You are here:HomeIssuesBroker Disclosure of Compensation2005PIA Leaders Address Compensation Disclosure Issues at Annual Meetings of ASCnet and CPCU Society

PIA Leaders Address Compensation Disclosure Issues at Annual Meetings of ASCnet and CPCU Society

WASHINGTON, October 28, 2005 - The ongoing controversy over the issue of compensation disclosure in the aftermath of investigations by New York Attorney General Eliot...
October 28, 2005

Borowski Raps Carrier-Specific Disclosure Policies, Auerbach Outlines Policy Solutions

WASHINGTON, October 28, 2005 - The ongoing controversy over the issue of compensation disclosure in the aftermath of investigations by New York Attorney General Eliot Spitzer was addressed by leaders of the National Association of Professional Insurance Agents (PIA).

PIA Senior Vice President Patricia A. Borowski, CPIW, CAE, presented a three-session seminar entitled Producer Compensation Disclosure Affects You October 19 & 20 during the annual meeting of ASCnet (Applied Systems Client Network).

PIA National Secretary/Assistant Treasurer Kenneth R. Auerbach, Esq. participated in a panel discussion entitled To "B" or Not to "B": An Interactive Discussion on Agent & Broker Quoting Practices and Compensation Plans during the annual meeting of the American Institute of CPCU (Chartered Property Casualty Underwriter Society) October 23 in Atlanta, Georgia.

During the agent-carrier segment of the part three program, Borowski noted that PIA began advising carriers as early as November of 2004 to avoid adopting carrier-specific voluntary producer compensation disclosure notices and procedures, because such carrier efforts could possibly create a series of legal conflicts for their insurance agents and brokers.  Referring to PIA's policy outline and discussion formally shared with carriers in an open letter of May 2005, Borowski noted that PIA's central concern was the potential of carriers creating extra-legal obligations and imposing them on their producers.  PIA offered its assistance, taken by a number of insurers, but a few have elected to "do their own thing."

"Some carriers are actually issuing amendments to the agency agreement telling you that you must disclose all your compensation on all transactions," said Borowski. "And understand, this is not only when you charge fees and collect compensation from an insurer. No. These few carriers are imposing this obligation on you even when you are acting exclusively as their agent and all your compensation is paid by and included in the insurer's premium price for every placement."

Borowski added that it is "particularly unacceptable and abhorrent when such carriers impose this 'full' producer compensation disclosure and then bluntly refuse to provide the direction, the guidance, the detail, the wording to their agents of exactly what they mean by 'full' disclosure of all compensation."

"Carriers, I think unwittingly, are attempting to have it both ways, and the outside legal counsels that are driving this clearly do not understand the current insurance laws governing this entire issue for each party, i.e. agent or broker and the insurer, as well as their mutual issues.  They have no concept as to the scope of potential extra-legal obligations that they are manufacturing and then imposing on their agents for there is little in law to guide their efforts. Our position is 'no way,' especially at the expense of independent agents," she said. "Agents facing such extreme carrier demands must join PIA's efforts and also advocate on your own behalf, otherwise you are possibly taking on extra-legal obligations that, absent that directive from the carrier, you are not otherwise obligated to do nor are expected to do under state insurance requirements, or under insurance common law as it is currently defined."

Borowski added that she has even seen language from one carrier that has issued an addendum to its agency agreement that says that the agent releases the carrier from any obligation or any cause for any action that arises from the issue of a disclosure for fee or compensation service. "PIA members believe in taking responsibility for their errors or omissions whether under insurance common and/or compliance law.  This is why we support all insurers including a clearly worded provision in their agreements that states the agency is to comply with all laws applying to their agency operations and activities.  Ergo, such extreme additional and unconditional indemnity exclusion for the carrier is unwarranted, unacceptable, and a potential manufactured and imposed conflict of interest by such an insurer."

The actions taken by Spitzer were against a handful of players employed in the top tier of the mega-broker segment of the market, she noted, and centered on allegations involving three broad areas, none of which would have been prevented by disclosure regulations: fraud; misrepresentation; and abuse of unique market position.

The appropriate public policy response to compensation disclosure is to focus on dual compensation, according to Borowski and Auerbach.

"When should public policy require agents and brokers to disclose their compensation? PIA believes we need a regulatory response to defects in the market that hurt consumers," said Auerbach during the CPCU panel. "The cases investigated by Attorney General Spitzer are a perfect example.  Those few cases involved mega-broker employees who, for all intents and purposes, completely controlled the market and dictated terms to insurance companies. The Main Street agent serving the typical Main Street business can't do that.  Mr. Spitzer's investigations also demonstrate where regulation would be most helpful - that is, in reigning in the clear conflicts of interest created by dual compensation - that is, taking money from both the insured and the insurer."

"It is imperative that any policy solution intended to address the egregious conflicts of interest and breaches of fiduciary duty we saw in this case not disrupt the competitive marketplace, not confuse the insured with unhelpful notices and not deny the preponderance of conscientious, ethical agents & brokers the privilege of being a part of the American Free Enterprise System," Auerbach said. "As with any profession, if we serve our clients' long term good, we will likewise serve our own long term good.

Founded in 1931, PIA is a national trade association that represents member insurance agents and their employees who sell and service all kinds of insurance, but specialize in coverage of automobiles, homes and businesses. PIA will celebrate its 75th anniversary in 2006.