Risk Managers Wrong to Oppose Contingent Pay, Charge PIA Agents

June 13, 2007

The National Association of Professional Insurance Agents has criticized a statement issued by the Risk and Insurance Management Society (RIMS), saying the group's position on incentive compensation undermines the free enterprise system.

The agents group says the members of RIMS "would be better off sticking to risk management, rather than suggesting new ways to make our free enterprise system less enterprising, and less free."

RIMS, an association of commercial insurance buyers, recently criticized contingent compensation, calling it an "inherent conflict of interest." The group claimed it is "troubled" that the insurance industry still uses it.

But PIA agents say RIMS has the issue all wrong.

"RIMS has firmly staked out a position against productivity," said PIA Executive Vice President and CEO Len Brevik. "Incentive compensation is not a conflict, as RIMS is saying. The ability of businesses to compensate based upon sales performance is key to how the entire American system of free enterprise operates, not just the insurance industry. Companies must be free to structure their compensation systems in the best manner to achieve their goals, without interference from the government."

Brevik noted that although RIMS appears to draw a distinction between retail agents who represent insurers and brokers who work for buyers, it then appears to lump both together as it advocates for the elimination of contingent commissions. He also pointed out that the RIMS statement notes that many smaller, regional or privately held brokerage firms were not part of the various investigations of alleged abuses leading to settlement agreements involving mega-brokers, but then it dismisses this distinction.

Brevik noted that while the group called for an open dialogue among all parties, RIMS previously held two meetings dealing with compensation and transparency issues from which it barred the press.

"It's hard to be transparent behind closed doors," Brevik said.

Brevik vowed that PIA will continue to "strongly support the right of insurance companies to pay contingent commissions and the right of PIA members to receive them," Brevik said. "The members of RIMS would be better off sticking to risk management, rather than suggesting new ways to make our free enterprise system less enterprising, and less free."

Source: National PIA
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