Illinois Division of Insurance Director Michael McRaith on Wednesday assured an audience of independent agents that in spite of the Division’s ongoing investigation of agent commission practices, he was committed to working toward a compromise between producers and consumers on the issue of compensation.
“Volume and employment-based rewards are an inherent part of capitalism,” said McRaith, speaking to attendees at the Professional Independent Insurance Agents of Illinois’ (PIIAI) annual convention yesterday in Springfield. “Contingent commissions are not prohibited by any state regulation or law. But we must balance the business reality with consumer protection.”
The Illinois Division of Insurance has subpoenaed more than 30 independent agencies, requesting data and information regarding their compensation systems with the carriers they represent. So far, the data compiled suggests a “statistically significant percent of identification of possible conflicts of interest” and “undisclosed conduct that could have a negative affect on consumers,” McRaith said. And while he acknowledged that the Division has received only a few complaints from consumers about the practices, he added that “sometimes the people being defrauded don’t know they’re being defrauded.”
PIIAI has met several times with the Division on the issue, and continues to do so, McRaith said, characterizing the meetings as “candid and pleasant discussions.”
The Director assured agents that the purpose of the investigation, spurred by last October’s lawsuit by New York Attorney General Eliot Spitzer against global brokerage Marsh & McLennan, was not to eliminate the current commission structure, but to strike a balance between the business practice and consumer protection.
“The producer community provides a valuable service, a fact that is not lost on the Division or the Governor…We have tremendous respect for you and the services you provide, and the income you generate,” McRaith said.
PIIAI unveiled at the convention a model “Agency Compensation Disclosure” form, which briefly outlines for insurance buyers the practices of standard commissions and additional compensation paid to agents and brokers by insurers. The document also stipulates that if agents charge a fee, it must be disclosed to the buyer in writing, and that if it exceeds 10 percent of premiums, the consumer’s written acknowledgement is required.
McRaith called the document “a tremendous step forward” in an ongoing dialogue between independent agents and the Division, a “bedrock” to positive change.
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