Former New York Attorney General Eliot Spitzer (now the state's governor) probably has few friends among independent agents and brokers. His investigations of the insurance industry, starting back in October 2004, have led several insurance companies to agree to stop paying contingent commissions on some or all lines of business, as of the first of this year. Since Spitzer's probe, as well as those of other state attorneys general, have focused primarily on the behavior of a few national brokers, particularly Marsh, independent agents and brokers feel with good reason that they have been unjustly penalized by the settlements the AGs have reached with such carriers as ACE, AIG, Chubb, Travelers and Zurich.

Well, if it's any consolation, the results of the 2007 American Agent & Broker Readership Survey indicate that the settlements' effects might not be as pronounced as some have feared. In our survey, precisely one-third of the 315 respondents said they represent at least one carrier that has done away with contingent commissions in at least one product line. Their responses, however, also indicate that while the revenue loss may be significant, it probably will be crucial only for a relatively small percentage of agents.
Specifically, we asked readers for the first time what percentage of their “bottom-line profit” in the prior year was attributable to contingent commissions. The majority of survey respondents, 59%, checked off “less than 10%.” Another 30% reported that contingencies made up 10% to 25% of profits. Five percent said contingents accounted for 25% to 50% of their profits, while the remaining 6% indicated they were responsible for more than 50%.
Those findings indicate that the loss of contingent commissions under the attorneys general settlements, while undoubtedly painful, so far might not be the crisis that some people have envisioned. (I've seen reports in which contingents were said to represent 50% or more of profits for practically all agencies, and 80% or more for many of them.) Particularly if insurers provide agents with some kind of alternative compensation, as some already have indicated they will, the adverse effects of the Spitzer settlements are probably manageable. (The drive by some attorneys general to eliminate contingenices altogher is another matter.) Indeed, our annual readership surveys have always shown that many agencies don't get any contingent income in a given year. For instance, in this year's survey, 39% of the respondents said they didn't receive contingent income in 2006. That was up from 31% in last year's survey.
This year's survey was conducted via our Web site, a first for the magazine. About 4,000 readers were invited to complete the survey online, and 315 did. In contrast, we conducted previous surveys by mailing questionnaires to a group of 750 randomly selected agents, along with a follow-up to encourage response. Last year's survey was completed by 342 agents. Thus the two approaches produced comparable sample sizes. No doubt the different ways in which they were obtained, however, may affect some of the results. For instance, in last year's survey, 80% of the respondents were agency principals or managers. In this year's survey, 71% were. In contrast, the percentage of producers completing the survey rose to 18% in this year's survey from 12% last year. Among other things, it's possible they might not have as accurate a picture of their agencies' finances, including the significance of contingencies, as the owners and managers do.
In this year's survey, 40% of the respondents were from “urban/suburban” markets (versus 47% last year) and 17% from “suburban/rural” (compared with 23% last year). Seventeen percent of the respondents characterized their markets as simply “suburban,” and 13% each called them “urban” or “rural.” (The comparable figures from last year were 10%, 10% and 12%, respectively.)
In regard to staff size, 26% of the respondents work in agencies with 15 or more employees, while 32% work in shops with fewer than four people. Nearly a quarter (24%) of the respondents work in firms with four to six employees and 18% are on staff at agencies with 7 to 14 workers. Now let's look at a few other stats from this year's survey.
Production: In this year's survey, 19% of the respondents reported premium volume greater than $20 million. Eleven percent had $10 million to $20 million in volume, and another 11% put their volume between $5 million and $10 million. Almost 40% of the respondents had $1 million to $5 million in volume. Perhaps reflecting the effects of the soft market, 63% of the respondents said their volume increased last year, down 6 percentage points from last year's survey. In this year's survey, 59% of the respondents said they derive more than 50% of their volume from commercial lines. That was up 2 points from last year. About 30% of the respondents to this year's survey have full-time life or health insurance producers, essentially unchanged from last year.
Technology: The trend for agencies to “go paperless” continued to be evident in this year's survey. Sixty percent of the respondents have document management systems, up from 54% in last year's survey and from 42% the year before. Just under 60% of the respondents work for agencies that have Web sites, essentially unchanged from last year.
Networks: In this year's survey, 19% of the respondents said they were members of some kind of agent network or cluster. That was up from 15% last year but comparable to the 20% figure reported in our 2005 readership survey.
Markets: In this year's survey, 38% of the respondents represent 10 or more property-casualty companies, while 27% represent six to nine. Twenty-nine percent have contracts with two to five insurers and 6% get by with a single company. The comparable figures from last year's survey were 37%, 32%, 27% and 4%. Furthermore, 84% of the respondents placed coverage with an MGA or surplus-lines broker in 2006, unchanged from the year before.

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What's Going On: Survey results put contingency cuts in perspective

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