We must provide some clarity and focus around comments made by Terry Fleming, president of the Risk and Insurance Management Society, in his “Final Say” in NU's Sept. 6 edition, regarding both the compensation of insurance producers and the disclosure of this compensation.

First, Mr. Fleming's comments (available at http://bit.ly/adxFLp) would lead a reader to believe that all insurance transactions are the same.

Anyone familiar with the insurance industry knows there are significant differences between large, complex exposures and the sale of a mono-line auto insurance policy, as there are significant differences between the sale of a standard term life insurance policy and a complicated group medical insurance policy.

We make this point to emphasize that the way in which compensation is earned on these transactions can be equally different and therefore cannot easily be slotted into a one-size-fits-all disclosure approach.

In New York, a broker may be paid by a party other than the insurer only if a written agreement between the producer and the client is in place. Because of that requirement, compensation–including any profit sharing–is disclosed as a standard part of the arrangement, and from what we understand about RIMS members, that probably covers the vast majority of their insurance purchases.

Our position is simply that insurance is too complex to have a one-size-fits-all, mandated, burdensome disclosure r?gime.

We believe that the way RIMS has supported educating insurance buyers on how to work with their brokers, including compensation approaches, is much superior to mandated disclosure.

Second, we simply disagree with Mr. Fleming's assertion that there is an inherent conflict presented by profit-sharing arrangements. The contrary is actually true.

Profit-sharing aligns the interests of clients with the interests of the insurer and producer by providing an incentive for well-underwritten business to be placed, strong loss control and mitigation to be put in place, and timely claims adjudication to be undertaken.

Profit-sharing agreements are ethical, legal and helpful tools for putting all parties in the insurance transaction in a better position.

Finally, Mr. Fleming erroneously undermines his argument by maintaining that compensation disclosure only works when it is mandated. The reality is that any interested buyer today can ask their agent how they are compensated, and no one should overlook the fact that Mr. Fleming and his colleagues are currently able to request and obtain any reasonable information about an agent's compensation that they desire.

Voluntary disclosure works, and it works best because it enables a producer to respond in a tailored fashion in those rare instances when a buyer wants or needs compensation-related information.

In contrast, the prescriptive and heavy-handed approach proposed by advocates of government-mandated disclosures imposes considerable costs on Main Street agencies, slows the responsiveness of producers, and forces agents to make disclosures that most customers have no interest in receiving.

Even the most carefully crafted mandatory disclosure substitutes the speculation of a regulator for the informed decision of a client, and there is simply no justification for heavy-handed government interference in this area.

The vast majority of consumers are interested in the cost of the policy and comparing those costs, the coverages, the financial health of the insurer and more–not in comparing the compensation received by agents and brokers.

We hope Mr. Fleming and RIMS will continue to provide education and guidance to insurance purchasers and take a step back from the failed policy on mandated disclosure and profit-sharing arrangements.

Bob Rusbuldt is President and Chief Executive Officer of the Independent Insurance Agents and Brokers of America. Dick Poppa is President and CEO of the IIAB of New York.

Special Reports /

Agent Groups Defend Voluntary Disclosure In Producer Compensation Controversy

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