For a small to midsize independent insurance agency, contingency commissions can determine whether the business survives, according to many in the industry.
That explains why Alex Soto, a Miami agent who is also president of the Independent Insurance Agents and Brokers of America, was very passionate about preserving contingency commissions when speaking at the Independent Insurance Agents of North Carolina annual conference in Asheville, N.C. earlier this month.
“We have a crisis that threatens each of us in this industry,” Soto said. “It can affect our livelihood and the profitability of every independent insurance agent.”
Agents are currently battling a settlement between several states and Zurich Insurers that would affect contingencies and mandate disclosure by thousands of agents on compensation.
Agents contend that illegal practices by certain large brokers to obtain contingency commissions should not be confused with the legal practice of earning them.
“Half of all agencies in the U.S. depend on the extra amount of income brought in by contingency commissions to move profit and loss records from red to black,” Soto said. “It determines whether we are profitable or not.”
He said small independent insurance agents are being subjected to guilt by association with meg-brokers who committed unethical and illegal acts.
Some outside the industry disagree that contingency commissions are ethical. Robert Hunter, director of insurance for the Consumer Federation of America, calls the practice “perverse.”
“Incentives should be eliminated,” Hunter said. “If an independent agent can’t stay in business without contingency commissions, they should get out of the business.”
In a CFA press release, Hunter said, “Most insurance agents are honest, but if the compensation system provides an incentive for bad behavior, it is likely to occur.”
But Soto insists that legal contingency commissions revenues allow agents to work harder for consumers. With more capital, comes better service, Soto said.
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