Consumer Advocate: Regulate, Not Eliminate, Contingent Commissions

May 3, 2007

Contingent commissions for agents and brokers should be watched by regulators but these profit-sharing arrangements do not necessarily have to be eliminated, according to a leading insurance consumer advocate.

“I think they need to at least be regulated and moderated,” Robert Hunter, director of insurance, Consumer Federation of America, said before a gathering of independent agents recently.

Hunter stopped short of calling for the elimination of contingent commissions, as some attorneys general have done in settlements with insurers, during a panel at a town hall-style meeting at the National Legislative Conference & Convention of the Independent Insurance Agents & Brokers of America (IIABA) in Washington, D.C.

Others on the panel sympathized with agents and brokers caught up in the controversy over profit-sharing payments but suggested agents should prepare for changes.

“Unfortunately contingency commissions and the local independent agent got dragged into this and as a result it’s become very confusing,” commented Rep. Earl Pomeroy, D-N.D., who is a former state insurance commissioner. “I think as we go forward we are going to see a fundamental shift in the way agents are compensated and more and more companies are going to be looking at eliminating contingency commissions they had in the past.”

Attorney generals “are not good regulators,” New Hampshire Insurance Commissioner Roger Sevigny told the agents. “But I think [former New York Attorney General Eliot] Spitzer kicked up legitimate problems. We need to be diligent and be proactive and when we’re not, when we have attorneys general get involved, things may go well beyond the things addressed.”

Panelists discussed the state of the industry post-Hurricane Katrina and the mistakes that were made, but also discussed possible solutions such as a federal backstop or a tax credit for homeowners.

Tom Van Berkel, chairman and CEO, Main Street America Group, said he thought restoring insurance markets for disaster-prone areas should be a multi-step approach. “One thing is rate deregulation,” he said. “I think we need to be able to match exposures with price…a federal fund, along with some tax-free reserving for homeowners.”

Sevigny added, “Tax deferral on reserves for catastrophes, we believe that’s a good thing…tax credits, we believe that’s a good thing and stricter building codes we believe are a good thing.”

In regard to the federal Terrorism Risk Insurance Act, Hunter said that while he initially supported it, he is not in favor of a renewal but thinks renewal will pass.

“When 9-11 happened, I was the first person to call for TRIA…saying you got to do it by the end of the year, he said. “But then I watched what happened …so I changed my position… But I think NBCR (nuclear, biological, chemical, radiological) will be added and I think Congress will back that up.”

Panelists also discussed a possible repeal of the McCarran-Ferguson limited antitrust exemption, which among other things permits insurers to share loss data.

“What my fellow agents want are more markets and more choices for consumers in Florida,” said Alex Soto, IIABA president and a Miami agent. “We’re told time and time again, they (companies) will have difficulty having confidence in doing business if they don’t have historical loss data and the ability to use aggregated information under McCarran Ferguson.”

Sevigny noted that he believes the reason that Congress wants to look at repealing McCarran-Ferguson is misguided. “I can tell you that as a body, the NAIC [National Association of Insurance Commissioners] believes the repeal of the exemption would be bad for the consumers. …and our job is to protect the consumers,” Sevigny said.

When asked of the prospects of the antitrust repeal legislation in Congress, Pomeroy calmed those concerned. “I don’t see anything at all on the fast track for McCarran, nor should there be,” he said.

Source: IIABA

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