Agents take aim at Zurich compensation, disclosure settlement

By | October 9, 2006

Two associations for independent insurance agents have urged a federal court to reject recent settlement provisions between Zurich Insurance and states that affect thousands of agents who were not involved in the original dispute with the states.

The National Association of Professional Insurance Agents and the Independent Insurance Agents and Brokers of America have filed amicus curiae briefs with the United States District Court for the District of New Jersey, in opposition to certain limited aspects of a proposed settlement involving Zurich Insurance.

Agents oppose having to inform their customers of Zurich’s compensation practices, one of the provisions in the settlement. Agents also object to other conditions set forth in the pact, including a ban on Zurich’s payment of incentive compensation to agents and brokers in the future if 65 percent of the insurance companies in the marketplace do not pay incentive compensation for a product, line or segment of business.

Ultimately it is not for state attorneys general who created the 65 percent threshold to determine whether carriers should be permitted to offer legal incentive compensation to agents and brokers or how it should be disclosed to consumers, the IIABA argued.

PIA National said it objects to recent multi-state settlements because it says they create a disparate impact on PIA members by prohibiting the payment by carriers of certain contingency payments and because they introduce legal confusion of insurance buyers’ rights with their disclosure notice requirements.

“The alleged abuses that led to these settlements were not committed by Main Street insurance agents,” said PIA Executive Vice President & CEO Len Brevik. “Regrettably, this settlement agreement and others like it attempt to create a remedy for alleged wrongdoing and then impose it on those who were not involved in any wrongdoing.”

IIABA is opposed to a portion of the settlement that requires agents to provide insureds with a form disclosing compensation practices.

“The Big ‘I’ supports transparency in insurance transactions but is opposed to the portion of the settlement that would require independent insurance agents and brokers to implement for Zurich its obligation under the settlement to provide to insureds a form describing the company’s practices in compensating agents and brokers,” said IIABA President Alex Soto, also president of Miami, Fla.-based InSource Inc.

According to Soto, singling out disclosure of agent and broker compensation does not provide the consumer with sufficient transparency regarding the cost of the insurance transaction.

Agents at odds with AGs
Agents also object to efforts by several state attorneys general to use the settlement process to compel making incentive compensation illegal. In the case of the proposed settlement involving Zurich, this includes a provision requiring the company to “support legislation and regulations in the United States to abolish contingent compensation for insurance products or lines.”

“State attorneys general should not usurp the policymaking authority of state legislatures,” Brevik said. “Specifically, they should not use their law enforcement powers in an effort to bring about a fundamental change in the American system of free enterprise.”

On Sept. 29, attorneys general of 10 states — California, Florida, Hawaii, Maryland, Oregon, Texas and West Virginia and the Commonwealths of Massachusetts, Pennsylvania and Virginia — filed a motion with the court opposing PIA’s amicus brief.

The AGs contend the filing of PIA’s brief is premature, noting, “PIA’s concerns are more properly reserved for the final fairness hearing — not preliminary approval. PIA’s concerns do not raise any issue that should delay preliminary approval … the Settlement should not be delayed and PIA’s Motion should be denied as premature.”

“It is not fair to relegate the concerns of professional insurance agents to a late-stage, final fairness hearing,” Brevik said.

Agents have noted in the past that all settlement negotiations between carriers, regulators and attorneys general have been conducted privately and without agents being permitted to directly voice concerns about certain terms.

“PIA agents were rebuffed in all of our attempts to participate in the negotiations that brought this proposed settlement to this point,” Brevik said.

About Andrea Wells

Andrea Wells is a veteran insurance editor and Editor-in-Chef of Insurance Journal Magazine. More from Andrea Wells

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Insurance Journal West October 9, 2006
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