The Independent Insurance Agents & Brokers of America (the Big “I”), has condemned bid-rigging and steering, and called for disclosure by brokers of placement service agreements.
In response to the news of a lawsuit filed Oct. 14 by New York Attorney General Eliot Spitzer alleging that a national insurance broker deceived clients by rigging bids and steering business to carriers offering higher contingent commissions, Big “I” CEO Robert Rusbuldt called for rigorous prosecution of any illegal activity.
“Rigging bids by providing clients with false or inflated quotes to eliminate true competition is illegal,” Rusbuldt said. “Any executives that engaged in such practices should be prosecuted to the fullest extent of the law. The few bad actors who engage in these unlawful practices betray the public’s trust and unfairly damage our industry’s reputation. We agree with Attorney General Spitzer that anyone proven to be guilty of such illegal activities should be brought to justice and punished.”
In order to ensure transparency in the marketplace, the Big “I” last week adopted a policy stating that brokers should disclose the existence of placement service agreements to their clients, describe the nature of such compensation agreements and advise clients that they can discuss the matter further and request additional information.
“We must keep in mind that placement service agreements are legal under the insurance laws of all 50 states,” added Thomas Ahart, president of New Jersey-based Ahart, Frinzi & Smith Insurance Agency and an IIABA past president. “It is common practice in the industry for brokers to make a full disclosure of such agreements to their clients, which promotes transparency, preserves trust between brokers and clients and ensures that clients are fully informed about their brokers’ compensation agreements.”
While calling for full prosecution of anyone guilty of illegal business practices and supporting disclosure of placement services agreements, the Big “I” also noted that legal sales incentives should not be impeded.
“In industries where there are commission payments, including the insurance industry as well as many other types of businesses, incentive compensation is one form of compensation used to reward sales excellence,” said Rusbuldt. “It is a commonly understood part of the American sales culture.”
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