Ellen Vinck’s comments are right on the mark. The current agency system has evolved from the early days of insurance, when insurance was a new concept that needed to be sold to the public. I know, my family’s former agency (still independent) dates to the 19th century. Today, insurance is seen as a necessity and in many cases it has become a legal requirement in conjunction with property ownership. The current system is outdated and anachronistic. A serious overhaul of the compensation system has been evolving with reduced commissions and also reduced appointments for small agencies. Perhaps this will reverse the trend of industry consolidation (but don’t hold your breath!) but at least, in a sense, it will acknowledge what the insurers are already dealing with and will reward risk management expertise over boiler room-style wheeling and dealing.
SOMEONE FINALLY GETS IT……PLEASE CONTACT YOUR LOCAL REPRESENTATIVES AND VOTE!
I am a hardworking and ethical Independent Agent Principal in CA and Garamendi (our “elected Commissioner”) is out to destroy the Independent Agents who work hard to pre-underwrite profitable business in the hopes that the carriers will share in their profits. If you still feel Contingency Commission and Profit Sharing are the same thing YOU MUST EDUCATE YOURSELF! Profit Sharing is incentive to write good business for a carrier….
For all of my fellow CA Independent Agents make sure to follow SB 938….if you are not a member of IBA West ( http://www.ibawest.com) you are doing yourself and your fellow Independent Agents a HUGE disfavor….Get on IBA West’s email list, write letters to your representatives, join us as we go to Sacramento in May to defeat this ludicrous Senate Bill 938. You have worked too hard to lose everything.
You need to revisit Insurance 101 to understand the polar differences between a Broker and an Agent. Brokers represent the insured, Agents represent the Carrier. Both have different duties, and thus, can be compensated according to thier different fidicuary responsibilities.
Marsh, Willis, et al never had contingency agreements like the independent agent. These crooks had volume bonuses, irregardless of loss ratio. Independent agents earn ‘profit sharing’ based upon the loss ratios of their book of business. The crooks at Marsh and Willis did not give a rats behind about loss ratios.
No one seems to understand that the Brokers and the Agents are two totally different animals.
So, if all transactions in the Insurance Industry need to be transparent, what’s wrong with that approach in the field of lawyers, doctors, auto dealers, jewelers, cookie sales, you name it.
Agents and brokers are totally different beasts yet agency models continue to be painted with the same brush — the same should be said for contingencies for volume vs. fair profit sharing for good solid agency underwriting and risk managment.
How does the standard agency force benefit now if insurance companies can just keep all excess profits in a good year for our hard work. Agents should be allowed to share in unpredictable success as well as suffer through the bad loss years, too.
Nothing is wrong with total transparency of fees for every industry. That is the point. As an aside, wouldn’t it be nice if an AGENT, as defined by Matt, actually did represent the company instead of looking for ways to under cut the company. A BROKER is at least honest when they say they represent only the customer. Every state should adopt a broker only philosophy and eliminate the contradictory and unmanageable agency system. Recognize agents for what they are – the voice of the buyer, not the company – and the industry will be one step further along the path of transparency.
Get Real! How many agents have reimbursed a carrier when the carrier has suffered a loss? (Hint -The answer is less than 1). Contingent commissions are supplementary income for an agency that should be eliminated. Agents no longer represent the company, they instead shop their insured’s all through the industry, looking for the best price. It has been that way for the past 25 years, will likely be that way for the next 25 years, but we can only hope it will change.
Just curious, do you work for Ralph Nader? We need another government department to monitor profits of every business in America, as it’s taking way to long to attain this socialism that is so desired.
It’s a fine mess, Ollie! Not so very long ago, the only payment brokers received was a commission. Except for a few states, rebates are still illegal and neither the insurer nor the producer may change the premium charged just because the “commission” is reduced. Also, some states require that all business be placed through agents appointed by the Insurer with legal consequences for the Insurer/Principal.
Contingent Commissions are an economic recognition that an insurer receives value in getting a flow of business from a reliable source as distinguished from a large number of transactions with different producers. In a competative industry without tarrif rates, the public benefits from the economies of scale as an insurer’s costs are minimized and it can obtain a larger share (and spread of risk) than its competitors by charging a lower premium.
Agency profit sharing agreements are not guaranteed!!! These thieves at Marsh, Willis, and Aon did not have the same level of risk. It did not matter what the loss ratio was, ACE and AIG paid based upon volume.
Independent agenices are the sales and marketing arms of insurance carriers.
Again, contingent commissions are not the same as profit sharing. If you were to manage a book well enough to exceed the insurance companies budgeted/expected loss ratios, you should share in the profits.
The fact you are so hard over in an across the board position of all agents speaks to your inability to deal with the complexity of the problem… every individual agency and broker model varies and the broad brush approach to the industry in general instigated by Mr. Spitzer has exacerbated the ability to regulate solutions without wiping out a lot of everyday, honest, hardworking folks.
Sorry, Matt, I think I understand the system…you’re missing my point. Others have already noted in these posts that the agency system is ineffecient and benefits the insurer over the agent in terms of compensation.
The point we are all making is why not change the agency system to a brokerage system to reward broker expertise and superior service rather than sales volume. This is done successfully in other industries.
Yes, profit sharing does benefit the smaller agent, but it also reduces the market choices of its customers by putting all the eggs in one basket.
It also means that one large loss at any one of the agency’s customers (catastrophe losses nothwithstanding) could affect his profit sharing to a much greater degree than a larger broker that has several markets with profit sharing agreements, each independent of the other.
First, I find it interesting that the Marsh spokesperson said that government “never did anything for the industry.” It exposed a lot of crooks in high places (at Marsh, etc), which made us all look bad. Hopefully, though, something good will come out of it. As regards our “role” in all this: The sign on my door says “agency”, but to some of the companies I represent I am a “broker,” to others “the agent”, and to others “the producer.” I earn a stated commission on most sales, but have had to resort to adding a “policy fee” in cases where the sale fell below a “commissionable” premium.
The whole point being made is transparency. Tell the policyholder how much you make and let them decide if you are worth it. A broker does or should do exactly that. An agent makes money from all sources…note the comment about “if the commission isn’t enough, I charge a fee”. When contingency commissions, bonus commissions, or other income sources are fully disclosed, a buyer can make a decision about what they will pay. We do that when buying cars, right!
Okay, take that a step further. Should all providers in our economy be required by the government to provide a breakdown of fees? Require the car mechanic, the gas station, the pizza palor, etc etc……..
You people are being duped by the big brokers, since they know that they are toast if they have to compete.
I like that extension. I want to know the price for the services I get, or don’t get. The issue is choice and value. Tell me what you think you are worth and I will speak with my wallet. If I agree, I will buy from you. If your competition, who may cost more or less, has a better value proposition, I will buy from them. If I buy from you and you don’t measure up to expectations, I will take my business elsewhere next time.
Commodity items, unlike insurance, cars, houses and other major purchases, operate on a razor thin margin. I buy them muliple times a month and can speak with my wallet if I don’t like the value I receive. I cannot do that with major purchase items. Bring on transparency and see who is the best broker for the dollar spent.
RE: “Joseph Plumeri, CEO of Willis Group, who said at the annual conference of the Risk and Insurance Management Society (RIMS) that contingent commissions should be abolished throughout the insurance industry to include mega-brokerages as well as retail independent agents.”
It is not the contingent commissions that are the evil, vilified by Plumeri, but rather the DEED itself. He is trying to FOOL all of us by calling contingency based revenue the cause of their ill deeds.
These brokers maniuplated the market, with the complicity of a number of large insurance carriers for their own financial gain. I suggest that this would have occurred, irrespective of the “evil” of contingency income. This would have occured just to obtain the business period.
If the government illegalizes contingency income, will that really prevent brokers of this ilk from manipulating the market again, to obtain market share, at any income level?
What Plumeri should be saying is: we inscrupulously manipulated the market for our own financial gain with the assistance of some of the carriers we represent, we broke your trust in our firm and DON’T DESERVE YOUR CONTINUED BUSIENSS. You should find a “broker” with a “real” understanding of the fiduciary relationship and take your business to them.
This is the only real explanation and solution the the problem…
Contingency Income as the villan, how WEAK, from one of the “strongest” brokers in the country.
As a consumer, I care about one thing. The bottom line. I could care less what teh dealer/agent makes, as long as I’m willing to pay the bottom line and be assured my product is what I’m told it is. Let’s keep the government out of this, aside from catching the thieves that end up ruining the whole process for those of us that are honest. I sure wished I knew what that tooth filing cost my dentist. Who cares other than Spitzer? And ask the next customer if he prefers you to be his agent of his broker?
J
I agree with small potatoes. The cover up continues. Now that the big three honorably stepped up to the plate( Yeh sure honorably!! Only cause the feds made them do it or else!!), they want the whole world to trust what they are saying about “contingent commissions”? The crime was not about contingent commissions per se. Contingent commission agreements, as most of us know, do not allow any control from and “agent” or “broker”. The control is in the Insurance comopanies hands. On the other hand, i dont see any of the big three talking about the agreements they had in place which were not contingent agreements at all, but rather custom negotiated agreements between them and the carriers and they were only about volume and money and losses played no part in the computations.( my opinion as i have no personal knowledge) Did anyone ever wonder how the big three were able to take a dollar to buy a small independent for as much money as they have paid?? Because their average percentage of revenue has been higher than the independent and they only wanted to drive the volume agreements they had in place which helpoed finace the buys. ( again my opinion only as i have no personal knowledge)Is that unfair competition? Did the big three and the specific carriers negotiate something they did not offer the balance of the agency force and if so why? I think the real problem is “integrity” . Just look at world com, enron and the such. Does anyone reading this article really believe that the run of the mill agency(no matter how large) has the same revenue streams and special deals as the big three? If so youve missed the boat!! Look again. Read their 10k reports on the web. I do not think companies will get rid of contingent commission agreements because these agreements serve another hidden purpose. They allow the company to legally break a contract with the agents who dont perform. Why do some of the big three want contingent commissions eliminated? Ill tell you why!! Because they get the unfair advantage once again. Unfair trade. Right now they are clearly sucking wind because their revenue model just got gutted and they are having to rethink the situation. They are no more worried about the agencies that have 3 or even 5 million in revenue. They are conserned about the agency/brokerages that have 30 and 50 who are biting at their heels. If they are unsuccessful in convincing the world to get rid of contingencies, they either have to begin taking that additional income again or wonder how long it will take the 50mil revenue shop to grow to their size.
Make no mistake. They are only worried about maintaining their current market position and control. There are no other hidden agendas. I for one do not favor getting rid of contingencies agreements as they are written today. I do favor causing Insurance companies getting rid of unfair trade practices amoung brokers and agents so that we are all on a level playing feild and have the same opportunity to grow our businesses through competition.
If we vote for rid of contingent commissions shouldnt we all see to it that the profit share auto makers pay auto dealers is also eliminated so we are assured we dont get pushed the car model that isnt selling or has issues? How about the legal profession? Most americans work and get paid for a 40 hour week. Most aggressive company employees work many more hours than that. Law firms bill many clients for many hours per week which clearly exceed 40!! Ask your law firm to provide you a list of clients billed in one week and a copy of the billing for that same time period. Im sure most would be shocked. The entire world and entire business model in our country needs overhauling if the ins model is to be changed.
Find a business that operates on the average percentages ins agencies operate on? Not many.
Milo
Plumeri only wants to get rid of contingent commissions because Marsh used them to underbid the fees he wanted to charge. Marsh was able to use a low fee because they would make 3 times as much on the back end. Willis opposes it because they never got it together. It is clear when you see they collected less than $75 million a year versus Marsh’s $850 million.
Contingent Commissions aren’t necessarily wrong, but bid rigging is. Being lazy and getting B quotes is bad, but bogus quotes to support an inflated quote is really bad.
Insurance is no different than any other commodity that is purchased. The broom you buy at Lowes is cheaper than Ace hardware because Lowes can afford to offer a lower retail price, full well knowing that they get volume discounts from the broom manufacturer.
Marsh, Willis, et al were bid rigging. They abused the fiduciary responsibility entrusted to them by their clients. Now instead of a mea culpa, they deny any wrongdoing, and say that everyone does it.
These big broker are nothing but a den of thieves and hucksters.
Risk management accounts generally do not qualify for profit sharing under the standard independent agent’s agreement. If brokers were able to get them included it is again one more illustration of the deceptive, coercive actions by these large corporations. Now the folks who broke the law and conducted themselves in an unethical manner are trying to level the competitive playing field by publicly stating contingent commissions should be removed from the equation. National brokering centers were set up by these large brokers to leverage insurance carriers so they could maximize revenues. Tool belts and tool kits were created to make sure each client’s account was thoroughly reviewed by one broker who has now publicly stated contingent commissions should be eliminated. A former producer from this organization once stated to me that he felt it was unethical to squeeze every dollar out of the client. This producer removed himself from this situation because he did not feel he was servicing his client’s in their best interests if he executed this broker’s marketing strategy. Contingent commissions aren’t the issue, it’s the illegal steering of business and how you represented your organization to the client. Most independent agencies do not possess the volume or time to structure such deals with carriers. We work with our carriers and serve our clients. The brokers are large corporations interested in public opinion, stock price and market share. They have thousands of employees and outside organizations they need to appease. This segment of the distribution channel does not have a right to now wash their hands of their sins and profess on high that contingent commissions do not serve the public’s interest. The fact is they now have to live with the expense margins independent agents have been running on and unless they unload a huge amount of overhead they are at a competitive disadvantage. There are marked differences in how these organizations conduct themselves. Full disclosure on compensation is the proper avenue.
You’re right Milo. A “compensation model” is ridiculous and in all fairness, then should apply to every profession and enterprise selling services and goods in our great country… LUDICROUS.
Even more ludicrous that the “Big Three” Broker/Banditos are now, espousing such a farce. Again, they do this to take our attention away from the REAL problem, of which they wish to RETAIN… That is: the ability to control the market by PREMIUM MANIPULATION.
If a model is necessary, it should be in the form of LEGITIMATE & INFLUENCE FREE bid and premium quotes based upon INSURANCE UNDERWRITING criteria from all carriers. AIG and the other companies that Spitzer is investigating were the “proximate cause” of this entire problem. A model to ensure the bids and premium quotes from carriers are legitimate, can be easily implemented, quantified and regulated. NONE OF THIS WOULD HAVE OCCURED IF THE CARRIERS WERE NOT COMPLICIT with the big broker/banditos. Can you see how it works: EXAMPLE: Big Broker wants to keep his client with company A so he gets a fradulent, trumped up quote from company B & C to support the “competitive” bid from Co A. Company B & C comply because they know that they are on the receiving end of this cycle too, with other accounts where they are consided the A company. My guess is the broker has all of its accounts on 2 or 3 year rotations, where, after the cycle, a new company is the receiver and the other companies act as the players, trumping up alternate quotes. With this type of market manipulation, there would be no such thing as a soft market, hell the brokers are “making” the market so they can obtain any degree of pricing increase they desire and steer the business where they desire. The insurance carriers aid & abet because they prefer regular and forseable rate increases versus the unpredictability of A FREE & LEGITIMATELY COMPETITIVE MARKET.
To blame contingency income as the culprit for their ill deeds is weak. Equally as weak is allowing the “peons”, underwriters and VP’s, to “take the fall”!
The heads of these insurance compaines knew and condoned the actions, their heads should roll too.
Ellen Vinck’s comments are right on the mark. The current agency system has evolved from the early days of insurance, when insurance was a new concept that needed to be sold to the public. I know, my family’s former agency (still independent) dates to the 19th century. Today, insurance is seen as a necessity and in many cases it has become a legal requirement in conjunction with property ownership. The current system is outdated and anachronistic. A serious overhaul of the compensation system has been evolving with reduced commissions and also reduced appointments for small agencies. Perhaps this will reverse the trend of industry consolidation (but don’t hold your breath!) but at least, in a sense, it will acknowledge what the insurers are already dealing with and will reward risk management expertise over boiler room-style wheeling and dealing.
SOMEONE FINALLY GETS IT……PLEASE CONTACT YOUR LOCAL REPRESENTATIVES AND VOTE!
I am a hardworking and ethical Independent Agent Principal in CA and Garamendi (our “elected Commissioner”) is out to destroy the Independent Agents who work hard to pre-underwrite profitable business in the hopes that the carriers will share in their profits. If you still feel Contingency Commission and Profit Sharing are the same thing YOU MUST EDUCATE YOURSELF! Profit Sharing is incentive to write good business for a carrier….
For all of my fellow CA Independent Agents make sure to follow SB 938….if you are not a member of IBA West ( http://www.ibawest.com) you are doing yourself and your fellow Independent Agents a HUGE disfavor….Get on IBA West’s email list, write letters to your representatives, join us as we go to Sacramento in May to defeat this ludicrous Senate Bill 938. You have worked too hard to lose everything.
http://www.ibawest.com
RBF
Don,
You need to revisit Insurance 101 to understand the polar differences between a Broker and an Agent. Brokers represent the insured, Agents represent the Carrier. Both have different duties, and thus, can be compensated according to thier different fidicuary responsibilities.
Marsh, Willis, et al never had contingency agreements like the independent agent. These crooks had volume bonuses, irregardless of loss ratio. Independent agents earn ‘profit sharing’ based upon the loss ratios of their book of business. The crooks at Marsh and Willis did not give a rats behind about loss ratios.
No one seems to understand that the Brokers and the Agents are two totally different animals.
I blame public education.
Public Education?
Where do you propose to educate the public?
So, if all transactions in the Insurance Industry need to be transparent, what’s wrong with that approach in the field of lawyers, doctors, auto dealers, jewelers, cookie sales, you name it.
Agents and brokers are totally different beasts yet agency models continue to be painted with the same brush — the same should be said for contingencies for volume vs. fair profit sharing for good solid agency underwriting and risk managment.
How does the standard agency force benefit now if insurance companies can just keep all excess profits in a good year for our hard work. Agents should be allowed to share in unpredictable success as well as suffer through the bad loss years, too.
Nothing is wrong with total transparency of fees for every industry. That is the point. As an aside, wouldn’t it be nice if an AGENT, as defined by Matt, actually did represent the company instead of looking for ways to under cut the company. A BROKER is at least honest when they say they represent only the customer. Every state should adopt a broker only philosophy and eliminate the contradictory and unmanageable agency system. Recognize agents for what they are – the voice of the buyer, not the company – and the industry will be one step further along the path of transparency.
Julie,
Get Real! How many agents have reimbursed a carrier when the carrier has suffered a loss? (Hint -The answer is less than 1). Contingent commissions are supplementary income for an agency that should be eliminated. Agents no longer represent the company, they instead shop their insured’s all through the industry, looking for the best price. It has been that way for the past 25 years, will likely be that way for the next 25 years, but we can only hope it will change.
Just curious, do you work for Ralph Nader? We need another government department to monitor profits of every business in America, as it’s taking way to long to attain this socialism that is so desired.
It’s a fine mess, Ollie! Not so very long ago, the only payment brokers received was a commission. Except for a few states, rebates are still illegal and neither the insurer nor the producer may change the premium charged just because the “commission” is reduced. Also, some states require that all business be placed through agents appointed by the Insurer with legal consequences for the Insurer/Principal.
Contingent Commissions are an economic recognition that an insurer receives value in getting a flow of business from a reliable source as distinguished from a large number of transactions with different producers. In a competative industry without tarrif rates, the public benefits from the economies of scale as an insurer’s costs are minimized and it can obtain a larger share (and spread of risk) than its competitors by charging a lower premium.
Agency profit sharing agreements are not guaranteed!!! These thieves at Marsh, Willis, and Aon did not have the same level of risk. It did not matter what the loss ratio was, ACE and AIG paid based upon volume.
Independent agenices are the sales and marketing arms of insurance carriers.
Again, contingent commissions are not the same as profit sharing. If you were to manage a book well enough to exceed the insurance companies budgeted/expected loss ratios, you should share in the profits.
The fact you are so hard over in an across the board position of all agents speaks to your inability to deal with the complexity of the problem… every individual agency and broker model varies and the broad brush approach to the industry in general instigated by Mr. Spitzer has exacerbated the ability to regulate solutions without wiping out a lot of everyday, honest, hardworking folks.
Sorry, Matt, I think I understand the system…you’re missing my point. Others have already noted in these posts that the agency system is ineffecient and benefits the insurer over the agent in terms of compensation.
The point we are all making is why not change the agency system to a brokerage system to reward broker expertise and superior service rather than sales volume. This is done successfully in other industries.
Yes, profit sharing does benefit the smaller agent, but it also reduces the market choices of its customers by putting all the eggs in one basket.
It also means that one large loss at any one of the agency’s customers (catastrophe losses nothwithstanding) could affect his profit sharing to a much greater degree than a larger broker that has several markets with profit sharing agreements, each independent of the other.
First, I find it interesting that the Marsh spokesperson said that government “never did anything for the industry.” It exposed a lot of crooks in high places (at Marsh, etc), which made us all look bad. Hopefully, though, something good will come out of it. As regards our “role” in all this: The sign on my door says “agency”, but to some of the companies I represent I am a “broker,” to others “the agent”, and to others “the producer.” I earn a stated commission on most sales, but have had to resort to adding a “policy fee” in cases where the sale fell below a “commissionable” premium.
The whole point being made is transparency. Tell the policyholder how much you make and let them decide if you are worth it. A broker does or should do exactly that. An agent makes money from all sources…note the comment about “if the commission isn’t enough, I charge a fee”. When contingency commissions, bonus commissions, or other income sources are fully disclosed, a buyer can make a decision about what they will pay. We do that when buying cars, right!
Okay, take that a step further. Should all providers in our economy be required by the government to provide a breakdown of fees? Require the car mechanic, the gas station, the pizza palor, etc etc……..
You people are being duped by the big brokers, since they know that they are toast if they have to compete.
I like that extension. I want to know the price for the services I get, or don’t get. The issue is choice and value. Tell me what you think you are worth and I will speak with my wallet. If I agree, I will buy from you. If your competition, who may cost more or less, has a better value proposition, I will buy from them. If I buy from you and you don’t measure up to expectations, I will take my business elsewhere next time.
Commodity items, unlike insurance, cars, houses and other major purchases, operate on a razor thin margin. I buy them muliple times a month and can speak with my wallet if I don’t like the value I receive. I cannot do that with major purchase items. Bring on transparency and see who is the best broker for the dollar spent.
You are obviously from AIG. Sure, if the company does not have to pay commissions that would be great.
But I bet you would be hot if YOUR agent did not shop YOUR insurance and you found out YOU had to do it YOURSELF
What a hypocrit
RE: “Joseph Plumeri, CEO of Willis Group, who said at the annual conference of the Risk and Insurance Management Society (RIMS) that contingent commissions should be abolished throughout the insurance industry to include mega-brokerages as well as retail independent agents.”
It is not the contingent commissions that are the evil, vilified by Plumeri, but rather the DEED itself. He is trying to FOOL all of us by calling contingency based revenue the cause of their ill deeds.
These brokers maniuplated the market, with the complicity of a number of large insurance carriers for their own financial gain. I suggest that this would have occurred, irrespective of the “evil” of contingency income. This would have occured just to obtain the business period.
If the government illegalizes contingency income, will that really prevent brokers of this ilk from manipulating the market again, to obtain market share, at any income level?
What Plumeri should be saying is: we inscrupulously manipulated the market for our own financial gain with the assistance of some of the carriers we represent, we broke your trust in our firm and DON’T DESERVE YOUR CONTINUED BUSIENSS. You should find a “broker” with a “real” understanding of the fiduciary relationship and take your business to them.
This is the only real explanation and solution the the problem…
Contingency Income as the villan, how WEAK, from one of the “strongest” brokers in the country.
The “cover up” continues.
As a consumer, I care about one thing. The bottom line. I could care less what teh dealer/agent makes, as long as I’m willing to pay the bottom line and be assured my product is what I’m told it is. Let’s keep the government out of this, aside from catching the thieves that end up ruining the whole process for those of us that are honest. I sure wished I knew what that tooth filing cost my dentist. Who cares other than Spitzer? And ask the next customer if he prefers you to be his agent of his broker?
J
I agree with small potatoes. The cover up continues. Now that the big three honorably stepped up to the plate( Yeh sure honorably!! Only cause the feds made them do it or else!!), they want the whole world to trust what they are saying about “contingent commissions”? The crime was not about contingent commissions per se. Contingent commission agreements, as most of us know, do not allow any control from and “agent” or “broker”. The control is in the Insurance comopanies hands. On the other hand, i dont see any of the big three talking about the agreements they had in place which were not contingent agreements at all, but rather custom negotiated agreements between them and the carriers and they were only about volume and money and losses played no part in the computations.( my opinion as i have no personal knowledge) Did anyone ever wonder how the big three were able to take a dollar to buy a small independent for as much money as they have paid?? Because their average percentage of revenue has been higher than the independent and they only wanted to drive the volume agreements they had in place which helpoed finace the buys. ( again my opinion only as i have no personal knowledge)Is that unfair competition? Did the big three and the specific carriers negotiate something they did not offer the balance of the agency force and if so why? I think the real problem is “integrity” . Just look at world com, enron and the such. Does anyone reading this article really believe that the run of the mill agency(no matter how large) has the same revenue streams and special deals as the big three? If so youve missed the boat!! Look again. Read their 10k reports on the web. I do not think companies will get rid of contingent commission agreements because these agreements serve another hidden purpose. They allow the company to legally break a contract with the agents who dont perform. Why do some of the big three want contingent commissions eliminated? Ill tell you why!! Because they get the unfair advantage once again. Unfair trade. Right now they are clearly sucking wind because their revenue model just got gutted and they are having to rethink the situation. They are no more worried about the agencies that have 3 or even 5 million in revenue. They are conserned about the agency/brokerages that have 30 and 50 who are biting at their heels. If they are unsuccessful in convincing the world to get rid of contingencies, they either have to begin taking that additional income again or wonder how long it will take the 50mil revenue shop to grow to their size.
Make no mistake. They are only worried about maintaining their current market position and control. There are no other hidden agendas. I for one do not favor getting rid of contingencies agreements as they are written today. I do favor causing Insurance companies getting rid of unfair trade practices amoung brokers and agents so that we are all on a level playing feild and have the same opportunity to grow our businesses through competition.
If we vote for rid of contingent commissions shouldnt we all see to it that the profit share auto makers pay auto dealers is also eliminated so we are assured we dont get pushed the car model that isnt selling or has issues? How about the legal profession? Most americans work and get paid for a 40 hour week. Most aggressive company employees work many more hours than that. Law firms bill many clients for many hours per week which clearly exceed 40!! Ask your law firm to provide you a list of clients billed in one week and a copy of the billing for that same time period. Im sure most would be shocked. The entire world and entire business model in our country needs overhauling if the ins model is to be changed.
Find a business that operates on the average percentages ins agencies operate on? Not many.
Milo
Plumeri only wants to get rid of contingent commissions because Marsh used them to underbid the fees he wanted to charge. Marsh was able to use a low fee because they would make 3 times as much on the back end. Willis opposes it because they never got it together. It is clear when you see they collected less than $75 million a year versus Marsh’s $850 million.
Contingent Commissions aren’t necessarily wrong, but bid rigging is. Being lazy and getting B quotes is bad, but bogus quotes to support an inflated quote is really bad.
Don P. Right On, Brother! I view my job as a profession, and not “selling”. Level the playing field, and let the public decide who is worthy.
Insurance is no different than any other commodity that is purchased. The broom you buy at Lowes is cheaper than Ace hardware because Lowes can afford to offer a lower retail price, full well knowing that they get volume discounts from the broom manufacturer.
Marsh, Willis, et al were bid rigging. They abused the fiduciary responsibility entrusted to them by their clients. Now instead of a mea culpa, they deny any wrongdoing, and say that everyone does it.
These big broker are nothing but a den of thieves and hucksters.
Risk management accounts generally do not qualify for profit sharing under the standard independent agent’s agreement. If brokers were able to get them included it is again one more illustration of the deceptive, coercive actions by these large corporations. Now the folks who broke the law and conducted themselves in an unethical manner are trying to level the competitive playing field by publicly stating contingent commissions should be removed from the equation. National brokering centers were set up by these large brokers to leverage insurance carriers so they could maximize revenues. Tool belts and tool kits were created to make sure each client’s account was thoroughly reviewed by one broker who has now publicly stated contingent commissions should be eliminated. A former producer from this organization once stated to me that he felt it was unethical to squeeze every dollar out of the client. This producer removed himself from this situation because he did not feel he was servicing his client’s in their best interests if he executed this broker’s marketing strategy. Contingent commissions aren’t the issue, it’s the illegal steering of business and how you represented your organization to the client. Most independent agencies do not possess the volume or time to structure such deals with carriers. We work with our carriers and serve our clients. The brokers are large corporations interested in public opinion, stock price and market share. They have thousands of employees and outside organizations they need to appease. This segment of the distribution channel does not have a right to now wash their hands of their sins and profess on high that contingent commissions do not serve the public’s interest. The fact is they now have to live with the expense margins independent agents have been running on and unless they unload a huge amount of overhead they are at a competitive disadvantage. There are marked differences in how these organizations conduct themselves. Full disclosure on compensation is the proper avenue.
You’re right Milo. A “compensation model” is ridiculous and in all fairness, then should apply to every profession and enterprise selling services and goods in our great country… LUDICROUS.
Even more ludicrous that the “Big Three” Broker/Banditos are now, espousing such a farce. Again, they do this to take our attention away from the REAL problem, of which they wish to RETAIN… That is: the ability to control the market by PREMIUM MANIPULATION.
If a model is necessary, it should be in the form of LEGITIMATE & INFLUENCE FREE bid and premium quotes based upon INSURANCE UNDERWRITING criteria from all carriers. AIG and the other companies that Spitzer is investigating were the “proximate cause” of this entire problem. A model to ensure the bids and premium quotes from carriers are legitimate, can be easily implemented, quantified and regulated. NONE OF THIS WOULD HAVE OCCURED IF THE CARRIERS WERE NOT COMPLICIT with the big broker/banditos. Can you see how it works: EXAMPLE: Big Broker wants to keep his client with company A so he gets a fradulent, trumped up quote from company B & C to support the “competitive” bid from Co A. Company B & C comply because they know that they are on the receiving end of this cycle too, with other accounts where they are consided the A company. My guess is the broker has all of its accounts on 2 or 3 year rotations, where, after the cycle, a new company is the receiver and the other companies act as the players, trumping up alternate quotes. With this type of market manipulation, there would be no such thing as a soft market, hell the brokers are “making” the market so they can obtain any degree of pricing increase they desire and steer the business where they desire. The insurance carriers aid & abet because they prefer regular and forseable rate increases versus the unpredictability of A FREE & LEGITIMATELY COMPETITIVE MARKET.
To blame contingency income as the culprit for their ill deeds is weak. Equally as weak is allowing the “peons”, underwriters and VP’s, to “take the fall”!
The heads of these insurance compaines knew and condoned the actions, their heads should roll too.