In Hollywood, a movie sequel is seldom as compelling as theoriginal. The same is true about the manufactured controversyregarding contingent commissions in insurance. The sequel to the2004 brouhaha regarding contingents is now playing.

Although the original lead actor–New York's former attorneygeneral and governor, Eliot Spitzer–was not available for thesequel due to a poor performance in an unrelated X-rated venture,many of the same players from 2004 are involved. The script hasbeen updated, but the tired story line is the same.

When last we left the issue of contingent commissions receivedby certain mega-brokers, several had signed what were described as"voluntary" agreements to settle ongoing investigations by stateattorneys general involving allegations of bid-rigging andaccount-steering.

By entering into these agreements, the firms did not admit toany wrongdoing, but did agree to stop accepting contingents.However, almost immediately, several argued successfully that theyshould be allowed to accept contingent commissions when acting asmanaging general agencies.

Commission disclosure was part of the settlements becausemega-brokers were allegedly taking fees from insureds whilecollecting undisclosed money from carriers for essentially the sameservice.

In contrast, how Main Street independent agents get paid is verytransparent. In the vast majority of transactions, the customer isfully aware they don't pay us (the insurance company does), andwe've never objected to the customer having a clear understandingof that relationship.

Consumer protection is the paramount issue, and that is achievedby existing regulations that (1) make sure the buyer knows the costof the product through clear disclosure of premium; and (2) requirecommission disclosure when we ask the client to pay us a fee toavoid the perception we are working only for them as opposed to thebuyer and the carrier as well.

Over the ensuing years, the mega-brokers were successful intheir continuing efforts to have authorities peel away in layersthe restrictions their legal settlements had imposed on theirability to receive contingency compensation in many areas.

Meanwhile, they argued that the practice and compensationrestrictions brought about by investigations of alleged mega-brokermalfeasance should also be applied to Main Street agents, who werenot involved in any wrongdoing.

So let's be clear: Main Street retail independent insuranceagencies–which are, not so coincidentally, their major competitorsin the retail market segment–were punished for something theydidn't do.

But Main Street agencies were successful in court, as well. PIANational in 2006 was the first to file a "friend of the court"brief with the U.S. District Court for the District of New Jersey,in opposition to certain aspects of one of the proposedsettlements.

Our main point of contention: the settlement agreementsattempted to create a remedy for alleged wrongdoing and then imposeit on those who were not involved in any wrongdoing. The agreementsshould not be extrapolated to others, especially Main Streetagents, just because we operate in the same retail insurance marketspace.

Beginning in 2007 and through 2009, the courts declared there isnothing illegal about contingent commissions, as long as there istransparency. Three of the mega-brokers moved forward to petitiontheir state attorneys general and insurance regulators to modifytheir settlements accordingly.

By early 2010, an agreement was reached with officials in NewYork, Illinois and Connecticut that opens the door to allowing thenation's three biggest mega-brokers to once again accept contingentcommissions. As part of that agreement, the three have agreed toabide by new disclosure regulations currently being drafted by theNew York Insurance Department that have become the subject ofcontroversy among independent agents in New York, and use thosesame regulations in all states, Washington, D.C., and all U.S.territories.

The Independent Insurance Agents and Brokers of New York and theCouncil of Insurance Brokers of Greater New York jointly filed alawsuit to prevent the New York Insurance Department fromimplementing a proposed producer compensation disclosure law.

PIA of New York has made a strategic decision not to join in thesuit, but rather to continue ongoing discussions with thedepartment to make the new disclosure regulation less onerous forindependent agents, if it is ultimately adopted.

So the courts have weighed in and declared contingentcommissions to be legal, and New York is developing a regulationfocused on disclosure that does not ban contingent commissions. Endof story, right?

Not exactly. Against this backdrop, some have argued thataccepting contingent compensation constitutes an inherent conflictof interest. We disagree. Among the mega-brokers, some alsodisagree.

As reported by National Underwriter on April 27, 2010,the chief executive officers of several major brokerages roundlydisputed criticism that contingent commissions are an inherentconflict because total disclosure eliminates the issue.

John L. Lumelleau, president and CEO of Lockton, said: "Theissue is not contingents; it is behavior." Daniel S. Glaser, chairand CEO of Marsh, called the debate over contingency "a bit of ared herring" and "not a litmus test of conflict of interest." GregCase, president and CEO of Aon, observed: "Ultimately what isimportant is the value for the price that clients receive."

PIA members find it offensive when anyone casts aspersions onour professional integrity simply because we may receive a year-endbonus–one that is legal, ethical and transparent. Main Streetretail agencies have an ethical responsibility, a legal requirementand a business interest to serve their customers. They do notpossess the size and market dominance required to engage in thekind of suspected market manipulation that was at the root of the2004 controversies that set this all off.

Our carriers' producer compensation systems were and are legal,ethical, effective and supportive of good competitive pricingdynamics. The free enterprise system, which includes insurancecarriers, must have the freedom to structure their compensationsystems as they see fit and not have their competitors dictate tothem what is acceptable.

Contingents permit carriers to reward the most professionalagents who give them accurate underwriting information and businessthat fits their market niche. This results in a more efficientmarket with lower premiums for consumers.

Efforts to ban contingent commissions, yearly bonuses or anyform of incentive compensation must be seen for what they are:anti-competitive attacks on how our American free enterprise systemoperates.

One or more mega-brokers at the top of the insurance marketplaceshould not be able to dictate to, and therefore exert top-downcontrol of, the entire industry as to what is acceptablecompensation. And when attempting to do so, these mega-brokersshould not be permitted to perversely argue that extending the kindof sanctions placed on them to their retail Main Street competitorswould "level the playing field."

PIA has consistently advocated that insurance customers shouldbe fully aware of how we get paid. And rules governing disclosuresof producer compensation should not interfere with, misdirect orstifle competition, leaving insurance consumers with fewer choices,and lessened value.

Accurate, timely and useful disclosure rules for consumers'benefit should be the ultimate goal. Such viable rules would avoidless useful, unduly unreasonable or burdensome disclosuredirectives.

The members of PIA reaffirm our position in defense of commonsense compensation that is legal, ethical and transparent. It hasserved our industry and businesses throughout our economy well.

PIA will continue to fight for the right of carriers to rewardtheir independent agent producers with such common sensecompensation. The idea that this creates an inherent conflict ofinterest is just plain wrong. It is simply a sequel to a bad moviethat has already flopped at the box office.

Kenneth R. Auerbach, Esq. is the immediate pastpresident of the National Association of Professional InsuranceAgents, headquartered in Alexandria, Va. He is a managing directorand general counsel of E&K Agency in Eatontown, N.J.