You know better. If you are getting a fee for placin the business why should you get more unless you described exactly what you’re gettin’ Then I know if you are worth what you’re doin’
I still don’t understand what the fuss is all about. Unless the state establishes a fixed commission percentage by line of business and prohibits additional fees there will always be financial incentives to place business with one or another company.
As a personal lines agent and broker I have placed business earning a range from 5% to 25% commission often charging an additional service fee. Now, how could adding 2% points to a 15% commission compete with the carrier that pays me 25%? Contingents don’t matter, it’s the total compensation that has some influence. But, I have sold insurance for 5% based on the competitive market and the positive risk characteristics of the client and my expectation of building a solid long term client who can’t be taken away from me. On the other hand, some of my clients who earn me 25% commission have the best company available for their needs.
For the Attorney General to say that commission rate and the best price are the only determinants of the best policy for a client is balderdash. Details of policy coverage, company stability & service, and fit between the consumer’s lifestyle and the company’s business culture are also key.
Every day I have to balance providing the best for my client and finding to make a living. If I only cared about maximizing immediate income of course I would only offer 25% commission policies. But, I can’t sell that to everyone nor would I want to.
I agree with you. If the New York AG is so intent on changing a model that has served consumers and business so well for so many years then im sure he would mind if we recomended a fixed income and rate situation for attorneys of say 200 per hour max charges with no legal way to enter into percentage deals with clients? Dont you think that would be fair and oh by the way might even help lower those insurance rates a bit.
And while hes at it he ought to make it illegal for GM and others to pay any incentives to their dealers so on and so fourth. He is attacking the wrong thing. Bet hsi own agent wont sell him policies for less than hes making now.
Good point and of course your right. No reason for us agents to work for less than the rest of the world anymore. Say a policy fee equal to 25% of the premium? I think that would be fair. Of course it would need to be made law so the agents would have to fight for the money.
Ditto!! Every Industry has bad apples including Attornys Generals, Lawyers, Car Dealers and the like. Nothing we can do about that. The hinest and hard working seem to be taking the brint of this. I bet the bad guys dont really care because they are simly going to charge a huge fee anyway regardless of the service.
All industry sponsored studies tend to justify the conclusions of the trade group that sponsor them…so no surprise that they have come up with data that will support these conclusions…any well paid consultant or academic can come up with a carefully crafted support paper, but I am waiting for an independent study sponsored by a consumer group that shows impact on the ultimate consumer of insurance and investors. After all, that is what these investigations into contingents, price fixing, finite reinsurance and other reserve manipulation techniquest are all about.
Personally, I disagree with the conclusions. I know from experience that the contingents and profit sharing influence what insurance will be sold to the mid-sized consumer, and it made me very uncomfortable for the 25 years I worked at a mid-sized firm. The same has been shown to occur on a larger scale with large managed risks. The only solution is a policy holder service fee arrangement and an end to commissions. Commissions have served their purpose over the years the industry developed and matured (I worked in a firm with roots in the 19th century) but they haved outlived their usefulness.
Every true Insurance Professional already knew this. Will someone please see that Spitzer and the other Attorney General’s see this as they don’t get it. Even if the study was done by the Insurance Industry it still is very valid. I have, for my entire career, wished we charged fees as do other professionals (accts/attys) so we could actually do an even better job for the client. This would work for commercial lines but not well in the personal lines area. I am very proud of my profession and what it does for the public. There are bad apples in every Industry but it is sad to know that the entire Industry has been made to look like crooks because of a few bad apples and a guy who could really care less about learning the business of Insurance.
I suppose Don P could make a case that capitalism has outlived its usefulness too. Incenting sales people to produce profitable business is good business. The illegal activities of a few has cast a shadow on the vast majority of good people in the insurance industry. Mr. Spitzer got lucky in finding some unsavory activity and is hoping that this will get him elected as governor of NY. In the meantime, great numbers of good people have been devastated in the wake of his high profile election campaign. That’s a fact.
Don, I share your suspicion of industry-sponsored studies. However I hold the same suspicion of most consumer groups. I do not find them to be unbiased. They also have an agenda to achieve through their “independent” studies. Where are we going to find a group who will research this who doesn’t have an interest in the issue?
Cal, I am glad at least one industry member posting here understands this…you are correct. I guess an independent study could be performed adequately by an objective academic institution that is not funded by the industry. Politics and money seriously color these studies. At least a consumer group-funded study by an organization like Robert Hunter’s Consumer Federation of America might bring out some of the reasons why contingents and profit sharing do not work, and we could be left to do some thinking about both sides of the issue before jumping to conclusions.
I see more talk by Agents/Brokers that they want to be considered on the same level as the customers accountants and attorney. If you want to be treated that way and bill by the hour, how much would you charge per hour, $200, $500, $750? When you look at these figures most customers would tell you to take a hike. However when you get down to it these per hour figures are substantially less that what a moderately successful producer is bringing in. Do the math, a producer’s gross commission is $2,000,000 a year and works about 1,920 hrs., this works out to $1,041 per hour. I realize that the producer is splitting that with the house, but what it gets down to, the customer is paying an agency $1,040 per hour. How many of the so called Professionals charge that much. In conclusion if you want to be considered a Professional you can take the pay cut and be a Professional.
In the 28 plus years I have been in this business, I have never read anyone so anti-insurance as Robert Hunter. You expect his organization to be fair?
As many of our colleagues and my (NY) Insurance Commissioner have acknowledged, there is a world of difference between the Aons and March Macs and the Main Street agent/broker.
The mega brokers usually work with their client’s risk managers. Those folks should be well aware of what they are buying, how it is priced, and then make a judgement of whether or not the deal is fair.
I do not agree with bogus submissions, just to block markets. I am glad someone is looking into that situation.
But, when a willing buyer and seller come together to do business…that is capitalism. That is what we do. At the level at which these “abuses” occured, all of the parties should have gone into the situations with their eyes open.
I am surprised Mr Spitzer hasn’t brought an action against Willis for the WTC.
Jim, let’s not get carried away. Saying that the commission model has outlived its usefulness is not the same as saying capitalism is obsolete. I’m all for profit sharing for agents and brokers (and for disclosure to clients, by the way), but when I read an accusation that someone opposes capitalism, I see that as a coded way of calling that person un-American. I hope that wasn’t your intent.
Eliot Spitzer may well be elected governor of N.Y. next year, but it won’t be the insurance investigation that gets him there. I live in N.Y. and in my experience, the only people who care about this are insurance industry employees, insurance regulators, and legislators (and I’m not sure how many legislators really care). When I mention the Spitzer investigation to friends outside the industry, most of them don’t know what I’m talking about.
I was thinking the same thing regarding an academic study. I believe that people only hear what they want to hear in many instances. I have seen studies come out from universities that support things that are not popular, but from my experience in the industry are true, but yet people reject the study as being biased. I believe from the other side, Robert Hunter would bring out many interesting points and I am surprised he has not sounded off on this. However, I will have to admit that when I mentioned consumer groups having an agenda, he was the first one to come to mind, but I was trying to avoid creating a separate Robert Hunter thread.
Some have asserted here that this study was sponsored by the industry. It was not. Some have said that Wharton has a bias. What is that? They are a large and prestigious business school. Is that their bias? Is anything capitalistic biased?
Their conclusions are not only intuitive (i.e. I could have come up with the same thoughts without research) but thorough.
Performance based compensation methods are almost always win win for the industry in which they are a part.
I do like your analogy to lawyers…the large brokers are touting this now, for they feel that it would give them a competitive advantage due to their size and existing value added services. It would also help smaller brokers with professional service and small niche brokers. The old commission system is outmoded and does not fit the current market characteristics of insurance sales.
You understand what an insurance consultant’s quandry is…but that is the fairest system in terms of compensation. the market would be determined by service to the policy holder rather than loyalty to the insurer.
First, I agree that the large brokers and the smaller brokers are different kettles of fish…but the small brokerage climate generally follows what happens with the larger brokers. Insurers don’t have time to reinvent the wheel. The large brokers have a reputation on the street for bullying underwriters and throwing their weight around, and that is a clear conflict with commission based income from the very companies they are bullying. The system is inherently unfair and inequitable when smaller brokers are brought into the picture. The fee based system would clearly not be a panacea but it would present a fairer and more equitable model for compensation.
I respectfully disagree with your opinion of Robert Hunter, and I have a sense that Hunter (a former commissioner) does understand the insurance industry all too well. Yes, he does have a bias toward the smaller consumer of insurance, but that is the role he plays.
I am sure that you have the very best of intentions, however the insurance industry has been lying and using all forms of trickery to rip off the american public as well as the global public that it now believes its on lies.
Rob, there are lot’s of them out there. The good thing about the Agency business was until recently we were under the radar, unless you were a bank officer etc looking at the personal financials you had no idea what kind of money was in this business. Unfortunately this is changing. What the C students do next.
Saying every insurance agent or broker is raping the customer is like saying EVERY married man or woman cheats on their spouse.
Maybe their should be a bounty on our head?
The basic rule, taught every new agent in licensing school is the law of large numbers. The other is one you learn, it’s called caring and compassion for your clients. Some are born with it, others find it the day a client in tears sits in your office to tell you their issues and ask for help. Local agents face their clients every day at school meetings and little league.
There are good bad and ugly facts about this.
There is a big difference between illegal bid rigging, and up front steering of clients to a carriers on “placement” sharing agreements (PSA’s), on larger risks where most use consultants and specs, ….. versus rewarding an agent who has gone the extra mile to write good quality personal and small – mid market commercial business with a few carriers, thereby helping keep the overall loss ratios down. This phrase is called “front end underwriting”.
Even Mr. Spitzer has acknowledged that contingencies by themselves are not bad.
The problem we face today as “Agents” is that everyone is being lumped together. Agents will on occasion due to market conditions need to “broker” a piece of business to meet client’s demands and needs.. This does not make you a mega broker.
Of the over 40,000 agencies, there are a handful of the top 100 firms that have been fined for actions that already have laws against these in most states.
Most local Agencies don’t earn the same as the mega broker, don’t charge the fees on both sides, and we’ll actually write a motorcycle policy for $200, and spend 20 minutes with the client to get it done. Stupid, maybe, but this is something some firms on the 45th floor of a building can’t even consider.
Agents, if you don’t think you are about to be touched by this issue, get your heads out of the sand.
The Big guys, now that they many have been caught in the act have found religion, and now some say they’re against “ALL” contingencies. It was not the contingencies but the bid rigging that was the flaming issue. Now they are afraid of a more level playing field.
Rewarding an employee and distributors for a job well after the fact is a natural act. Considering that this has served the US insurance industry very well, and now only after bid rigging are we looking at a handful of firms who took it to new “Bad” and Ugly” heights only proves the old phrase… someone is always going to find a way to test the law. We can’t let those bad apples suck the wind out of an industry that has far more important issues like Health Insurance costs, Terrorism Acts that need to be renewed etc.
(1) Bid rigging is a direct result of the way compensation is structured in insurance sales/renewals. The conflict of interest inherent in the system begs for bid rigging. The only way to stop it is to eliminate this conflict in insurance compensation. Contingents are just one part of the problem. There must be a paradigm shift in the way brokers are compensated. It will make the playing field fairer for all the smaller brokers and larger brokers.
(2) Spitzer’s work actually benefits the conscientious small broker (I count myself among them) by drawing attention to the unethical bullying tactics and bid rigging of the large brokers.
I dont think its anyones business how I make my money. If my pricing is fair, the policy covers everything my Insured expects, I’m their to help my Insureds understand the policy language, I cover the market for them, I want to be paid for it.
Think if you charged $100 an hour how much would you make on one account?
I’m a professional that the carrier helps pay to offset the $100 an hour I would be forced to pass on to my insured. Some of these comments amaze me in the fact that they are unsupportive of their own profession. WOW!
JP, you are right. However, at $100 per hr., after you take off expenses etc you are not going to be making much. Most of us do a good job explaining things to our customer (they are not really clients), do what is best for them. Some appreciate some don’t. But when you get down to it most “clients” think us as a “vendor”, no different than the guy that sells them supplies.
For all our sake, it would be nice if it worked like your examples, and the shift occured, but not likely. It will always be the income that drives greed… and even in a flat commission environment bad guys will be bad. The other agents who care is right, there are many many state laws that deal with this now. What these big guys did was wrong and they got caught. Thats because there were laws already. They weren’t bad because of a contingency agreement, they were bad people first.
Going forward it is the NAIC and NCOIL models on the table, not anything put forth by an AG.
What are your thoughts on the NAIC Model ? If adopted this will affect your agency, you know this right ?
Also, the attention is not just on the big guys. Most buyers just think of us as “insurance”, it’s up to the individual to build their own reputation regardless of the size of firm they are.
On a different note getting paid better for better performance is the basis of the whole free market system.
As an undergrad and MBA graduate of Wharton, I find the conclusion of this “study” an embarrassment. Given all the conflicts that have been uncovered in the Spitzer (et al) investigations, how can anyone in their right mind conclude that contingent commissions are in the best interest of the buyer? “Matchmakers” rejoice — conflicts of interest apparently are no longer an issue we need to be concerned with. Sure. The reality is that you can only have one master.
Getting paid better for better performance is the basis of the whole free market system.
Sit in an agents office for a while and look at some captive and direct writers clients coming in … run the clue reports of these poor people who have 4 or 5 small losses (some under $100). There are STUCK in their carrier… paying much higher premiums then they need to… why becuase no one ever said hey.. maybe you should consider eating this one.
You can figure out fairly quickly from the comments on this board that insurance agents & brokers aren’t about to eat the golden egg. In general, They see it as a matter of protecting their business interests rather than a matter of ethics, fairness and equity in the reimbursement structure.
I’m not running for office, but I am running a brokerage office. Just make sure there aren’t any policy holders out there when you point that load of buckshot.
Based upon the number of times most of you have made entries on this subject, I would guess that you are all getting paid a salary. And if that is the case then I would argue you are part of the cause for this problem. Wasting your employers time on the internet.
Honest Agent, I work on commission. The beauty about this business is the renewals not the new business. If you work hard and smart for a few years, are honest and customers trust you, the money rolls in, and you earned it. Remember in this business you get paid for what you do not what you know.
Don’t jump to conclusions “honest agent”…I run my own small brokerage firm, and I have strong views on the subject. I also used to work in my family’s mid-sized (some might say large) firm that has roots in the 19th century. I have been in touch with the Big I issues people and follow this subject closely. I feel an obligation to educate those who are jumping on the bandwagon without hearing the other side of the story, or jumping on the bandwagon without giving it some thought…but I’m finding that neither side seems to be listening closely to the other, for one is supporting the financial interests of the brokerage and company side without regard to ethics or how the system functions now and how it evolved, the other sees it as a modern ethical issue that calls for reform and a paradigm shift in how agents are paid for their work.
I am protecting my business interest. I cant speak for everyone but I do whats in my clients best interest not mine. If I happen to make more because it works out like that so be it. It doesnt necessarily mean because we get paid more from this one we are gonna STEER our clients that way. Maybe its the agents/brokers that do those types of things that should be penalized, not the whole industry. One other note, whats the point of having your own company and work 40+ hours a week if you arent gonna make money. Your darn right I have my business interest in mind, Id be a fool not to.
I personally dont get reimburement or contingent commissions, but this seems to be having an effect on the way I am allowed to get paid.
I agree with you both, if you are giving the customer the best deal regardless of the commission over a period of time you will be way ahead of the game (and much richer). If you are deep sixing the low quote (with a quality company) you should be selling used cars (if not in jail).
Go, Hollis! My sentiments exactly. Why do we need studies or the AGs to tell us what we already knew. I never charge a fee and place my clients with the best policy for their own needs. Most of us have a conscience.
I agree generally with the study results.
Two important points: 1.Contingent commissions are paid to Agents and Brokers for meeting Premium goals. Additionally they are dependent upon achieving certain loss ratios on the entire book of business.2. Contingent contracts EXCLUDE all the major covers for the largest buyers, ie. WC, Excess Property/Casualty, D&O, etc.
Finaly, the Marsh deal was different. It was a Placement Service Agreement that required the carrier to make a payment up front/on volume/regardless of loss ratios.
Don’t paint the thousands of Agents/Brokers with the Marsh brush. Does anyone find it interesting that the responsible Marsh senior exec’s are now the new principals at Integro?…who tout they are without the Marsh problems…
I don’t see how this study could be biased — they asked academics, with no tangible exposure to the industry, to find a way to support the sponsor’s notion that hidden intermediary compensation tied to higher premiums and lower claim payments are actually good for insurance buyers. Next thing they’ll be sponsoring a study that supports the belief that intermediaries are professionals owing the insurance buyer a fiduciary duty. Caveat emptor!
First, you’re missing the point, JPS…yes, industry supported studies tend to be strongly biased and unreliable with respect to obvectivity. Ask any researcher! Second, you should note that Deloitte Touche released a report today warning the insurance brokerage segment that they will face significant changes in the way they do business and the ways they are regulated if they can not agree among themselves on a way to avoid conflicts in compensation. The writing’s on the wall…just that most of the industy sheep are simply following the herd (or the judas goat?)
You must be kidding…Contingencies are about the broker promoting a certain carriers policies versus another. If you are the new kid on the block trying to break it the best way to do so is to have the best price…give the customer that margin you gave to the broker..that is the correct business model….
Contingents are not a problem. That general concepts exists in ALL industries. Within our P&C business teh problem is that there are not open markets to all agents like there is in Group Health. That truly levels the playing field and it is the agent that provides teh most value that wins the business and the client gets teh best terms and conditions.
Could you exlain that, Mark? In P&C, small brokers are at a disadvantage due to lack of direct appointments (1/2 standard commission) and don’t received contingents or profit sharing. the larger brokers are being rewarded only for their size, not for the quality or quantity of the services they provide…
You know better. If you are getting a fee for placin the business why should you get more unless you described exactly what you’re gettin’ Then I know if you are worth what you’re doin’
I still don’t understand what the fuss is all about. Unless the state establishes a fixed commission percentage by line of business and prohibits additional fees there will always be financial incentives to place business with one or another company.
As a personal lines agent and broker I have placed business earning a range from 5% to 25% commission often charging an additional service fee. Now, how could adding 2% points to a 15% commission compete with the carrier that pays me 25%? Contingents don’t matter, it’s the total compensation that has some influence. But, I have sold insurance for 5% based on the competitive market and the positive risk characteristics of the client and my expectation of building a solid long term client who can’t be taken away from me. On the other hand, some of my clients who earn me 25% commission have the best company available for their needs.
For the Attorney General to say that commission rate and the best price are the only determinants of the best policy for a client is balderdash. Details of policy coverage, company stability & service, and fit between the consumer’s lifestyle and the company’s business culture are also key.
Every day I have to balance providing the best for my client and finding to make a living. If I only cared about maximizing immediate income of course I would only offer 25% commission policies. But, I can’t sell that to everyone nor would I want to.
in a related story, a recent Pizza Hut study finds kids, parents like free pizza
Incredible, breakthrough research! What a surprise that contingents and other expenses are passed through to policyholder premiums.
I agree with you. If the New York AG is so intent on changing a model that has served consumers and business so well for so many years then im sure he would mind if we recomended a fixed income and rate situation for attorneys of say 200 per hour max charges with no legal way to enter into percentage deals with clients? Dont you think that would be fair and oh by the way might even help lower those insurance rates a bit.
And while hes at it he ought to make it illegal for GM and others to pay any incentives to their dealers so on and so fourth. He is attacking the wrong thing. Bet hsi own agent wont sell him policies for less than hes making now.
Good point and of course your right. No reason for us agents to work for less than the rest of the world anymore. Say a policy fee equal to 25% of the premium? I think that would be fair. Of course it would need to be made law so the agents would have to fight for the money.
Ditto!! Every Industry has bad apples including Attornys Generals, Lawyers, Car Dealers and the like. Nothing we can do about that. The hinest and hard working seem to be taking the brint of this. I bet the bad guys dont really care because they are simly going to charge a huge fee anyway regardless of the service.
All industry sponsored studies tend to justify the conclusions of the trade group that sponsor them…so no surprise that they have come up with data that will support these conclusions…any well paid consultant or academic can come up with a carefully crafted support paper, but I am waiting for an independent study sponsored by a consumer group that shows impact on the ultimate consumer of insurance and investors. After all, that is what these investigations into contingents, price fixing, finite reinsurance and other reserve manipulation techniquest are all about.
Personally, I disagree with the conclusions. I know from experience that the contingents and profit sharing influence what insurance will be sold to the mid-sized consumer, and it made me very uncomfortable for the 25 years I worked at a mid-sized firm. The same has been shown to occur on a larger scale with large managed risks. The only solution is a policy holder service fee arrangement and an end to commissions. Commissions have served their purpose over the years the industry developed and matured (I worked in a firm with roots in the 19th century) but they haved outlived their usefulness.
I think Don P did business with the wrong agents or Brokers. I can tell no trust was built up there.
Every true Insurance Professional already knew this. Will someone please see that Spitzer and the other Attorney General’s see this as they don’t get it. Even if the study was done by the Insurance Industry it still is very valid. I have, for my entire career, wished we charged fees as do other professionals (accts/attys) so we could actually do an even better job for the client. This would work for commercial lines but not well in the personal lines area. I am very proud of my profession and what it does for the public. There are bad apples in every Industry but it is sad to know that the entire Industry has been made to look like crooks because of a few bad apples and a guy who could really care less about learning the business of Insurance.
Using Don P’s premise, wouldn’t an “independent study sponsored by a consumer group” tend to justify the conclusions by that group?
I suppose Don P could make a case that capitalism has outlived its usefulness too. Incenting sales people to produce profitable business is good business. The illegal activities of a few has cast a shadow on the vast majority of good people in the insurance industry. Mr. Spitzer got lucky in finding some unsavory activity and is hoping that this will get him elected as governor of NY. In the meantime, great numbers of good people have been devastated in the wake of his high profile election campaign. That’s a fact.
Don, I share your suspicion of industry-sponsored studies. However I hold the same suspicion of most consumer groups. I do not find them to be unbiased. They also have an agenda to achieve through their “independent” studies. Where are we going to find a group who will research this who doesn’t have an interest in the issue?
Cal, I am glad at least one industry member posting here understands this…you are correct. I guess an independent study could be performed adequately by an objective academic institution that is not funded by the industry. Politics and money seriously color these studies. At least a consumer group-funded study by an organization like Robert Hunter’s Consumer Federation of America might bring out some of the reasons why contingents and profit sharing do not work, and we could be left to do some thinking about both sides of the issue before jumping to conclusions.
I see more talk by Agents/Brokers that they want to be considered on the same level as the customers accountants and attorney. If you want to be treated that way and bill by the hour, how much would you charge per hour, $200, $500, $750? When you look at these figures most customers would tell you to take a hike. However when you get down to it these per hour figures are substantially less that what a moderately successful producer is bringing in. Do the math, a producer’s gross commission is $2,000,000 a year and works about 1,920 hrs., this works out to $1,041 per hour. I realize that the producer is splitting that with the house, but what it gets down to, the customer is paying an agency $1,040 per hour. How many of the so called Professionals charge that much. In conclusion if you want to be considered a Professional you can take the pay cut and be a Professional.
Does this mean that plaintiffs’ attorneys will no longer be able to accept contingency arrangements with their clients?
Don P,
In the 28 plus years I have been in this business, I have never read anyone so anti-insurance as Robert Hunter. You expect his organization to be fair?
As many of our colleagues and my (NY) Insurance Commissioner have acknowledged, there is a world of difference between the Aons and March Macs and the Main Street agent/broker.
The mega brokers usually work with their client’s risk managers. Those folks should be well aware of what they are buying, how it is priced, and then make a judgement of whether or not the deal is fair.
I do not agree with bogus submissions, just to block markets. I am glad someone is looking into that situation.
But, when a willing buyer and seller come together to do business…that is capitalism. That is what we do. At the level at which these “abuses” occured, all of the parties should have gone into the situations with their eyes open.
I am surprised Mr Spitzer hasn’t brought an action against Willis for the WTC.
Jim, let’s not get carried away. Saying that the commission model has outlived its usefulness is not the same as saying capitalism is obsolete. I’m all for profit sharing for agents and brokers (and for disclosure to clients, by the way), but when I read an accusation that someone opposes capitalism, I see that as a coded way of calling that person un-American. I hope that wasn’t your intent.
Eliot Spitzer may well be elected governor of N.Y. next year, but it won’t be the insurance investigation that gets him there. I live in N.Y. and in my experience, the only people who care about this are insurance industry employees, insurance regulators, and legislators (and I’m not sure how many legislators really care). When I mention the Spitzer investigation to friends outside the industry, most of them don’t know what I’m talking about.
As Christine Keeler said “They would say that wouldnt they”
Don,
I was thinking the same thing regarding an academic study. I believe that people only hear what they want to hear in many instances. I have seen studies come out from universities that support things that are not popular, but from my experience in the industry are true, but yet people reject the study as being biased. I believe from the other side, Robert Hunter would bring out many interesting points and I am surprised he has not sounded off on this. However, I will have to admit that when I mentioned consumer groups having an agenda, he was the first one to come to mind, but I was trying to avoid creating a separate Robert Hunter thread.
Some have asserted here that this study was sponsored by the industry. It was not. Some have said that Wharton has a bias. What is that? They are a large and prestigious business school. Is that their bias? Is anything capitalistic biased?
Their conclusions are not only intuitive (i.e. I could have come up with the same thoughts without research) but thorough.
Performance based compensation methods are almost always win win for the industry in which they are a part.
I do like your analogy to lawyers…the large brokers are touting this now, for they feel that it would give them a competitive advantage due to their size and existing value added services. It would also help smaller brokers with professional service and small niche brokers. The old commission system is outmoded and does not fit the current market characteristics of insurance sales.
You understand what an insurance consultant’s quandry is…but that is the fairest system in terms of compensation. the market would be determined by service to the policy holder rather than loyalty to the insurer.
Jazz, are you saying a moderately successful producer is bringing in $2,000,000 in commission???? I’d like to meet him!!
First, I agree that the large brokers and the smaller brokers are different kettles of fish…but the small brokerage climate generally follows what happens with the larger brokers. Insurers don’t have time to reinvent the wheel. The large brokers have a reputation on the street for bullying underwriters and throwing their weight around, and that is a clear conflict with commission based income from the very companies they are bullying. The system is inherently unfair and inequitable when smaller brokers are brought into the picture. The fee based system would clearly not be a panacea but it would present a fairer and more equitable model for compensation.
I respectfully disagree with your opinion of Robert Hunter, and I have a sense that Hunter (a former commissioner) does understand the insurance industry all too well. Yes, he does have a bias toward the smaller consumer of insurance, but that is the role he plays.
Sorry, but “The study was financed by The American Insurance Association, an industry trade group”
I am sure that you have the very best of intentions, however the insurance industry has been lying and using all forms of trickery to rip off the american public as well as the global public that it now believes its on lies.
Rob, there are lot’s of them out there. The good thing about the Agency business was until recently we were under the radar, unless you were a bank officer etc looking at the personal financials you had no idea what kind of money was in this business. Unfortunately this is changing. What the C students do next.
Saying every insurance agent or broker is raping the customer is like saying EVERY married man or woman cheats on their spouse.
Maybe their should be a bounty on our head?
I think you’re confusing the act of cheating with the act of making the rules.
There will be a bounty on our heads if it is politically feasible.
The basic rule, taught every new agent in licensing school is the law of large numbers. The other is one you learn, it’s called caring and compassion for your clients. Some are born with it, others find it the day a client in tears sits in your office to tell you their issues and ask for help. Local agents face their clients every day at school meetings and little league.
There are good bad and ugly facts about this.
There is a big difference between illegal bid rigging, and up front steering of clients to a carriers on “placement” sharing agreements (PSA’s), on larger risks where most use consultants and specs, ….. versus rewarding an agent who has gone the extra mile to write good quality personal and small – mid market commercial business with a few carriers, thereby helping keep the overall loss ratios down. This phrase is called “front end underwriting”.
Even Mr. Spitzer has acknowledged that contingencies by themselves are not bad.
The problem we face today as “Agents” is that everyone is being lumped together. Agents will on occasion due to market conditions need to “broker” a piece of business to meet client’s demands and needs.. This does not make you a mega broker.
Of the over 40,000 agencies, there are a handful of the top 100 firms that have been fined for actions that already have laws against these in most states.
Most local Agencies don’t earn the same as the mega broker, don’t charge the fees on both sides, and we’ll actually write a motorcycle policy for $200, and spend 20 minutes with the client to get it done. Stupid, maybe, but this is something some firms on the 45th floor of a building can’t even consider.
Agents, if you don’t think you are about to be touched by this issue, get your heads out of the sand.
The Big guys, now that they many have been caught in the act have found religion, and now some say they’re against “ALL” contingencies. It was not the contingencies but the bid rigging that was the flaming issue. Now they are afraid of a more level playing field.
Rewarding an employee and distributors for a job well after the fact is a natural act. Considering that this has served the US insurance industry very well, and now only after bid rigging are we looking at a handful of firms who took it to new “Bad” and Ugly” heights only proves the old phrase… someone is always going to find a way to test the law. We can’t let those bad apples suck the wind out of an industry that has far more important issues like Health Insurance costs, Terrorism Acts that need to be renewed etc.
(1) Bid rigging is a direct result of the way compensation is structured in insurance sales/renewals. The conflict of interest inherent in the system begs for bid rigging. The only way to stop it is to eliminate this conflict in insurance compensation. Contingents are just one part of the problem. There must be a paradigm shift in the way brokers are compensated. It will make the playing field fairer for all the smaller brokers and larger brokers.
(2) Spitzer’s work actually benefits the conscientious small broker (I count myself among them) by drawing attention to the unethical bullying tactics and bid rigging of the large brokers.
(2)
I dont think its anyones business how I make my money. If my pricing is fair, the policy covers everything my Insured expects, I’m their to help my Insureds understand the policy language, I cover the market for them, I want to be paid for it.
Think if you charged $100 an hour how much would you make on one account?
I’m a professional that the carrier helps pay to offset the $100 an hour I would be forced to pass on to my insured. Some of these comments amaze me in the fact that they are unsupportive of their own profession. WOW!
JP, you are right. However, at $100 per hr., after you take off expenses etc you are not going to be making much. Most of us do a good job explaining things to our customer (they are not really clients), do what is best for them. Some appreciate some don’t. But when you get down to it most “clients” think us as a “vendor”, no different than the guy that sells them supplies.
Don,
For all our sake, it would be nice if it worked like your examples, and the shift occured, but not likely. It will always be the income that drives greed… and even in a flat commission environment bad guys will be bad. The other agents who care is right, there are many many state laws that deal with this now. What these big guys did was wrong and they got caught. Thats because there were laws already. They weren’t bad because of a contingency agreement, they were bad people first.
Going forward it is the NAIC and NCOIL models on the table, not anything put forth by an AG.
What are your thoughts on the NAIC Model ? If adopted this will affect your agency, you know this right ?
Also, the attention is not just on the big guys. Most buyers just think of us as “insurance”, it’s up to the individual to build their own reputation regardless of the size of firm they are.
On a different note getting paid better for better performance is the basis of the whole free market system.
As an undergrad and MBA graduate of Wharton, I find the conclusion of this “study” an embarrassment. Given all the conflicts that have been uncovered in the Spitzer (et al) investigations, how can anyone in their right mind conclude that contingent commissions are in the best interest of the buyer? “Matchmakers” rejoice — conflicts of interest apparently are no longer an issue we need to be concerned with. Sure. The reality is that you can only have one master.
Getting paid better for better performance is the basis of the whole free market system.
Sit in an agents office for a while and look at some captive and direct writers clients coming in … run the clue reports of these poor people who have 4 or 5 small losses (some under $100). There are STUCK in their carrier… paying much higher premiums then they need to… why becuase no one ever said hey.. maybe you should consider eating this one.
How does that action benefit the consumer ?
Insurance is not a warranty.
Looks like Don P is running for some office as well. Robert Hunter? Give me a fricken break!
You can figure out fairly quickly from the comments on this board that insurance agents & brokers aren’t about to eat the golden egg. In general, They see it as a matter of protecting their business interests rather than a matter of ethics, fairness and equity in the reimbursement structure.
I’m not running for office, but I am running a brokerage office. Just make sure there aren’t any policy holders out there when you point that load of buckshot.
Based upon the number of times most of you have made entries on this subject, I would guess that you are all getting paid a salary. And if that is the case then I would argue you are part of the cause for this problem. Wasting your employers time on the internet.
Honest Agent, I work on commission. The beauty about this business is the renewals not the new business. If you work hard and smart for a few years, are honest and customers trust you, the money rolls in, and you earned it. Remember in this business you get paid for what you do not what you know.
Don’t jump to conclusions “honest agent”…I run my own small brokerage firm, and I have strong views on the subject. I also used to work in my family’s mid-sized (some might say large) firm that has roots in the 19th century. I have been in touch with the Big I issues people and follow this subject closely. I feel an obligation to educate those who are jumping on the bandwagon without hearing the other side of the story, or jumping on the bandwagon without giving it some thought…but I’m finding that neither side seems to be listening closely to the other, for one is supporting the financial interests of the brokerage and company side without regard to ethics or how the system functions now and how it evolved, the other sees it as a modern ethical issue that calls for reform and a paradigm shift in how agents are paid for their work.
I am protecting my business interest. I cant speak for everyone but I do whats in my clients best interest not mine. If I happen to make more because it works out like that so be it. It doesnt necessarily mean because we get paid more from this one we are gonna STEER our clients that way. Maybe its the agents/brokers that do those types of things that should be penalized, not the whole industry. One other note, whats the point of having your own company and work 40+ hours a week if you arent gonna make money. Your darn right I have my business interest in mind, Id be a fool not to.
I personally dont get reimburement or contingent commissions, but this seems to be having an effect on the way I am allowed to get paid.
I agree with you both, if you are giving the customer the best deal regardless of the commission over a period of time you will be way ahead of the game (and much richer). If you are deep sixing the low quote (with a quality company) you should be selling used cars (if not in jail).
Go, Hollis! My sentiments exactly. Why do we need studies or the AGs to tell us what we already knew. I never charge a fee and place my clients with the best policy for their own needs. Most of us have a conscience.
I agree generally with the study results.
Two important points: 1.Contingent commissions are paid to Agents and Brokers for meeting Premium goals. Additionally they are dependent upon achieving certain loss ratios on the entire book of business.2. Contingent contracts EXCLUDE all the major covers for the largest buyers, ie. WC, Excess Property/Casualty, D&O, etc.
Finaly, the Marsh deal was different. It was a Placement Service Agreement that required the carrier to make a payment up front/on volume/regardless of loss ratios.
Don’t paint the thousands of Agents/Brokers with the Marsh brush. Does anyone find it interesting that the responsible Marsh senior exec’s are now the new principals at Integro?…who tout they are without the Marsh problems…
I don’t see how this study could be biased — they asked academics, with no tangible exposure to the industry, to find a way to support the sponsor’s notion that hidden intermediary compensation tied to higher premiums and lower claim payments are actually good for insurance buyers. Next thing they’ll be sponsoring a study that supports the belief that intermediaries are professionals owing the insurance buyer a fiduciary duty. Caveat emptor!
First, you’re missing the point, JPS…yes, industry supported studies tend to be strongly biased and unreliable with respect to obvectivity. Ask any researcher! Second, you should note that Deloitte Touche released a report today warning the insurance brokerage segment that they will face significant changes in the way they do business and the ways they are regulated if they can not agree among themselves on a way to avoid conflicts in compensation. The writing’s on the wall…just that most of the industy sheep are simply following the herd (or the judas goat?)
You must be kidding…Contingencies are about the broker promoting a certain carriers policies versus another. If you are the new kid on the block trying to break it the best way to do so is to have the best price…give the customer that margin you gave to the broker..that is the correct business model….
Contingents are not a problem. That general concepts exists in ALL industries. Within our P&C business teh problem is that there are not open markets to all agents like there is in Group Health. That truly levels the playing field and it is the agent that provides teh most value that wins the business and the client gets teh best terms and conditions.
Could you exlain that, Mark? In P&C, small brokers are at a disadvantage due to lack of direct appointments (1/2 standard commission) and don’t received contingents or profit sharing. the larger brokers are being rewarded only for their size, not for the quality or quantity of the services they provide…