Don't invite the leaders of the Western Insurance Agents Association to the same dinner party as J. Patrick Gallagher Jr., the chairman, president and CEO of Arthur J. Gallagher. Last week, the WIAA issued its latest salvo over the loss of contingency fees, thanks to misbehavior by the big brokerages, slamming Mr. Gallagher in response to the Jan. 31 article on our NU Online Daily News Service, in which he indicated his firm is getting along just fine without contingent commissions. The WIAA said that Main Street producers must be “wondering if the lunatics have taken over the asylum” after hearing what they described as Mr. Gallagher's “self-serving comments.”

In our story, we quoted Mr. Gallagher as stating that the decision by St. Paul Travelers and Chubb to abandon contingent compensation was very good news.

Perhaps its very good news for Gallagher and the other large commercial insurance brokers on Wall Street, whose alleged bid-rigging and anti-competitive conduct led to settlement agreements which now prohibit them from receiving contingent compensation, but it is not good news for the thousands of hardworking independent insurance agents and brokers on Main Street who follow the law, Alan Smith Jr., President and CEO of the WIAA Group, responded in the group's release.

The response gets more heated as it goes on.

“The position of many large commercial insurance brokers on Wall Street seems to be, 'now that we cant receive contingent compensation, neither can anyone else,' and it reminds us of the schoolyard bully who takes other kids lunch money,” he said.

On behalf of the insurance agents and brokers on Main Street who were not engaged in bid-rigging or anti-competitive behavior, please cease your efforts to bastardize contingent compensation, which is completely lawful and legitimate when earned by those not engaged in unlawful conduct,” he added.

“As we have noted in our past admonitions, it would be wise for the large commercial insurance brokers who have signed settlement agreements to take their medicine, sit down, and shut up, again, according to Mr. Smith.

The group added that “society treats those who exceed the limits of the law differently from those who follow the law. Law-abiding agents and brokers on Main Street should not be selfishly told by large Wall Street insurance brokers, who are now barred from receiving contingent compensation, that such compensation is suspect. Shame on you, Mr. Gallagher.”

The group also took issue with Mr. Gallagher's comment that we embraced transparency the past year, and our clients like it. WIAA contends that this “leads one to the inescapable conclusion that the insurance industry is devoid of transparency, preferring to conduct business in some dark hole.”

“The overwhelming majority of independent insurance agents and brokers on Main Street have built their businesses honestly, ethically and 'transparently,' the group added. “They should be unapologetic in their acceptance of contingent compensation, which is simply a bonus for good performance, a bedrock principle of the free market system paid throughout American industries and professions.”

In their parting shot, the WIAA concluded that “as someone who has recently decided to embrace transparency, perhaps Mr. Gallagher could illuminate agents and brokers on Main Street as to whether or not he will be foregoing his bonus compensation in his personal services contract. If he is asking hardworking agents and brokers on Main Street to forego their bonus, equity and fairness would demand that he live by the same standard.”

I can't blame Mr. Smith and his WIAA colleagues for being furious. New York Gov. Eliot Spitzer, while serving as the attorney general who exposed broker bid-rigging and contingency fee abuse, never offered one instance of an independent agent cheating their clients. Yet Main Street agents are seeing contingents go the way of the dinosaur, thanks to settlements negotiated with carriers who were partners with brokers that steered clients their way for their own benefit.

It stinks, it isn't fair, but it's a fact all producers–innocent or guilty–will have to adjust to, just as all public companies, honest and crooked, had to adjust to new disclosure mandates in the wake of Enron thanks to Sarbanes-Oxley.

Still, talking about the loss of contingents as if it's a virtue, and rubbing salt into the wounds of honest agents, is unnecessary. Mr. Gallagher should stop talking as if the brokerage fee scandals were the best thing that ever happened to the industry.

Special Reports /

Agents Vs. Brokers, Round Two

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