P&C Insurers Call for Compensation Disclosure

November 16, 2004

In testimony today before a Senate subcommittee, Property Casualty Insurers Association of America President and CEO Ernie Csiszar urged public policy makers to give careful consideration to efforts that make insurance markets more competitive and insurance transactions more transparent.

The hearing was conducted by the Government Affairs Subcommittee on Financial Management, the Budget and International Security, chaired by Senator Peter Fitzgerald (R-Ill.) and focused on the issues raised by New York Attorney General Eliot Spitzer’s investigation into bid-rigging within the insurance industry.

“The effectiveness and efficiency of the insurance market is inherently based on the trust of consumers in their ability to fairly participate in the market,” Csiszar told the committee. “To maintain this confidence, consumers must have access to the most timely, accurate, relevant and useful information needed to make an intelligent purchasing decision.”

As public policy makers consider ways to prevent bid-rigging and manipulation of the market, Csiszar said regulators should keep in mind what is most important to the consumer.

“Open, fair, competitive and reasonably regulated markets provide consumers with the greatest possible choice of products and prices. Competition based on product quality, price, and customer service is the cornerstone of an efficient market. To ensure open and competitive markets, consumers should understand the relationships of the parties, be aware of options in the market, and have access to accurate, unbiased, and timely information,” said Csiszar.

Csiszar, a former state regulator in Soth Carolina, drew distinctions between the roles of agents and brokers and the allegations contained by those named in the Spitzer lawsuits and the majority of the insurance industry.

“Agents represent one or perhaps a few insurers, offer only the products of the companies that they represent, and represent the insurer – not the buyer – in the transaction,” said Csiszar. “The common thread with brokers, on the other hand, is that they represent the buyer in the transaction and that they may receive compensation from both the client and the insurer. In the case of agents, when representation is clear and consumers understand that the insurer compensates the agent, there is no conflict, real or perceived. In the case of brokers, PCI believes that trust can be enhanced by the buyer’s knowledge about the broker’s compensation agreements.”

Csiszar maintained that alleged illegal conduct identified in the investigation is limited to a scant few in the industry. However, because of the allegations in the lawsuit he said that industry critics imply that all consumers are being damaged by agent and broker incentive compensation agreements. He urged public policy makers to focus on identifying and prosecuting those who broke the law, but cautioned against painting the entire industry with the same brush.

“Individuals and companies that engage in illegal bid-rigging and price manipulation should be prosecuted to the fullest extent of civil and criminal law,” Csiszar said. “But we reject the notion that incentive compensation creates a conflict of interest. On the contrary, it encourages agents and brokers to keep consumers in touch with the best service, risk management, and pricing.”

Csiszar told the panel that the key to any reform is information. “An overly broad regulatory response to the current situation could seriously harm the thousands of honest Americans working in the insurance industry and who are looking out for their customers. Consumers’ best interest will be met by ensuring that they have maximum information, not by taking away agents’ and brokers’ incentives to serve them.”

PCI’s 1,000 member companies write 39 percent of the nation’s property/casualty insurance.

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