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Remarks Before the NAIC Forum on Competition in Insurance Markets

Mine is very much the perspective of a Main Street Insurance Agent. Despite the trend to consolidation among carriers and brokerages, our's remains a...
June 15, 2005

By Kenneth R. Auerbach, Esq.
Boston, June 14, 2005

Mine is very much the perspective of a Main Street Insurance Agent.

Despite the trend to consolidation among carriers and brokerages, our's remains a dramatically diverse and diffused industry.  There are well over 2,000 P&C insurers, not to mention the multitude of reinsurers.

This diversity in numbers is matched only by the diversity in appetite, specializations and talent among our carriers.  In fact, PIA's own studies indicate that our typical member has an ever increasing number of agency appointments reflecting the need to use more carriers with greater specialized appetites to properly match policyholders to insurers.  This trend also reflects the extraordinary competition that still exists for Main Street business and the agent's need to make sure that he has a stable full of carriers in hopes of appropriately matching one to a client's needs - covering your bases, if you will.  In fact, I can tell you that at the marketing meeting in my office, the discussion of each potential piece of new commercial business entails a discussion about the incumbent agent and carrier as well as who are the other competing agents.  Despite mergers & acquisitions, plenty of healthy competition remains in most states.

What this means for the customer is Choice.  But along with the blessing of choice comes the challenge of choice -- namely complexity.  That is where the professional, independent agents and brokers come in.

Independent agencies bring the value of simplifying and perfecting choice.  For the consumer, our value is two fold.  First, to educate the insured on the risks presented and how they may be alleviated.  Second, to conduct the marketing process with the object of forming the best possible match between the insured and the willing, capable and available insurers.

Now, at this point, let me touch on an important reality that seems to have been overlooked in the current investigatory environment.  All transactions that we All engage in for our livelihood contain an element of self-interest.

Common sense tells us that this does not go unnoticed by our clients.

The important question, however, is are we meeting the client's needs and expectations of service and value while being rewarded for our efforts.

If we laser beam our focus on a single transaction, its easy to suppose that a dollar in the agent's pocket is a dollar out of the insured's pocket.

And, to be fair, any agent whose vision can't focus beyond that one transaction is either incompetent, foolish or just greedy.  Such a myopic view -- failing to see beyond the next commission dollar -- will short change the client's interest and will even short change the self-interest of the agent.

As with any profession, if we serve our clients' long term good, we will likewise serve our long term good.

And we should all want a marketplace that has built into it mechanisms that secure the long term interests of the insurance buyer.  As I said, I think the key to an effective, efficient, competitive marketplace is to marry the long term interests of the agent and his client.

Truly caring for one's client entails making professional judgments as to what is the appropriate coverage with the appropriate carrier at the appropriate time.  Sometimes that will mean reducing coverage where justified by the savings.  Sometimes that will mean remaining with an incumbent carrier at a higher premium because prudence assigns a value to having a strong history with the insurer (claims dollars in the bank, if you will).  What is important for a healthy, competitive market is to have a regulatory framework which permits an agent or broker to exercise their judgement.  That is the definition of professionalism and that is at the heart of why clients come to us.

In this regard, wouldn't it be inappropriate for policymakers to hold us to a high professional standard of care indicative of other professionals while telling us our primary duty is to sign a binder with the lowest premium and lowest commission?  That's not professionalism, that's Priceline.  In fact, even a lizard can do that.

Yet, policymakers have voiced concern over compensation structures that reward an agent based on its overall book of business with the insurer.  However, as noted in the recent Wharton Study, "A significant degree of mutual trust is required in the placement of commercial insurance contracts by independent intermediaries, and such contracts are governed by the principle of "utmost good faith."  Thus, the policyholder relies on an agent's professionalism, as well as on the relationship between the agent and insurer when placing risks."  I can't tell you how often my clients and prospective clients tell me how important it is to them that I have lots of business with a carrier in hopes that I can throw my so called weight around on their behalf.

I'll just end by noting that in the coming months I'm sure we'll be speaking about the Wharton study quite a bit.  And while I'm sure that many of you have not had an opportunity to read it, let me just say one of its basic conclusion is something I've been going around the country since October telling anyone who would listen (although without the benefit of quantitative analysis) -- that for Main Street risks handled by Main Street agents competition is alive and well and the typical contingency agreements help properly match insureds and insurers so we all share a more efficient, healthy marketplace.