In response to the recent policy statement by the Risk and Insurance Management Society regarding contingent commissions, the Independent Insurance Agents of Texas reaffirmed its continued support of contingent compensation for independent agents and issued the following opinion:
In its statement, RIMS proposes “a business model for the insurance industry which does not provide for, offer or make available contingent commission arrangements for the brokerage industry.”
While the policy statement makes a distinction between brokers and contracted agents, it condemns all forms of contingent compensation.
IIAT President Robert Hempkins commented: “To condemn an industry-wide compensation system solely because of abuse by a few large brokers is to grasp at an easy solution at the expense of the many honest independent agents who offer choice to their customers.
“This policy statement implies that agents who are contracted with carriers cannot act on behalf of their clients. That is untrue and unfair,” said Hempkins. “The independent agent’s ability to build a profitable book of good clients gives that agent more influence over underwriting, coverage and claims issues with carriers, which benefit the customer in many ways,’ he added. “Often, the independent agent serves as a risk manager for many small to medium size business customers.”
The statement claims that only with the elimination of all contingent compensation plans can the risk manager make “full and informed decisions” about the purchase of insurance. “If that were true,” said Hempkins, “the bottom line quote would be meaningless.”
“If a risk manager is not satisfied with the cost of insurance or the service provided by the broker, then change brokers,” added Hempkins. “There are lots of options in this marketplace.”
IIAT does support disclosure of compensation arrangements to clients. Hempkins commented that “Texas law requires disclosure of income when fees are charged to clients, and we support additional disclosure when the client requests it, but in the end, insurance buyers should care more about the total cost and the service they are getting from the agent and the carrier. Risk managers who are focused on compensation plans to the exclusion of other aspects of the insurance purchase, run the risk of being penny wise and pound-foolish.”
“Loss of contingent compensation would likely increase the cost of insurance to smaller customers,” said Hempkins. “Agents must be adequately compensated for the work they do. If contingent compensation goes away, carriers will be forced to pay more up front commission to their agents. That’s a direct sales expense that will immediately impact the cost of the customer’s insurance. Contingent compensation is a variable based partly on profit of the entire book of business placed with the carrier not just the experience of one policy. Neither underwriters nor agents think in terms of contingent compensation when quoting business.”
Source: IIAT, www.iiat.org.
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