For years, it's been standard operating procedure for many insurance carriers to fly their top producers to swank resorts, where business was discussed and relationships cultivated. But the party is literally over–at least for American International Group, following a brouhaha sparked by the company's federal bailout.

Members of Congress were furious to hear reports about how executives at the cash-strapped AIG were getting spa treatments at expensive hotels, where high-performing agents were invited to talk strategy and enjoy some tender loving care on the carrier's dime.

“Average Americans are suffering economically,” said Henry Waxman, D-Calif., chair of the House Oversight and Government Reform Committee that grilled AIG executives about how its crisis came about. “They are losing their jobs, their homes and their health insurance. Yet less than one week after the taxpayers rescued AIG, company executives could be found wining and dining at one of the most expensive resorts in the nation.”

AIG Chief Executive Officer Ed Liddy–after initially defending the events as necessary to maintain business–conceded the company realized its situation had changed, and that “we owe our employees and the American public new standards and approaches.” As a result, he said, AIG would no longer conduct business as usual–not only cancelling 160 conferences and events, but also halting its lobbying activities, drastically cutting executive compensation and promising to try to recover bonus payments.

However, what makes this subplot of the much bigger AIG drama a top news story in its own right is the debate generated over such trips as incentive compensation.

In my Oct. 10 blog and Oct. 20 magazine column, I challenged the propriety of treating producers under-the-table to attend fancy resorts as a reward for delivering either a certain volume or quality of business, wondering whether it might corrupt the carrier selection process.

I suggested that at the very least, agents and brokers should disclose such bonus compensation to buyers, and let the client decide whether they wanted their account considered in such situations.

No other blog or column of mine received more responses or harsher criticism. While a handful backed me up (many voicing their support anonymously on my blog), most were outraged, taking my reasoning to task on both practical and moral grounds.

Some insisted that “everybody does it,” suggesting that to halt the practice would put a “holier-than-thou” carrier at risk of losing producer business. “It's a marketing arms race out there, and you have to use every trick in the book, or lose,” complained one company executive.

Others said there is no such thing as a free lunch–noting agents had to pay taxes on the cash value of such junkets. Still others argued that the time spent with top carrier executives and their agency peers is invaluable in securing markets and learning new approaches from colleagues.

Ominously, a few said junkets are the least problematic conflict, warning that buyers should be far more concerned about how differences in commission rates impact an agent's placement decision.

Perhaps the best comeback was that it would be professional suicide in a highly competitive market for agents to place business solely on the basis of which carrier sends them on the nicest trip, ignoring price and coverage shortcomings at their own peril.

These are all reasonable rationalizations, but my fundamental challenge remains: If carriers don't think these trips help them land more business, why spend millions to host them?

It's most likely agents are hopping mad because they are loath to surrender what might be the last real perk in an increasingly impersonal market. I can't say I blame them.

Special Reports /

#8: AIG Forced To Give Up Producer Junkets

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