pathetic.
To you members of RIMS: Let\’s do it this way. Your broker/agent will meet with you, learn about your business and exposures, prepare an application, submit it to their carriers, evaluate the various proposals and then present them to you in a clear and professional manner for your to make a decision. Only from now he/she won\’t do on the \”chance\” that you will select their quote. Instead, the fee is $500 or $1,000 per hour spent by them and their staff. You pay even if you choose another broker/agent.
We are the only industry that gives you our expertise for free and does not prevent you from sharing that with your buddy agent that you award with the business.
If you want to control my income then you\’ll have to pay for my work whether you choose me or not.
\”Vince\” – your command of economics and finance is almost as impressive as \”Risk Adverse\”\’s command of the English language. Perhaps you don\’t realize that you (or any broker) doesn\’t work for free – ever. The commissions insurers pay you – i.e. your revenue – presumably compensates you fully. Higly unlikely that you\’re worth $1000/hr (especially given your understanding of economics). Your (our) commission revenues are \”inflated\” to reflect the fact that you (we) only close X% of the deals you work on. It would be perfectly reasonable to charge insurance buyers a reasonable hourly rate in lieu of accepting payment from insurers. That wouldalign everyone\’s interests properly. Then, insurance brokers could start to make an argument as to why they should be considered \”professionals\”. Of course, it might help that argument if some of us had an actual higher education.
WHO CARES, as long as the compensation is disclosed and is for past performance. Today, motivation is built around incentives. Don\’t you have incentives for employees to reduce Lost Time Claims? Do you get bonuses for a clean risk operation? It is just the way it is. It seems to me that RMs are just mad, because someone else gets a bonus for their efforts. If you don\’t like that, then here is your choice:
1. Become a broker or agent (I was one and it isn\’t easy) OR
2. Let your operation go to hell so that they don\’t get their bonus.
Concentrate on your responsibilities. Stop wasting time and emotion on something you don\’t have control over.
there were so many comments that this may have already been suggested and i didn\’t read them all. why not just raine our commissions and stop worrying about growth and loss ratio or anything else we have to do to earn the contengency. just collect up front.
Risk Mgrs are mostly on larger accounts and a number of these are fee based to Broker. The majority of independent agents do not deal with Risk Mgrs. Independent agts work for their insureds and due to competive market, they cannot direct business for higher premiums. Risk mgr do not care about underwriting, they just want cheaper price and more coverages.
How did a few large brokers being caught with their hands in the cookie jar mushroom into a call for ending all bonus payments? Surely some of the RIMS member organizations receive extra compensation in some form. I hope that the agency force will indignantly stand up to RIMS with new-found backbone that was lacking in when Spitzer attacked.
Risk Manager in FL, PLJ and TX – Thank you guys for elevating the level of discussion. Although I believe commission based compensation puts brokers at odds with their clients (insurance buyers) I suppose one person/firm is not going to change anything. I think that is really the role of a regulatory agency (maybe an insurance equivalent of the SEC?). But then – I\’m a Democrat. However, those of us who believe that insurance brokers can be an honorable profession that does real service for its clients (buyers – not sellers) need to look for ways to raise the standards – both educational and ethical – of the brokerage biz.
I know I\’m in the minority with this opinion. But do appreciate the opportunity to vent.
Sales Rep – I am deeply disturbed that a small group of commercial consumers feel this way, but let\’s step back and take a look at this…
1) Maybe the wording \”contingency\” is the problem.
This type of practice is done amongst many different fields and disciplines. This is done with different names (i.e. Rewards or Loyalty programs) and different programs (increased marketing by many companies). Why target insurance companies? It is the producer\’s duty to might the needs of his customer, bottom line.
2) By \”spreading the wealth\” and using multiple companies producer\’s encourage competition and keep over price low.
The last thing we need in the insurance industry is monopolistic competition. Not only does this hurt the consumer (with lower prices) but more business would go to the few that dominate the market. Contingency plans promote competition and give equal opportunity, along with competitive priced products to those who need it the most. But overall, price remains low.
There is regulatory accountablity in the agent/broker profession. Although a Risk Manager, I am licensed mult-lines in Florida and non-resident in 6 other states. Up to now, it is regulated onto the agent individually and only state by state as the individual is licensed. Every state has a hot-line to the commissioner for consumer complaints. Just last year Florida has begun to require the agency/brokerage to be licensed as well. This is a step in the right direction, but until there is true national accountability, regulation is there but very unorganized for national concerns. I am also torn on Federal Regulation of agents/brokers when all insurance is regulated, rated and filed by state.
I have never personally experienced being at odds with the broker because their compensation is commission or contigency based. I just can\’t relate to that. Maybe because I just don\’t feel threatened by it. I appreciate your comments as they come from your experience.
…we are no longer hosting our all expense paid annual golf outing and financial seminar due to fallen revenue. But rest assured, next year at RIMS, we will still provide dinner and libation for you and your spouse (to show her what a big hitter you are). However, we can no longer afford the usual Capital Grille with it\’s fine wine, but will belly up and pay for Mickey D\’s and grape juice, business casual. Respectfully, Your Broker
I am an RM and am with you, but with a little different twist. You make $X on the deal you get (and deserve every penny)and nothing on the ones you miss. That is your incentive to improve and increase your closing ratios. Just like the retail store makes $X on an item and nothing on the \”browsers\”. You don\’t want to sound like you overcharge me so that you can afford to miss two others.
Buyer, you are truly naiive. I am not going to the Rims convention. These arogant a—oles really p_ss me off
Look what you are doing to the small agency, who by doing strick underwritting and looking after the company get compensated .
Why can\’t the RIMS boys and girls be honest about contingent commissions. It\’s no secret the big three public brokers have realized between 1/3 and 1/2 of their revenues from contingent commissions. To give this up without an adjustment in their compensation means a real hit for their stockholders. The truth of the matter is the RIMS crowd wants to capture the savings at the expense of the brokers and not pay them additional compensation to make up a single cent of their reduction in income. This greed on their part is justified by claiming that contingencies are in conflict with agents and brokers in looking out for their client\’s best interest. Following the Spitzer witch hunt and the brokers and employees involved in bid rigging, any agent or broker would be lunatic to engage in bid rigging in the future. Rewarding businesses for performance is as American as \”Apple Pie\”. There is nothing in and of itself wrong with rewarding performance. Bid rigging is illegal without question. One would have to assume as a result of the Spitzer investigations and criminal charges that this activity is over. If RIMS is opposed to Contingencies, then they should agree to make up a substantial portion of the lost income with flat fees for service so that no broker has to suffer a 50% reduction in income for the same level of service. If rewarding business for performance is inherently a conflict of interest, then every AG in the US needs to go after every business in existance that pays bonuses or incentives to their sales staff. After all, the argument should apply to all businesses that receive incentive rewards. Any rewards paid make any product or service cost more to the comsumer.
I am a new producer presently in class for my ARM. RIMS statement makes me ask WHY? Will I become ignorant too? I know the contingent commissions enables the agency to hire and train new producers in the industry which has provided me an opportunity. I do not place business \”knowing\” where contingencies come from. With reduction in commissions, more law suits, and no contingency? Why would anyone begin in this industry.
Contigent commissions allow the agent to play a role in the underwriting process. With good underwriting, it helps to keep the rates low. It also keeps the agencies in business. If these risk managers don\’t want good risk management to be rewarded or agents to be properly compensated, then they will find fewer of us in this industry. I think we would like to be looked at as more than sales people, the clients think a lot more of us as well when we are concerned about their business risk.
I find it interesting that those who are now rejecting contingent payment programs are the ones that caught by Spitzer and were slammed. I support contingent compensations and believe it is a direct reflection of the quality of the business I submit to my insurers. I do not have broker fee income and this program allows me to offset fixed operating expenses. What were these guys saying about contingencies a couple of years ago? Yah, you know the answer. They can kiss off and I will continue to glady accept what I have earned……honestly and without bid rigging or any other underhanded tactics
I am heartened by the moral stance taken by Willis and Marsh as respects contingent commissions. Maybe that will stop the abuses perpetrated by those large international brokers who manipulated the market, forced the hands of their vendors, worked in the best interest of themselves and not their customers – who WAS that, anyway? Oh, never mind.
The response would be a fair one, as long as no RIMS member accepts discounts based on size of premium. Make it all undiscounted manual premium, then agents and risk managers can share in making ethical, quality risk decisions. (HA).
I work hard to underwrite profitable business for me and my companies. Now some are calling me immoral. I resent that.
I find this most recent position self serving.
If quality of business placed with a carrier is meaningless then you will see that reflected in increased pricing.
Are risk managers so dumb that they can be \”duped\” by a broker into taking an inferior or over priced product? I don\’t think so! Personally, I don\’t care for the contingent commission approach. I would prefer a higher \”normal\” commission, but, since when is a incentive based compensation program evil? I can\’t think of an industry that doesn\’t use incentive compensation with its sales force.
OK – I\’ll spot you one experience rating discount.
But your \”volume\” of premium gives you an unfair discount & advantage over smaller competitors. Let\’s eleviate it.
The part that troubles me is \”Failure to disclose such arrangements runs counter to the spirit of partnership that risk managers seek to achieve with their brokers, vendors, and insurers.\”
Partnerships? OMG, you may have to get outside of your comfort zone and contact another broker? Heaven forbid. Bottom line…if you don\’t trust your current vendor to get you the most competitive price for the most comprehensive coverage, then it\’s time to switch vendors.
I am a small, main-street independent agent and I disagree with the notion that contingencies cause a conflict of interest. The contingencies make sure I don\’t start placing marginal business (read: overly susceptible to loss) in preferred companies. I don\’t have the ability, due to competition, to \”bid rig\” or steer business. Many of my competitors have the same companies as I and the companies give everyone the same quote.
I do not deal with risk managers because the companies I insure are smaller.
While I agree that the bid-rigging/steering scandal that happened is unethical and greedy, I lay much of the blame on the highly paid, highly educated risk managers that allowed them to get away with it simply because they were too lazy/busy to contact another broker/company for alternative quotes. This is what your being paid for RIMS members…if you don\’t understand the insurance business, then you can\’t do your job effectively.
(Doc\’s Poetry Corner Wrap-Around) town of Los Gatos Community Hospital, Los Gatos, CA.
Patient Debbie, Debra, Deborah recites a poem about how she is a teapot after an auto-mis-hap, (Insurer-State Farm) but is making progress according to her psychiatrist. She thought she was a toaster oven the week before.
CAN YOU NAME THE PSYCHIARIST?
1. Dr. Squid
2. Dr. Clams
3rd runner up: Dr. often making wildely exagerated claims.
XXLawyer
So all insurance carriers should have the pay the same commission percentage, so as not to create a conflict of interest?
So all insurance carriers should have to pay the same commission percentage, so as not to create a conflict of interest?
I have worked as an Underwriting Manager for 3 Companies and as a Marketing Manager for 4. I can remember delivering Profit Sharing checks to agents with only a few Hundred Thousand in written premiums on the books and the check was for $78,000.00 because…. they reached the minimum W.P. to qualify and had E.L.R.\’s in the 10% bracket.
Those checks are not just for \”steering\” business but, require a profit margin that is \”difficult\” to reach at any rate levels that the companies have filed in each state. And, it\’s not just the \”Big Boys\” that get them. Agents as small as $100,000 in premium volume can attain check with some companies if, they make a PROFIT.
I feel that the agents that complain about them probably either arn\’t even a agent (Just a \”broker\”) or don\’t even know what is involved in trying to make a Underwriting Profit for the company that they have a contract with because, they don\’t have a \”contract\” to protect.
State Farm Ins. also uses the SSI/SDI Office with their brand if of, Dr. Scratchansniff. High off Lottery winnings! right there with Foundation Health, Health Nets Corporate MGR\’s.
Talk about that Dumb!!!!
I have an idea….
All of you cheated RIMS members just agree (contractualy) to pay 10% of your net insurance cost to whatever broker you wish – FLAT, UP FRONT, BEFORE THE EFFORT BEGINS. Pay like you do for a chair, a grapefruit or a prostitute – up front. Who needs contingent revenue then?
Thankfully, I do not need to deal with them. I wonder if the companies they represent make such disclosures to their customers?
If the Risk Manager was properly performing their duty to their employer or client they would seek out the most competitive offers of insurance and premium. What should the client care if the broker made 10% or 50% commission on the risk as long as the product was the best available in the marketplace.
Just as we may earn rewards at year end for helping a company achieve a profitable year, I am sure many risk managers receive year end bonuses from their employer for a job equally well done. Are they willing to forgo this bonus?
Let\’s also take this to the next step – Wall Street. Thank you stock brokers for pushing the stock of the week on us and making millions in year end bonuses based on your success of pushing failed stocks on the elderly or the big pension fund. Is Wall Street willing to give up their year end bonuses?
It is time to set the record straight. First this was a bid rigging issue then an issue of upfront pre-payment of bonus commission for the promise to place profitable business during the year. This was never an issue of paying a bonus commission for a past job well done. This was an issue of paying off the large brokers to obtain large blocks of business, tomorrow!
Let\’s make the playing field level. Pass a Federal law that states, every time a product or service is sold a disclosure must be made regarding additional benefits paid to the sales force.
Example:I recently had a new furnace/air conditioner appliance installed in my home. When I called the HVAC dealer to settle up I was told that the owner(My insured) was on an extended vacation provided by the manufacturer of the unit I purchased. Should I be offended by this lack of disclosure Mr. Spitzer.
The list of bonus plans are endless. don\’t even get me started on auto dealer incentives. Or how about furnature stores, mortgage brokers, contractors who come in under bid, all the way down to lawn mower sales people.
I really don\’t think the Government should open up this issue unless we are ready to go for it accross the board.
Don\’t you just love it when these leaches yell foul? May they should give up all those free lunches and dinners, gifts, golf games and other perks they get from their brokers! Biggest parasites in the business.
I want to buy the best coverage at the lowest price. I pay my broker a percentage of the price I pay. In other words, the more I pay for insurance (against my interest) the more money the broker makes (in his/her interest).
Perhaps the whole thing should be done on either an upfront cost basis or a bill by the hour basis.
If You Brand It, They Won’t Just Buy, They’ll Buy In.
Pick up their new publication: Welfare Works.
Why are Employee Benefits experts and Risk Managers the first let go in coroprate down sizings?
That might be a better use of membership dues to research that one.
…we\’d take the plunge and eliminate commissions as a method of Broker remuneration in their entirety. Brokers could charge transactional fees, an hourly rate; or be put on a retainer by the client. Brokers could command an appropriate amount that reflects their level of expertise and the service levels that they provide – just like laywers or accountants. Insurance premiums would drop from Gross to Net, Expense Ratios would decrease, profitability for carriers would go up and even greater pricing competition could occur. Carriers could explain the adjustments they would take on growth to the \”Street\” as a transitional period to improve the cost of doing business. The entire conversation about commissions would come to an end. Yes, some Brokers wouldn\’t be able to cope and would close their doors, but that\’s called the free market.
Congrats to all of you who have responded to this article. Too bad those who came up with the declaration won\’t read it. They are so ignorant of the way the independent agency system works they can\’t possibly take an informed stance. In our agency, producers have no clue as to where we stand profit sharing wise with our carriers. This eliminates even the possibility of conflict. Who would do this anyway? You have to present the best value to your customer/prospect or you don\’t make the sale. Period.
Thank you to both \”MD\” and \”Buyer\”. You guys are exactly correct. Receiving commission from an insurer for sale of their product aligns the prodicer\’s interest with the insurer – not the insured. Contingent commissions are even worse when it comes to misaligning the interests of brokers and their alleged clients – insurance buyers. There is no way around this conclusion even if \”…this has always been the way we\’ve done it.\” Commission based compensation favors producers who make lots of sales – NOT brokers who offer the best service & most expertise to their clients. But the entrenched brokerage community achieved \”success\” by sales – not technical competence. So the management of most brokerages is in no position to encourage change (in compensation mechanisms) in the interests of their clients.
I think Rims profiteering from this convention is considerably worse than any contingent commission. If you disagree with RIMS position, hit them where it hurts. Boycott their over priced convention.
All this talk about doing away with incentives for providing an above average service is BS. The big brokerages got caught with their hands in the cookie jar for bid rigging, demanding up front contingencies for placement of business etc.
The vast majority of insurance agents do not work for Brokers. They represent solid companies, provide a professional service and do not engage in the type of antics that precipitated this mess in the first place. They are honest, hard working agents. One would think that there is enough collective intelligence to seperate the brokers from agents but I guess that might be asking too much. Maybe if there was no commission and no remuneration paid for the agents service, the brain trusts would think that the conflict still exists.
I wonder just how many risk managers had their pockets padded from preferred placement with their brokers?????
Why don\’t the risk managers start by cleaning up their own large publically traded companies. When they get Executive Pay and back dating stock options taken care of and start returning more money to the stockholders rather than putting insurance contingency savings in their own over paid pockets, then we can look at our industry which for the most part is the backbone of support for this country.
Or would they rather we contribute to putting more people on the street so that we can pay even more welfare?
There are more important issues that need attention then breaking a small agent\’s back.
Why don\’t the risk managers start by cleaning up their own large publically traded companies. When they get Executive Pay and back dating stock options taken care of and start returning more money to the stockholders rather than putting insurance contingency savings in their own over paid pockets, then we can look at our industry which for the most part is the backbone of support for this country.
Or would they rather we contribute to putting more people on the street so that we can pay even more welfare?
There are more important issues that need attention then breaking a small agent\’s back.
Further questions? What does Debbie, Debra, Deborah have in common with Wayne Gretzky, American River College Foundation, Award Service Inc., PH:, BIC Ins., Foundation Ins. Occidental College, Yarra Park, Melbourne, 1956 Summer Olympics, Bob Gutowski?
1. Daniel G. Herns, ESQ.
2. Other versions by above Author\’s of Workers Compensation Insurance, Bailey\’s Industrial Oil and Fat Wallets, Oyster Point, IMC.
3. Pacific Northwest Foundation, Health Group of PIGS.
Smile Jay Gellert, and please don\’t take this too personal.
9S4 MINERAL COUNTY (AIRPORT) PUBLIC
and Bay Area Credit Services, Airport BLVD. San Jose.
Fine Job your doing County of Santa Clara. Department of Revenue, Public welfare working.
The majority of these RM\’s were padded for their \”decision\” to place the City of Los Angeles Liability with a certain carrier(s).
These guys sit around and \”think\” about what is wrong. THEY FEEL FULL TRANSPERENCY IS NECESSARY\”. I want that from car dealers, banks on annuities, brokerage houses on annuities, reverse mortgages, etc.
Full disclosure accomoplishes exactly what? IN CA., it would allow the customer to negotiate lower income for the broker due to Prop 103 and regating being stupidly legal. The lawyers are causing most of this and the RM\’s are thinking like them.
Shut up and go back to your cubicle.
Sure, NOW that they got caught, they want to stop the practice to level the playing field with those of us that did not commit felonies.
Spitzer caught you guys throwing your weight around and now that weight will mean less than before. Ha ha your own fault.
I think the RM\’s are similar to HR Dept.s, necessary when you have extra cash but the first to cut when you do not.
Retail agents are \”field underwriters\” and should participate in profits. Frontline commissions are being reduced daily with the majority of the workload now pushed upon the producer. What carrier has a \”data input\” dept. anymore? Why? Because I am doing it. For less commissions than before. Carriers do not have collection problems anymore because they are using my bank accounts! I pay bank fees for them to easily and cost free collect their premiums. I earn every dime of any contingency I am paid.
Spitzer is gone anyway.
would these same S.B. rim like to loss all
bonus they have with their venders and supply co.
Might as well as this type of revenue to the list too.
I see agents making more revenue on their premium financing transactions than the actual premium finance company.
Some of the big boys are doing away with this but some agents/brokers are downright greedy.
If you want to call a spade a spade RNR, re-read your own comments first. I quote, \”your command of economics and finance is almost as impressive as \”Risk Adverse\”\’s command of the English language. Perhaps you don\’t realize that you (or any broker) doesn\’t work for free – ever.\” I believe \”economics and finance are almost impressive as\”…of course, \”you doesn\’t work for free\” is a good one too. No one is perfect RNR, but apparently in your mind we can only hope to be as educated and enlightened as you one day. In terms of your hourly charge proposal as the great economic plan, let\’s think about that…everytime an Agent or Agency employee works on your account or answers the phone to deal with you or any issue related to you, you are okay with that Agent/Agency pulling out a billing sheet(such as an attorney) and noting the time. My guess is that when the bill came you would just whine about it, try to duck paying it, and then try to get another Broker to grant you some free hourly credit in the hopes of getting your business. Good luck on that one being realized.
Probably the best point here. The RM is the boss in this whole relationship. Good RM\’s tend to seek out and find good Agents/Brokers. Those RM\’s realize that those selected Agents/Brokers provide enough value to their job and company that their compensation is earned and justified. When those RM\’s beleive they are not getting enough in regard to what the Agent/Broker is being providing and being compensated, find a new one! Simple. But for those RM\’s that just value the lowest price and commissions, you should stop trying to find the best insurance professional, you are wasting your time and theirs. This level of Agents/Brokers(and these can be found in the 1 man/woman shop to the largest Brokers) would rather focus on providing so much more..and you just don\’t value that.
It\’s in the millions! Just visit MSN money insider trading.look up any companies symbol and you\’ll see the tons of cash this people pocket at policy holder expense.
PLJ – \”at policy holder expense.\” Please don\’t tell me you really believe that.
You seem to think that EVERY agent qualifies for contingency commissions – well they don\’t.
There are 1000\’s of agents that never see a penny of contingency commission becuase of various factors.
And guess what – you pay the same premium whether I get a contingency or not – so again – WHY DO YOU CARE??
When I saw the headline of this article, I thought it had to be misleading as I could not imagine an organization within the industry to be against productivity. After reading the article, it is unbelieveable. With the overhead involved, it is absurd to expect anything except productivity based income. In reading many of the posts, it is obvious that most understand that this RIMS proposal is sheer foolishness.
In deference to full disclosure being called for by Risk Managers – third-party audits of any corporate entities insurance and risk management program by qualified insurance and risk management consultants should be mandatory.
The stock holders need to know if you, Risk Manager, are earning your pay. Come on – what are you afraid of?
Just another case of holier than thou folks who do not understand the workings of the average agency production process (where most producers sell on price or superior coverage)The know it alls are happy to grab the bashing club from Spitzer and smugly sit back satisfied that they have saved the world from the unscrupulous insurance agent.
These people need a dose of reality.
As we all know this is a very competitive business. If an agent is not motivated to provide the best service at the lowest cost, he/she will not be in business for very long. I can\’t believe that the fact that insureds have the option to seek alternative proposals is the agent\’s prime motivator is not more clearly considered in this whole debate.
What is Next for insurance agents? No commisison, no incentive to produce a solid book of business?
Why pick on the insurance agents? Are tehy going to pass laws now where you have to see certain doctors. lawyers, accountants becuase those who are doing a good job for their clients getting the bulk of the business? Insurance agents work hard and get less pay per hour than other professionals, plus compete with our companies who now sell products direct.
Where is our future?
Bob
Thank you Bond man for a clear and concise description of the reality vs what the idiots have twisted the reality to be.
This is essentially a useless argument on all sides – for or against contingent commissions – until the risk managers willing agree to an audit of their insurance and risk management programs by a UNBIASED third party.
If it is found that the entity for whom the risk manager works is getting the best and broadest coverage at the best possible price – then what difference does it make if contingent commissions are paid.
If, however, it is discovered that the risk manager is getting inferior coverage and/or a higher price than should be expected – then the risk manager isn\’t doing his/her job – again, what difference do contingent commissions make, it isn\’t the brokers fault the RM \”settled\” for inferiority.
When risk managers WILLINGLY allow their programs to be reviewed by an outside consultant – then they can make the argument against contingencies – until then, this is all just a SMOKE SCREEN!
Do you – Risk Manager – prefer dealing with an \”AGENT\” or a \”BROKER?\”
An \”Agent,\” by definition, works for the insurance company as its – agent. How the insurance company pays its agent is NONE OF YOUR BUSINESS.
A \”Broker,\” by definition, works for the client – and has no authority to bind the insurance company to anything. \”Brokers\” don\’t have contracts with the insurance company writing the business – so maybe you, RM, do want to know how much is being paid as it directly affects the price. Since the \”Broker\” doesn\’t have a contract with the insurance company – contingent commissions aren\’t part of the equation.
Before you \”knee jerk,\” I realize these are historical definitions that have lost their differentiation and have become interchangebale – but the point is WHAT POSSIBLE DIFFERENCE DOES IT MAKE TO YOU, DEAR RM, HOW I GET PAID IF YOU ARE GETTING THE BEST COVERAGE AND PRICING?
Just thought I\’d ask because if you do away with contingent commissions, prices WILL go up – \’cause agents just won\’t care what they place with the carriers and as losses go up – so do prices.
Not the agents the CEO\’s/CFO\’s of the companies.
The agencies have suffered tremendously in the past few years.Now everything is supposed to be accounted for.
Don\’t know what happened with the 4 e-mails but I needed to add this.
Why is it that someone with perfect credit and no debt and no moving violations any incidents at all has a auto premium range from $550 to $850 a year all with the same coverage?
TX – The way I look at it is — a broker (I am a broker) makes $X working on one deal. That $X must pay the broker for all the time he/she spends working on deals that fail to close. It must pay the broker for any work done after the deal closes – like issuing certs. So, a broker\’s effective hourly rate cannot be the $$ made on a deal divided by the hours worked on that one deal. Its $$ made annually divided by hours worked annually. On this basis, most brokers probably make $100-300 per hour, I\’d guess. Whether the consumer wants to pay brokers a fee for service vs allowing brokers to be paid by carriers depends, I suppose, on things like buyer\’s perception of broker\’s professionalism, buyer\’s perception of conflict of interest when broker paid by insurer, etc. Unsophisticated buyers may think that it costs them nothing when brokers are paid by commission – but that is, I believe, completely wrong.
IF they REALY believe in this compensation issue
100% of their compensation to their broker wouls be fee only
hourly on annually
then they would require all companies not to pay either profit commission or regular commissions
…the risk managers want their cake &/////
Risk Managers should never accept an exclusive for a Broker or Agent to market the account if Contingent Commissions are still in play.
However when client losses materially affect Broker or Agent\’s income how can they be so saint like to provide exactly the same advise as they would without contingent commissions? I believe they are mostly honorable persons and companies, but not Saints.
Contingent commisions have been a part of the compensation formula for Insurance companies and their agents for over 100 years. This formula exists in similiar formats in most industies. Does Coke compensate the distributer that sells one case of coke a year, the same as they would compensate the distributer that sells 2 million cases a year? No, that is correct.
I have an idea, lets do an investigation on how lawyers are compensated. Perhaps they should recieve a flat $ 200 fee for every case they take, regardless of the complexities or parameters of that case. Maybe 40% is too large a % of a settlement. Better yet, lets have them pay the defense costs of the defendents in frivilous lawsuits, that is common sense, we havent seen an investigation into that, have we. Lets also investigate every Risk Manager and how they are compensated, and how the sales people in their organization\’s compensation plans are handled. Cheers to Mr. Kelly & Liberty Mutual for standing up to this witch hunt. Our compensation is not your business and yours is not my business. Please let the Market decide! Thank you.
Just how many of these delightful CEO\’s accept a \”contingent\” payment of stock from the companies they are the executives of? Much more that their \”salary\”. They get to keep stock options, etc. long after they have left the battlefield & laugh at the struggling survivors trying to straighten out the mess they left. What about transparency or just taking it away?
The biggest protest against \”Agent\” Contingencies has come from one of the biggest violators and abusers of this age old system; Plumeri from Willis. Just because his company acted inappropriately and participated in bid rigging schemes, and was subsequently fined $50MM, doesn\’t mean that rest of the industry is guilty. Its good to see that the most of the industry has agreed to go to full compensation disclosure of all product income and is now accepting contingencies. Elliot Spitzer was right in exposing Marsh,AON,Willis and the insurance carriers who were the abusers of a good system. The corrections, in terms of full income disclosures,are being made in our industry and it is time to move on. There is no reason to continue litigating and legislating this matter any further.
Mike
I hear you and can see your logic RNR, but consider the end result of allowing a Client to ask for one proposal with commission, one with an hourly rate, and one with a fee. How different do you think each would be from one another? Ask the Insurance Carriers to cut Profit-Sharing with Agents/Brokers and certainly that savings will go directly to the Clients right? Not on a Shareholders dime it won\’t. This is getting way away from the core subject, we\’re not here to debate what our industry should or shouldn\’t do. However, we are here to let RIMS know that their opinion on our industry\’s compensation methods crosses a line and furthermore means jacksquat to us or anyone else for that matter. When a 1000 member organization decides to aggresively spout off and criticize the payment practices and ethics of an entire Industry based on a handful of Brokers steering and colluding with a handful of Carriers(something which is separate from Contingent commissions and Profit-Sharing), knowing that this statement will bear little to no weight in our Industry and will certainly not result in a change in our Industry, I have to believe RIMS intention is more publicity and of a self-serving nature than constructive and respectful of what I do daily.
Again….WHO CARES as long as compensation is performance based.
It is funny. They ones complaining are the ones with ultimate control. If you don\’t like how Aon, Willis, Marsh or anyone does business…DON\”T CALL THEM!!! Believe me, if they don\’t like your business they won\’t write YOU. Free Enterprise is also free choices. If your superiors are overriding your recommendation then it is their problem.
Hey, RNR_Risk – see \”Semantics\”
What a unique perspective!
I agree, if RM\’s are doing their job correctly, outside audits should be no threat. However, if they are keeping business with their buddy who sends them on a beach trip every year (oh, you know it happens), then I think they should be afraid of the findings.
Full disclosure is fine – as long as everyone is disclosing the income, perks, and free vacations.
Maybe the Independent Insurance Agents & Brokers of America and other Agent organizations should issue a statement that any Risk Manager earning over $50,000 regarless of their duties, their expertise, and the exposures they manage is getting paid too much? Or even a step further, that 70% of the Risk Managers out there that Agents and Brokers deal with could be replaced with a rock. Nah, we wouldn\’t do that. Why? Because it\’s not our place to issue written, publicized statements about another industries livelyhood and earnings! I would have loved to have been at that RIMS Board meeting…He guys what should we do today? I know, let\’s issue a BS statement that fully impacts another industries employees ability to feed themselves and their families! Yeah, beats trying to justify our own jobs to our employers for another year! Pathetic.
Very wel said.The CEO\’s/CFO\’s will never NEVER let their pays or bonus\’ take a hit.
To you members of RIMS: Let\’s do it this way. Your broker/agent will meet with you, learn about your business and exposures, prepare an application, submit it to their carriers, evaluate the various proposals and then present them to you in a clear and professional manner for your to make a decision. Only from now he/she won\’t do on the \”chance\” that you will select their quote. Instead, the fee is $500 or $1,000 per hour spent by them and their staff. You pay even if you choose another broker/agent.
We are the only industry that gives you our expertise for free and does not prevent you from sharing that with your buddy agent that you award with the business.
If you want to control my income then you\’ll have to pay for my work whether you choose me or not.
\”Vince\” – your command of economics and finance is almost as impressive as \”Risk Adverse\”\’s command of the English language. Perhaps you don\’t realize that you (or any broker) doesn\’t work for free – ever. The commissions insurers pay you – i.e. your revenue – presumably compensates you fully. Higly unlikely that you\’re worth $1000/hr (especially given your understanding of economics). Your (our) commission revenues are \”inflated\” to reflect the fact that you (we) only close X% of the deals you work on. It would be perfectly reasonable to charge insurance buyers a reasonable hourly rate in lieu of accepting payment from insurers. That wouldalign everyone\’s interests properly. Then, insurance brokers could start to make an argument as to why they should be considered \”professionals\”. Of course, it might help that argument if some of us had an actual higher education.
WHO CARES, as long as the compensation is disclosed and is for past performance. Today, motivation is built around incentives. Don\’t you have incentives for employees to reduce Lost Time Claims? Do you get bonuses for a clean risk operation? It is just the way it is. It seems to me that RMs are just mad, because someone else gets a bonus for their efforts. If you don\’t like that, then here is your choice:
1. Become a broker or agent (I was one and it isn\’t easy) OR
2. Let your operation go to hell so that they don\’t get their bonus.
Concentrate on your responsibilities. Stop wasting time and emotion on something you don\’t have control over.
there were so many comments that this may have already been suggested and i didn\’t read them all. why not just raine our commissions and stop worrying about growth and loss ratio or anything else we have to do to earn the contengency. just collect up front.
Risk Mgrs are mostly on larger accounts and a number of these are fee based to Broker. The majority of independent agents do not deal with Risk Mgrs. Independent agts work for their insureds and due to competive market, they cannot direct business for higher premiums. Risk mgr do not care about underwriting, they just want cheaper price and more coverages.
How did a few large brokers being caught with their hands in the cookie jar mushroom into a call for ending all bonus payments? Surely some of the RIMS member organizations receive extra compensation in some form. I hope that the agency force will indignantly stand up to RIMS with new-found backbone that was lacking in when Spitzer attacked.
Risk Manager in FL, PLJ and TX – Thank you guys for elevating the level of discussion. Although I believe commission based compensation puts brokers at odds with their clients (insurance buyers) I suppose one person/firm is not going to change anything. I think that is really the role of a regulatory agency (maybe an insurance equivalent of the SEC?). But then – I\’m a Democrat. However, those of us who believe that insurance brokers can be an honorable profession that does real service for its clients (buyers – not sellers) need to look for ways to raise the standards – both educational and ethical – of the brokerage biz.
I know I\’m in the minority with this opinion. But do appreciate the opportunity to vent.
Sales Rep – I am deeply disturbed that a small group of commercial consumers feel this way, but let\’s step back and take a look at this…
1) Maybe the wording \”contingency\” is the problem.
This type of practice is done amongst many different fields and disciplines. This is done with different names (i.e. Rewards or Loyalty programs) and different programs (increased marketing by many companies). Why target insurance companies? It is the producer\’s duty to might the needs of his customer, bottom line.
2) By \”spreading the wealth\” and using multiple companies producer\’s encourage competition and keep over price low.
The last thing we need in the insurance industry is monopolistic competition. Not only does this hurt the consumer (with lower prices) but more business would go to the few that dominate the market. Contingency plans promote competition and give equal opportunity, along with competitive priced products to those who need it the most. But overall, price remains low.
To RNR_Risk,
There is regulatory accountablity in the agent/broker profession. Although a Risk Manager, I am licensed mult-lines in Florida and non-resident in 6 other states. Up to now, it is regulated onto the agent individually and only state by state as the individual is licensed. Every state has a hot-line to the commissioner for consumer complaints. Just last year Florida has begun to require the agency/brokerage to be licensed as well. This is a step in the right direction, but until there is true national accountability, regulation is there but very unorganized for national concerns. I am also torn on Federal Regulation of agents/brokers when all insurance is regulated, rated and filed by state.
I have never personally experienced being at odds with the broker because their compensation is commission or contigency based. I just can\’t relate to that. Maybe because I just don\’t feel threatened by it. I appreciate your comments as they come from your experience.
…we are no longer hosting our all expense paid annual golf outing and financial seminar due to fallen revenue. But rest assured, next year at RIMS, we will still provide dinner and libation for you and your spouse (to show her what a big hitter you are). However, we can no longer afford the usual Capital Grille with it\’s fine wine, but will belly up and pay for Mickey D\’s and grape juice, business casual. Respectfully, Your Broker
I am an RM and am with you, but with a little different twist. You make $X on the deal you get (and deserve every penny)and nothing on the ones you miss. That is your incentive to improve and increase your closing ratios. Just like the retail store makes $X on an item and nothing on the \”browsers\”. You don\’t want to sound like you overcharge me so that you can afford to miss two others.