This debate is not merely academic, as word comes out of New York that Attorney General Eliot Spitzer's office has ordered ACE, AIG, St. Paul Travelers and Zurich to stop paying contingency fees to producers on auto, homeowners, boiler and machinery, and financial guaranty insurance under agreements to settle bid-rigging charges. Meanwhile, Connecticut Attorney General Richard Blumenthal said he might seek legislation to ban all contingency fees–at least in commercial lines.

So what should become of contingency fees? Most readers agree that as long as buyers are aware of such bonus arrangements–and don't object–the government should mind its own business.

“I am with the small agents on this,” wrote one producer. “The big guys made their deals in order to stay in business, and this should not obligate others to abide by those deals. I am, however, a proponent of transparency, and I believe that the small guys must disclose their contingency arrangements to their customers.”

Another reader said that “in America, many industries compete by rewarding sales and service performance with bonuses tied to a variety of metrics–volume being only one of them. The key to consumer protection is transparency, which should apply throughout the value chain.”

Another producer wrote that by exposing contingency fee abuse, New York Attorney General Eliot Spitzer “did a lot of good, but now we must protect the industry against over-reaction from politicians and (apparently) big brokers.”

“If politicians can't understand that the entrepreneurial culture throughout American business has incentives for sales/profit success as the cornerstone of private enterprise, and that the independent agency system is part of that sales culture, then it's up to us to make sure they understand. It's obvious the big brokers don't,” he added.

Meanwhile, PIA Western Alliance Executive Vice President Clark Sitzes wrote to say that Michael D'Arelli's WIAA is not the only group speaking out against those who would punish agents for the misdeeds of national brokerages, citing their own passionate public outcries.

I never meant to suggest Mr. D'Arelli was alone in his outrage, but his tirade did capture the essence of agent resentment over being arbitrarily grouped with those rogues who cheated clients.

However, one reader had a very different take. “Reform the system! Eliminate all contingency fees,” he wrote. “Agents and brokers should be compensated on straight commissions so customers can know what they are charged. Carriers should not be allowed to pay out an insured's excess premiums in contingency fees to any agent or broker, big or small! We need to clean up our act in this business and then let the public know it.”

This debate is far from over. In fact, it is just beginning. Agents must keep speaking out or risk losing a vital source of income for no good reason.