Ga. commissioner says abolishing contingency commissions ‘a mistake’

Abolishing contingency commissions and making them illegal would be a major mistake, according to Georgia Insurance Commissioner John Oxendine.

Oxendine said he recently told carrier representatives they were “literally crazy” for wanting to abolish contingencies.

The Georgia regulator also criticized insurance companies that force all agents to disclose their commissions, as Zurich Insurance has done.

Speaking at the Independent Insurance Agents of Georgia’s Annual Convention in Amelia Island, Fla., Oxendine described a meeting in New York at which representatives of several large insurance companies complained they had been put at a competitive disadvantage because they had agreed not to pay contingency commissions.

According to Oxendine, the carriers suggested all contingency commissions should be abolished in all states. He said they claimed that due to their previous agreement, they were at a competitive disadvantage to small agencies around the country.

“I looked at them and asked, ‘Are you serious?'” Oxendine said. “You are telling me that you are at a disadvantage and you can’t compete with a mom-and-pop general agency on Main Street America?”

Oxendine said he told the carriers that they were “literally crazy” and to get out of the room.

He maintained that there is no way that his state or a majority of his colleagues in other states would outlaw contingency commissions for insurance agents.

Counselor vs. agent
The commissioner used his forum to outline the requirements to be licensed in Georgia as an insurance counselor, and cautioned those who combine that work with being a licensed agent.

“At present, to obtain an insurance counselor’s license, an agent must prove five years of appropriate experience,” Oxendine explained. He indicated that new requirements will accept five years of experience in other related fields, not necessarily insurance.

He said it is important for producers to know the difference between an agent’s license and a counselor’s license. Agents can only accept a fee from a carrier for which they are writing a policy. They can never accept a fee from a client. “If an insurance agent takes a fee, they can get in trouble. Don’t do it,” Oxendine warned.

A counselor can accept a fee from a client, but only in certain circumstances. Counselors can legitimately charge fees for commercial or general risk assessments, a workplace safety analysis, estate planning or tax planning. “You are charging for your expertise, your planning, to help meet customers needs and get their costs lower,” Oxendine explained.

If an agent quotes a fee to perform a counseling service, the client has the right to assume he “owns” you, Oxendine added.

“I paid you, you work 100 percent for me, and no one else,” Oxendine said. “Under the law as an agent you are representing the coverage and an agent for the coverage. I know you all think of yourself as agents for the consumer, but realistically, if I felt like my agent was not looking out for me, I would fire him in a heartbeat and look for someone else.”

No double-dipping
“You can be a counselor and an agent and be the same person and receive a fee or commission–but you can not take a fee for the same service you are getting a commission for,” the commissioner explained.

“You get paid a commission for placing business,” he explained. “As a counselor, you can take a fee for placing business if there is no commission, or you can take a fee for something other than placing business if you get a commission. But you can not do both, which is double-dipping.”

Georgia law requires producers to take off their counselor hat and replace it with their agent hat when playing both roles. “You have to stop and say, OK, now I am going to offer you some products I sell. I am going to be paid a commission by the company,” Oxendine continued. The agent then must disclose how much he will be paid in commission and obtain the customer’s consent.

“They have to authorize you to leave your capacity as a counselor representing them and acknowledge that you are representing the company and obtaining a commission,” Oxendine explained.

“That is the only time in Georgia that an agent is required by law to disclose how much they are being paid in commission, and I very strongly think that is the only time.”

Zurich disclosure
Oxendine criticized the policy adopted by Zurich Insurance under a recent settlement. “Zurich has said they are going to make all agents everywhere disclose how much they are getting paid and how much their commission is in every transaction. I think that is inappropriate and not really necessary. Other people do not always disclose their commissions,” he said.

“You have an obligation in general when your client asks, ‘How much are you getting paid?'” Oxendyne said. “You can either tell him, or you can say, ‘It’s none of your business.’ If you tell them it’s none of their business, they will probably fire you and get someone else.

“If they ask you and you tell them, you have an obligation to be honest and tell them the truth. You can get in trouble for lying to them but you don’t have to tell them.”

Oxendine concluded by saying he has no intention of changing the rules in Georgia.