Reacting to an investors’ conference last week at Keefe, Bruyette & Woods in New York, the Western Insurance Agents Assocation issued a release indicating it is upset that brokers and insurers who broke the law are discouraging the practice of paying contingent commissions.
“What on earth could the large brokers have been thinking when they said … that they are surprised contingent commissions have not been banned throughout the industry and that they couldn’t understand how a double standard of compensation can exist in such a highly regulated industry?” WIAA said in a statement. “Caught with their hands in the cookie jar, have these large brokers undergone some sort of deathbed conversion?”
“Some of the major brokers and some insurers have broken the rules and they want to punish all agents and brokers, and attack their livelihood, even those who follow the rules. Perhaps the real enemy in the fight to keep contingent compensation afloat are those wrongdoers who have now become so desperate in the marketplace that they are fighting to save their own skin by pulling everyone else down. It is really sad and unfortunate,” said Michael D’Arelli, WIAA vice president of legislative and regulatory affairs.
WIAA said “it condemns the conduct of insurers, agents, and brokers who have violated and undermined the public’s trust and confidence. Those who have engaged in illegal bid-rigging and anti-competitive behavior should be held accountable to the fullest extent of the law. But WIAA believes it is bad public policy to punish the good deeds of many for the bad deeds of a few. Its members and the overwhelming majority of insurance agents and brokers everywhere go the extra mile each and every day to engender the public’s trust and confidence, and poorly contrived statements and policies that smack of industry-wide wrongdoing erode that trust and confidence.”
“One cannot help but notice the irony, that these recent comments to abolish profit sharing and contingent compensation are coming from major brokerage executives, whose own compensation is no doubt tied to profit, performance, or both. How dare these hypocrites counsel others about tying compensation to profit,” D’Arelli said.
“On behalf of America’s insurance agents and brokers working on Main Street, not Wall Street, how could you blacken the eyes of the industry with alleged anti-competitive and bid-rigging activity, then attempt to appease regulators by agreeing to abandon the completely lawful practice of paying contingent compensation, and shamelessly attempt to force all other agents and brokers to do the same, in essence to pay the price for your bad behavior? This is just unbelievable chutzpah,” he added.
The WIAA cited a May 2006 research paper, titled “An Examination of the Role of Insurance Producers and Compensation in the Insurance Industry,” funded in part by the Independent Insurance Agents & Brokers of America, that said, “Properly structured contingent compensation arrangements seek to reward the intermediary for various activities, including: 1) bringing accurately priced, properly underwritten business to the insurer; 2) assisting the insurer in retaining existing business; 3) promoting the growth goals of the insurer; and 4) managing the losses on business placed with the insurer. In addition, contingent commission structures provide incentives for the producer to assist the consumer in ‘improving’ the risk. That is, the producer is encouraged through these compensation arrangements to assist the consumer in taking proper loss control steps to mitigate the risk that the consumer faces.”
“Contingent compensation” properly aligns the interests of the parties in insurance transactions, and should not be given a pejorative meaning, despite the recent abuses by a few bad apples,” WIAA said.
WIAA, however, said it and the overwhelming majority of independent insurance agents and brokers do agree with one of the statements uttered at last week’s investors’ conference by J. Patrick Gallagher, president and CEO of Arthur J. Gallagher & Co., when he said: “I don’t see Marsh, Aon, Willis and Gallagher necessarily ever receiving retail contingent commissions again, and I don’t know if the rest of the world out there is ever going to give them up.”
“We don’t believe the rest of the world is ever going to give up contingent compensation, and why should they? They haven’t done anything wrong,” D’Arelli said. “However, if the insurers and large brokers who allegedly engaged in anti-competitive behavior and bid-rigging continue to undermine the legitimate and lawful use of profit sharing and contingent compensation, WIAA will be the tip of the spear in an all-out war to defend the rights of agents and brokers on Main Street and Wall Street to accept profit sharing and contingent compensation.”
WIAA represents more than 900 insurance agencies in California, Nevada, Arizona and New Mexico.
Source: WIAA
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