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PIA National Underwriter Op-ed: Don't Penalize Agents For Mega-Brokers' Sins

Compensation issues that first arose in late 2004 have again been in the news, in the wake of a decision by officials in New York,...
June 30, 2010

Compensation issues that first arose in late 2004 have again been in the news, in the wake of a decision by officials in New York, Illinois and Connecticut that opens the door to allowing the nation's three biggest mega-brokers to once again accept contingent commissions. One of the mega-brokers along with RIMS have been highly critical of this, calling contingent commissions "an inherent conflict of interest." In response, the PIA National Business Issues Committee (BIC) decided that PIA's position in support of contingent commissions should again be expressed to the entire insurance industry. PIA National staff secured an agreement with the National Underwriter to publish a feature article on the topic written by PIA Immediate Past President Kenneth R. Auerbach, Esq. That article was published in this week's National Underwriter.

"In Hollywood, a movie sequel is seldom as compelling as the original," wrote Auerbach. "The same is true about the manufactured controversy regarding contingent commissions in insurance. The sequel to the 2004 brouhaha regarding contingents is now playing. Although the original lead actor - New York's former attorney general and governor, Eliot Spitzer - was not available for the sequel due to a poor performance in an unrelated X-rated venture, many of the same players from 2004 are involved. The script has been updated, but the tired story line is the same."

Auerbach then traces the history of the issue of contingent commissions received by certain mega-brokers, several of whom had signed what were described as "voluntary" agreements to settle ongoing investigations by state attorneys general involving allegations of bid-rigging and account-steering, without admitting wrongdoing. By signing, they agreed to stop taking contingent commissions - although they successfully argued for an exception for when they operate as managing general agencies. This year when the three states lifted the restrictions on contingents, one of the mega-brokers along with RIMS embarked on a campaign against them.

"PIA members find it offensive when anyone casts aspersions on our professional integrity simply because we may receive a year-end bonus - one that is legal, ethical and transparent," Auerbach writes. "Main Street retail agencies have an ethical responsibility, a legal requirement and a business interest to serve their customers. They do not possess the size and market dominance required to engage in the kind of suspected market manipulation that was at the root of the 2004 controversies that set this all off. Our carriers' producer compensation systems were and are legal, ethical, effective and supportive of good competitive pricing dynamics."

"PIA will continue to fight for the right of carriers to reward their independent agent producers with such common sense compensation," Auerbach concludes. "The idea that this creates an inherent conflict of interest is just plain wrong. It is simply a sequel to a bad movie that has already flopped at the box office."

Don't Penalize Agents For Mega-Brokers' Sins (National Underwriter 6/28)