Big ‘I’ Agents Join Court Fight Against Zurich Compensation Pact
Insureds,
For a New Year’s post and the last one before the start of Mississippi’s legislative session next week, I’m going to get a bit obscure on you.
The item from September says that the trade group representing 300,000 insurance agencies and brokerages filed an amicus brief opposing a class action settlement in federal court in Newark, N.J., in which Zurich Insurance agreed to require agents to tell customers how much Zurich IS PAYING THE AGENTS for the customers’ business. (Sorry about the capital letters; ITP just got a MacBook Pro and hasn’t learned how to bold face.)
Check out this quote from an Insurance Journal story. The Big “I” is the Independent Insurance Agents & Brokers of America:
“Agents oppose having to inform their customers of Zurich’s compensation practices, and also object to other conditions set forth in the pact.” (Sorry, no italics yet either.)
The point is, check your calendars: it’s nearly 2007. Six years after Enron and two years after Spitzer turned the industry upside down on the issue of so-called “contingent commissions,” undisclosed payments from insurers to brokers in return for placing customers’ business, the agents are going to court to prevent Zurich from making them disclose how and how much they are paid.
Here’s a quote I find really problematic: “>If other carriers follow the Zurich settlement approach of requiring > agents and brokers to implement CARRIER COMPENSATION DISCLOSURES, the > multitude of forms will exacerbate CONSUMER CONFUSION, and > create inefficiencies in independent agencies,” said (Big I Chief Robert) Rusbuldt.
And here’s another, also pretty bad. > “If disclosures about compensation or ANY OTHER ASPECT OF INSURANCE TRANSACTION are NOT EASILY UNDERSTOOD by customers or are ignored, the > TRANSPARENCY intended to promote greater consumer understanding of > insurance transactions and costs would be ENTIRELY FRUSTRATED,” noted > Debra L. Perkins, Big “I” executive vice president and general counsel.
ITP says: Hmm. I don’t blame the Big I for not wanting to take on extra paperwork, but the argument — that COMMERCIAL customers might not understand it — is pretty lame. The problem, of course, is that they WILL understand it and see the conflict for what it is.
Listen, ITP isn’t against contingent commissions, it supposes. But, if I’m Big I — and I like Bob Rusbuldt very much for reasons I’ll get into later — I don’t want to be going to court on this. There SO MUCH more to say about those 300,000 AGENCIES (not just people) and their cost to the system. Again, I like the Big I, but I’m not sure they’re going to like the ITP. It’s been a great year.
But a couple things before we go. First, ITP’s congratulations are in order:
“Vermont’s Captive Industry Celebrates 25th Birthday.”
That’s super. Way to go, you Green Mountain guys ‘n gals.
On a more sobering note, here’s something to think about — and heed — before the holiday weekend.
28.5 MILLION PARTY HOSTS LIKELY UNDERINSURED
New Trusted Choice(r)Survey Finds Hosts Grossly Unprepared for their Liability
I think that speaks for itself. From all of us here at ITP HQ, Happy New Year.
December 29th, 2006 at 2:50 pm
2007 ought to be an interesting year. What’s it been, seven years already since Y2K wiped out humanity? Time flies.
I was looking over the second linked article. They suggest hiring security. The place my wife and I are going to (a house party) will have enough off-duty cops and sheriffs, with guns attached, already. So they should be covered.
Anyhow, Happy New Year ITP. Don’t get the war eagles too drunk.
December 29th, 2006 at 3:13 pm
Thanks, Mike.
War Eagle can’t handle his liquor and appreciates the thought.
December 29th, 2006 at 4:32 pm
Another excellent one from the Person Familiar with the situation:
“The contingent commissions you’re talking about are for agents, who, it’s
important to note, represent the seller of insurance and not the buyer,
unlike brokers who are supposed to represent the buyer. The contingencies
typically are profitability and volume — good goals for the insurer to
encourage. The regulator’s valid point, of course, is for the buyer to be
told in simple, easy-to-understand terms how much that extra commission adds
to the cost of the coverage to help with comparison shopping. Agents get
different contingent commission deals with different carriers for different
types of coverage. If buyers get all this detail about the load (expense
ratio), then buyers will be able to make more informed decisions about how
to spend their insurance budgets — for example, on premiums that may be
lower per dollar of exposure because the insurer is more interested in
providing a good insurance value than in paying bigger bonuses to producers
than the competition is offering. One might be tempted to compare sales
incentives in insurance to similar promotions in traditional retail products
to justify the secrecy around the practice as harmless to the consumer, but
the comparison doesn’t work because the cost of goods to build, say, a car
and the resulting value of the car are 100% known the day you buy it. When
you buy insurance, one seldom knows how much the insurance will be worth
until there’s a claim, but you do know — or should know — exactly how much
you paid the insurer’s agent to sell you the coverage. By the way, when you
buy a car, it’s pretty easy to negotiate away a big chunk of the sales
commission to get the price closer to what you’re willing to pay. Try that
with your insurance agent and see what happens. Blank stares, I predict.”