For Mass. Insurance Agents, AG Reilly No Ally

December 14, 2004

Massachusetts Attorney General Tom Reilly, who is expected to run for governor, has a history of making life difficult for the state’s independent insurance agents.

Last week, the Massachusetts Association of Insurance Agents reported that some of its members have received demands from Reilly’s office for documents related to sales of employee benefits as part of his investigation into possible “unfair or deceptive” insurance practices.

According to MAIA, the documents sought include the agencies’ compensation agreements, customer lists, marketing material, company lists, and other material.

It’s not the first time agents have been asked to hand over documents to Reilly.

Earlier this year during the annual private passenger auto insurance rate setting hearings, Reilly’s office sought to compel MAIA to produce back-up agency tax returns and other substantiating documents to verify the agency expense data included in a Tillinghast agency study. The Tillinghast study was submitted by MAIA to support the agents’ auto insurance commission level recemmendation.

The AG also requested that MAIA be compelled to provide the names of the agencies participating in the study if it does not produce the requested documents.

The AG recommended that agents’ commissions be frozen at $114 per vehicle until further proof of agencies’ actual expenses is made available.

The stance taken this year is in keeping with the AG’s approach to agents’ compensation in the past. Last year, Reilly went to court to challenge the 2004 auto rate decision, arguing in part that agent commissions had not been substantiated. The court rejected the AG’s concerns and upheld the bulk of the 2004 decision.

But perhaps the AG’s biggest slap at agents came during testimony at this fall’s rate hearings.

This year, in addition to having a cost study of agencies done by Tillinghast to support their commission recommendation, agents had to defend themselves against some disparaging testimony by a witness from the state attorney general’s office whom they contend dismissed the value of their services.

In Massachusetts, more than 80 percent of the private passenger auto market is sold through independent agents. However, Stacy Gotham, representing Reilly, testified that she was not convinced that independent agents provide a benefit to consumers and believes they may even be a hindrance to a competitive market.

“I personally have not received much benefit from it. Probably some individuals feel that they do receive a benefit from it, but I don’t know,” she testified when asked.

“My opinion is that, in most other states, people don’t use independent insurance agents, and as far as I know, people are not in an uproar about it,” she added.

She questioned whether the fact that 86 percent of exposures are sold through independent agents is an indication that perhaps agents do supply Massachusetts’ consumers with benefits.

“I don’t know if you can directly conclude that. Most of the national carriers that don’t use independent agents are not located here. And it may be that the proliferation of agents in the state is seen by them as somewhat a barrier to entry. In that respect, I think it’s a negative,” Gotham concluded.

To independent agents, those are fightin’ words.

MAIA, which represents some 1,700 agencies with 8,500 employees, blasted Gotham and the AG’s office for that opinion in its final brief and in a strongly worded letter from Frank Mancini, MAIA president and chief executive officer, to AG Reilly himself.

“Ms. Gotham’s claim that independent insurance agents provide no benefit to policyholders in the insurance transaction is outlandish,” Mancini wrote. “If no benefit were gained from conducting business with an independent insurance agent, why would over 80 percent of the Massachusetts insurance-buying public choose to do business with them?”

Mancini urged Reilly to reconsider his office’s “unenlightened position on the benefit of independent insurance agents” and encouraged him to visit agencies to learn firsthand of the services they provide.

In his letter, Mancini also told Reilly that independent agents are small business men and women who are trusted by consumers and respected in their communities. “Most of the Massachusetts agencies are family-owned, covering two or three generations or more. Over 100 of our member agencies are over 100 years old,” Mancini pointed out. “They are survivors in a business climate where ‘bigger is better’ because they provide the professional service and advice consumers need and want in purchasing protection for their families.”

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