‘Wall Street’ Insurance Broker Scandal Hurting ‘Main Street’ Agents, Conn. Big ‘I’ Leader Fears

November 5, 2004

“We are Main Street agents. This problem was created on Wall Street.”

A Connecticut independent agent leader hopes the reality behind those words will help protect independent agents from being grouped with large national brokers now under scrutiny across the country for alleged bid rigging and improper incentive plans.

“It is important we speak out… so people understand how we are in a different world than the large brokers,” said Warren C. Ruppar, executive vice president of the Independent Insurance Agents of Connecticut (IIAC), at his group’s midyear meeting yesterday.

Ruppar said too many in the public and government do not understand the difference between the giant Wall Street-type insurance brokers who represent big commercial clients and local independent agents who are small business men and women.

He credited the Connecticut Insurance Department for its willingness to speak with local independent agents about the scandal.

Thomas A. Grau, president of the national affiliate, the Independent Insurance Agents & Brokers of America (IIABA), expressed similar concerns about independent agents being lumped in with large brokers and being unfairly “painted with the same brush” as large brokers.

Grau said officials must be educated about how agents’ profit sharing agreements with their companies differ from the controversial placement service agreements (PSAs) between carriers and brokers.

He said the real problem is the alleged illegal activity of bid rigging and price fixing, not agents’ compensation. IIABA adopted a compensation disclosure policy before the scandal broke.

“I have no problem discussing my compensation with any client,” he said. “We’re not ashamed of how we are compensated.”

Grau said he and the IIABA are concerned that some will use the scandal to push for federal regulation of the business, which IIABA opposes.

“This is very serious business,” Grau said.

On hand to defend state regulation was Kate Kiernan-Pagani, legislative liaison for the Connecticut Insurance Department, representing Commissioner Susan Cogswell, who was ill.
Kiernan-Pagani said the agency is meeting “proactively with all stakeholders” including agents so that it can quickly understand what is going on in Connecticut and respond. The department is also working closely with the NAIC. Cogswell is one of 13 state regulators on a special task force named by NAIC to address the issue. Kiernan-Pagani urged agents to provide feedback on any proposals or disclosure requirements that might emerge from the NAIC meetings.

She acknowledged that while some are trying to use the Spitzer charges to undermine state regulation of insurance, “this should not be taken as a sign of need for federal regulation.” She reminded agents that the scandal was “first discovered by a state” and maintained that the state level is where it can be best investigated and remedied.

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