Consumer Group Hits Payment of Contingent Commissions in Personal Insurance as Harmful to Buyers

January 27, 2005

  • January 27, 2005 at 10:17 am
    apn says:
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    “Sigh” — did the writers of this report ever work in an insurance agency? Independent or captive. Most contingent commissions are also based on a brokers loss ratio. Keep a profitable book of business for the insurer, and get rewarded. Consumers benefit by lower loss costs by getting lower rates. The agent/broker gets rewarded by the insurer.
    Insurers get more market share by lowering rates, etc…… oh well….

  • January 27, 2005 at 10:24 am
    Tom says:
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    Gee, agents get paid contingent commissions – that’s a real news flash. Apparently this wasn’t going on when Robert Hunter was the Texas Insurance Commissioner. It’s really time to let this story fade into the sunset. The bid rigging scandal was illegal – and obviously the laws on the books are sufficient to prosecute illegal conduct. Performance bonuses are clearly LEGAL and have been a part of the insurance business for decades at least. Besides, the Spitzer inquiry focused upon brokers who were also paid by their clients for services, and not directed at all against agents – a distinction that’s clear to even a first year law student.

  • January 27, 2005 at 10:55 am
    Alan says:
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    I worked as a personal insurance agent for many years, and most of the potential clients cared only about the lowest rate we could offer; the personal lines transaction was treated by the consumer as a pure commodity transaction. Most, if not all, of the people that called in for quotes collected quotes from a number of agents which reduced if not eliminated an agents ability to steer business. If we offered anything other than the lowest possible price for the coverage they requested, they went elsewhere. With literally hundreds of agents plus the many direct writers in most markets, personal lines insurance is very competitive.

    As a commercial insurance broker I am all for the elimination of contingent commission. Since I am not an owner in the agency I do not share in the contingent commissions. If the agency loses this source of additional revenue, we will be adding fees for the extra services we provide, and I do get a share of fee income. The direct impact of eliminating contingent commissions will the INCREASE in direct cost to the consumer or a reduction in service(s) available.

    Bid rigging is a whole different situation as it is illegal, and those found guilty should face criminal prosecution.

    Alan.

    PS Next time you speak to the owner of an auto dealership ask them if they get ANY additional compensation from the manufacturer at the end of the year based on their sales. Should this form of compensation also be investigated?

  • January 27, 2005 at 11:51 am
    etimer says:
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    When I saw the headlines, I really didn’t need to read the article to know that CFA would be the “Consumer” organization.

    I started an investigation into the benefits and reasons that CFA should continue to hold its non-profit status. Man you start that and a lot of people stop talking with you. That “consumer” friendly organization turns into the polar bear of the East and may even eat its first born.

    CFA has always had an agenda and always will have an agenda. Often I wonder which is first, truth or agenda ? IMHO of course.

  • January 27, 2005 at 12:54 pm
    Ian Graeme says:
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    Dear Alan

    Let’s not bring our business down to the level of a car dealer.

    The dismaying thing about the report was its dismal awareness of how competitive PL insurance really is.

    Even the largest carriers do not have the monopoly power that Marsh had in majo commercial.

    Regards

    Ian

  • January 27, 2005 at 1:21 am
    Andrew says:
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    I agree with those that have said that personal lines is too competitive to be giving customers a higher rate. It doesn’t work.

  • January 27, 2005 at 1:25 am
    tony says:
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    We write personal & small commercial lines
    as an independent agency. Personal has
    been transformed into primarily a commodity
    and, as such, the presence of a production
    & loss ratio-based contingency is irrelevant to which carrier gets the order.
    As regards small commercial; if the agency
    writes a higher-quality and volume; don’t
    these “social engineers” realize that those insureds with the “performing” agency in the eyes of the carrier are
    treated better by the carrier in the form
    of better pricing, etc? Buyers who perform
    from a loss ratio standpoint need to align
    themselves with agencies who perform, in
    the eyes of the undewriter. What happened
    to a free market, agency/principal dealings, and performance-based rewards?

  • January 27, 2005 at 1:30 am
    Tomw says:
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    What’d I miss? Allstate is no longer a direct writer? Commercial risks don’t shop brokers? That isn’t saying much for professional risk managers. Most companies give incentatives to promote their product, why not insurance companies? There is no question bid rigging is wrong and should be punished though. The CFA report is consistent with my 40 yrs experience as an independent adjuster. I’ve know of a number of instances where the agents denied small claims when they were covered and wanted larger claims handled to maximize their bonuses etc. That involved direct and independent agents.

  • January 27, 2005 at 1:32 am
    picaro says:
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    Over the past thirty years, Mr. Hunter has pretended to represent the consumer of insurance, and he intentionally “misunderstands” the actual facts.

    I cannot understand why the press continues to publish his garbage.

  • January 27, 2005 at 1:33 am
    LMJ says:
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    Alan, sorry your agency doesn’t share the contingency bonus with you…but that isn’t the case in all agencies…and certainly not at the agency where I’m employed. You’re right,contingencies should never be counted on, although they’ve helped fund employee bonuses and profit sharing plans for many, many years. And why not give your vendor a bonus for a job well done? We have so few auto markets in Hawaii, the “where” of placing business is rarely an issue and we are first and foremost doing the best job for the insured. That often means placing with one of our carriers who provide the broadest coverage…should we then be penalized for placing volume with them by eliminating contingencies? I don’t think so. This is not even remotely related to what apparantly happened at Marsh. All it is doing is, once again, giving a big black eye on the face of the industry. The solution? We’ll continue to do the right thing, the very best for our customers, continue to earn their trust and hope that logic prevails.

  • January 27, 2005 at 1:34 am
    Steve says:
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    I agree with Alan, do away with contingent
    commissions all together and raise the commissions. If not Agents will have to start adding policy fees, and prices will go up even more. Every time the government gets involved it cost everyone more. Ive never seen the government save anyone money.

  • January 27, 2005 at 1:43 am
    David says:
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    What I love is that the contingent contracts have become popular from the carrier’s standpoint. As an agent, I would gladly return to a higher commission structure as a trade off for a reduced or eliminated contingent agreement. But I am sure the carriers are not going to bring this up.

  • January 27, 2005 at 1:59 am
    Larry says:
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    We do share contingency income with our production staff as an incentive to place good business. The elimination of contingency income just means an improvement to the carrier’s bottom line…and whoever has said the carrier’s marketing staff goes unrewarded for profitable business written. Seems some of my reps can be like piranhas when it comes to wanting more and more business, especially when its very profitable.

  • January 27, 2005 at 3:25 am
    Bob says:
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    Why is it that even the CFA doesn’t understand how contingent income is derived at, and how difficult it is to maintain, or rather easy to lose. In most cases, it is not guaranteed since its based on claims, new business, and renewals. Our agency writes high end personal lines and everyone knows it’s either Chubb, AIG, or Fireman’s Fund, which do pay contingent, and that we are forced, if not by our own morals, then by the pressure from insureds to market policies at renewal. The point is it’s not all exactly as it’s portrayed to the public. It’s not easy street.

    Someone in the thread below mentioned car dealers, but why stop there. Why, even hot dog vendors likely get an incentive to sell more hot dogs of a specific brand. Will Spitzer chase that guy too! :)

  • January 27, 2005 at 3:33 am
    Earle says:
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    There was,once upon a time, when the carriers decided brokers and agents should be paid less in commissions. It seemed to havehappen all at once.In place came contingent commissions based on growth, volume,and loss ratios;on a rolling three year basis.Unmentioned is the carriers’ demand of minimum volume to open an account,and decreed minimum annual volume increases needed to keep the market.This hue and cry that the consumer is therefore paying morethen they should is causing them undue angst and our industry undue bad press.

    Old Time Broker

  • January 27, 2005 at 3:40 am
    Tomw says:
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    When I started over 40 yrs ago the commission on personal lines was about 20%. I gather that it is a lot less now, but then there are bonuses now or what ever name you want to give them.

  • January 27, 2005 at 3:54 am
    LMJ says:
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    And speaking of the good old days, I remember when the insurance carriers did a lot more of the work and gave the agencies a lot more of the premium. 25 to 30% on commercial business was common.

  • January 27, 2005 at 6:28 am
    Anonymous says:
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    This is ONE Texan that is GLAD that Hunter is no longer in Texas!

  • January 28, 2005 at 8:37 am
    Hank says:
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    Hunter gets it wrong again! After all the years of reading these reports of his comments against agents, I have concluded it’s jealousy. He knows he couldn’t succeed as an agent, so go after them and the industry. Could there be any other reason?
    As to eleminating contigent commissions, both Steve and Alan need to recognize that those bonus payment keep most agencies in business and them employed, or at least the agency staff employed, or the benefit package in place. Some agencies are in a position to share the wealth; others are not.

  • January 28, 2005 at 9:03 am
    Carroll S. Mayer, Jr. says:
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    Mr. Hunter’s bias against the insurance industry in general and the independent agents system in particular is so obvious that you know before he opens his mouth what is going to come out. Then you take what he says with half a grain of salt.

  • January 28, 2005 at 9:07 am
    ETIMER says:
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    The press continues to quote Mr. Hunter because most of them are ignorant about many items they report about. They look at Mr. Hunter as someone with the Consumer Federation of America. The press views and compares CFA to Consumer Reports but it is a wrong comparison.

    Personally I think the entire Non-profit entity should be investigated to see if they are sticking to their mission plan. Instead I think they are working out their own agenda and work as a shadow ego of a for profit organization.

    I requested to see the CFA IRS annual report that is required of them. CFA’s response was, “We do not send that in the mail but you are welcome to visit our office in Washington DC and view it.” Hm? Is that a friendly organization or one that hampers the public from viewing records that are by law required to be open to the public? I’m in the process of requesting the CFA records through my Federal Representative. I do believe that report must give salaries of the board members and other top managment.

  • January 28, 2005 at 9:44 am
    picaro says:
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    GOOD FOR ETIMER !!! Mr. Hunter has been successful inconvincing naieve people that he knows and understands the insurance industry, when he either does not actually know, OR, he has a devious personal agenda that demands that he misuse what little knowledge he has for a personal vendetta against the industry. He has gotten away with that for too long.

  • January 28, 2005 at 10:21 am
    Bud says:
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  • January 28, 2005 at 10:23 am
    Tomw says:
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    He’s a lot closer to the truth than many know or will admit. I’ve seen what he says happen too many times working in claims. How about the intercity risks? I’ve been told not to worry about they think about a settlement as they are lucky to have insurance. Agreed most agents are honorable, but like attorneys, a lot aren’t.

  • January 28, 2005 at 11:11 am
    Alan says:
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    Hank – I am not opposed to contingency agreements. Most businesses realize that bonuses for profitable business can be good for everyone. Working for an agency that does not share contingency commissions does not bother me; I knew that at the start.

    My main points are:
    1. Contingency commissions do not hurt consumers. The insurance marketplace is very competitive with price often the determining factor.
    2. The elimination of contingency commissions will increase the cost of insurance to the consumer.
    3. Bid rigging is a whole different issue and should be treated differently.

    Alan.

  • January 28, 2005 at 1:18 am
    ETIMER says:
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    Ok, today I again requested CFA’s form 990 and schedule A and was told I would be welcome in Washington DC.

    I just completed IRS Form 4506-A and by law, IRS will send me the copy of CFA’s Forms. I went to Guidestar.org to view the Form 990 but it did not exist. I called Guidestar. At first Guidestar was confused why the forms weren’t showing but then it was determined that the possible reason was that the taxes were recently filed and not yet on the database.

    It is time to start investigating the investigators. I would guess Consumer Advocates of law wouldn’t make it so hard to get a copy of their Form 990. Far too long I have read Mr. Hunters pontifications of disrespect and items of misleading prose. It is time to open the box and peek in to see what exactly is the reason for CFA’s existence. Is their existence one of mission or one to provide a few individuals with handsome six figure incomes? Of course all is IMHO.

  • January 28, 2005 at 1:22 am
    ETIMER says:
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    “a lot” My friend that is a big, big word.

    Such thoughts can make us consider that you don’t have much respect for people in general. Insurance people range from ex-blue collar to Ivy League graduates. Of them, you say “a lot”. Hm?

  • January 31, 2005 at 1:32 am
    Long time agent says:
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    This article does not take into account one of the first things any broker or agent learns … ETHICS !!!!

    There are always a few bad apples in a business but most Insurance agents/brokers have strong ethics. They beleive in doing the right thing for the client which in turn will help that agent keep the client for a longer period of time. That is how an agent makes his $$ … renewals !!!

    All this talk of contingent commissions makes us sound like we the agent only care of the money which is definitely not the case.

  • January 31, 2005 at 3:24 am
    DRUDY says:
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    the devil’s advocate on this one. being an independent agent fo rover 25 yrs, my experience is that the contg. fee is a incentive to place the higher priced coverage with that co. that pays the most cont. fee based on volumn,and loss ratio. if the customer does not object,it will be placed there. i have seen the cos raise the amount required to earn cont. fee thus the incentive is to earn more regardless of the customer’s welfare.yeah yeah yeah, there will be responces objecting to my opinion. down deep you know where the $ comes from. we are here to make a profit first, everything else comes after. if your not profitable, you ain’t going to be around.and profit is the name of the game of contingentcies, regardless of what the buying public wants.

  • July 15, 2007 at 2:07 am
    PakePlaiceLes says:
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    Hi

    Best rates!
    G’night



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