Agents to Calif. State Fund: Please Pay Commissions

By | September 17, 2010

Insurance agents and brokers want the California State Compensation Insurance Fund to change its broker of service policy and instead recognize broker of record (BOR) letters.

While the policy not to recognize BOR letters is not new, the Alliance of Insurance Agents & Brokers last week made an appeal for change on behalf of its members at State Fund’s Board of Directors meeting in San Francisco.

Dale Debber, president of workers’ compensation ex-mod data provider Compline and the person spearheading the effort to modify State Fund’s broker of service policy, said now was an ideal time to bring up the issue because new leadership at State Fund, including the recent appointment of President and CEO Tom Rowe and several new board members, might be more receptive to his coalition’s appeals. Also, the Legislature is between sessions, so State Fund can act without his group threatening legislative action.

Compline’s efforts have received letters of support from the Alliance, Insurance Agents and Brokers Association of California and Professional Insurance Agents Association.

The disagreement in State Fund policy dates back to 1995. Prior to that year, the workers’ compensation insurer was a direct writer. After 1995, the company became a dual distribution company. If a company that had been written direct wanted to move its account and instead work through an agent or broker to procure its insurance, State Fund recognizes the broker as a broker of service, helping the broker with documentation to service the account, but does not pay the broker a commission, according to Jennifer Vargen, spokeswoman for State Fund.

“We have nothing that restricts a broker from charging [the client] a fee for service, and some companies do that if they want to,” she said. “But we retain today the ownership of the policy and don’t pay a commission on that business.”

For a broker to get a commission, the client needs to leave State Fund for at least one year, and when it comes back, the broker who procured the insurance then could get a commission, because the client is looked as a new acquisition, Vargen added.

“State Fund has adopted a procedure that is fundamentally and consistently unfair to California business owners and insurance brokers alike,” said Jerry Conrey, chief financial officer of the Alliance, which appeared on behalf of the Compline coalition. “This deprives business owners of the right to transfer their own account to responsible, licensed broker-agents and receive much higher levels of service and significantly greater value. This is an issue of fairness for California businesses. California businesses deserve the right to receive objective advice if they choose, by working with independent brokers. State Fund denies businesses that right by denying brokers fair compensation for their work.”

Clark Payan, CEO of Insurance Brokers and Agents of the West, agreed State Fund’s policy encourages the broker to look elsewhere to move the policy when he or she isn’t receiving a commission for the work put into servicing the account. “The contention is that if State Fund accepted the BOR scenario, it would increase the possibility of retention, which is in State Fund’s best interest.”

The Alliance appealed to State Fund’s Board of Directors at its recent meeting to create the change they promised — to comply with industry standards and allow normal broker of record relations with business owners and brokers. The group estimates about 90,000 policies have been directly written.

Payan said his organization supports the BOR process and has discussed the issue with State Fund for some time, but he suspects the insurer has not yet been able to make the change because it has been dealing with other priorities, such as changing leadership and workers’ compensation reform.

“Our message over time is that the BOR process is an accepted business practice in the industry, and recognizes the work for the product and work for the policy,” Payan said. “When we meet with State Fund, we talk about BOR as an accepted business, but also about other issues at play with our members. The topic falls within our agency advocacy process, and we’re happy to have a good relationship with State Fund on advocating on behalf of our IBA West members.”

Vargen said Rowe is reviewing the company’s distribution channels, as he reviews all of the organization’s operations and strategies.

“At this point we don’t have any changes to announce,” she said. “This is not a new issue. Distribution channels are one of the things we’re reviewing currently. Whatever we land on, we have to be sensitive to the fact that we are unique in our commitment to California to have an open market at all time, so we can’t restrict or force customers to go through a broker.”

Vargen estimated that just less than half of its business is written direct, but noted that figure is a “moving target.”

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