The investigations launched by Eliot Spitzer beginning in2004—and later followed by a slew of fact-finding missionsundertaken by state insurance departments across the country—havebeen described as a “feeding frenzy.” Spitzer's actions includedcharges of bid rigging and fraud, and resulted in a 2005 settlementwith Willis, Marsh and Aon that included a prohibition on accepting“gifts of material value” from insurers, stringent disclosure andtransparency requirements, and restitution exceeding $1billion.

“Even though there was this criminal activity that was limitedto these huge mega brokers, somehow that was used to infer that allagents were receiving these secret payments, and that all agentswere somehow deceiving their clients,” said Wesley Bissett, seniorcounsel for government affairs at the Independent Insurance Agentsand Brokers of America.

“Main Street got pegged with this whole issue when really it wasa Wall Street issue,” said Spencer Houldin, president ofWashington, Conn.-based Ericson Insurance Services. “It did gounnoticed with my consumers and really was unfair for us to evenhave been brought into it and have to live by some of thedisclosure laws and regulations that came out of it, because it isjust not an issue in the small independent agency.”

If lawmakers hoped to affect consumer behavior with theirinvestigations, they may be disappointed to learn that consumershave scant interest in producer compensation, and they've beenreticent to even associate the supposed conflicts engaged in by theBig Three with how their own Main Street agents conduct business.The issue, which turned the insurance industry upside down, seemsto have floated past consumers with little fanfare. And almost 5years after leading insurers agreed to eliminate contingentcommissions as part of Spitzer's crusade, the consumer reaction tothe issue is a big yawn.

Related: Read the article “Government Has No Business DictatingAgainst Compensation” by Eli Lehrer.

IIABA reports that customers rarely ask agents about contingentcommissions. “It is just not an issue that comes up,” Bissett said.“It is almost impossible to find an agent, even within New York,who has been asked for that information.” Bissett surmised that inother states, where the issue has received far less attention,consumer information requests are probably even less frequent.

Other than inquiries about a recent golf trip funded by thestate-chartered workers' compensation insurance company, DaveAdams, vice president of Denver-based ISU Insurance Services ofColorado, observed that consumers have little to no interest in thenuances of producer compensation. “I have been asked probably oncethis year.”

Houldin, who specializes in serving high networth individuals, said the issue went “unnoticed” by his clients.After several years of belt tightening and aggressive priceshopping, he said consumers' lack of interest in contingentcommissions sends a strong message: “I think it is very tellingthat the consumer doesn't care, because that consumer is turningevery rock over to try to find savings.”

Agents report most clients who ask about compensation are eitherinterested in how agents make money (e.g., if it is part of thequoted premium or if there is an additional fee) or are simplyfollowers of the financial world indulging their curiosity. “Wehave never really had it be an issue out here in Colorado,” Adamssaid. “Occasionally we would get, 'Hey what's going on with AIG?'or 'What's going on with Marsh?' and things like that, and we wouldexplain, but that is usually a very sophisticated buyer, a personwho is keeping up on the Wall Street Journal rather than the DenverPost.”

According to Todd Jones, president of Willis North America, someclients are still surprised by the subject. In general, he isseeing increasing awareness at the consumer level. “I would saythat more and more of our clients are becoming educated on thesubject and understanding what we believe are the inherentconflicts.” For its part, Willis alone among the Big Three hasrefused to resume accepting contingents, even though the settlementbanning them from the practice has been reversed. Instead, it hasundertaken a campaign, Clients Before Contingents, which outlinesWillis' position that contingent commissions are a conflict ofinterest in retail insurance.

Related: Read the Mark Ruquet article “Insurers, Brokers Settle2004 Bid-Rigging Suit”.

Seasoned risk managers are generally more knowledgeable aboutproducer compensation than average consumers, but Adams said thateven they are “not really interested with it at all either,”adding, “they are smart enough to know that all agencies have sometype of contingent commissions in place, most likely, for hittingtheir goals or whatever it may be with a carrier.”

Subsequent state investigations fizzledbecause, as Bissett said, “there weren't any problems ultimatelyidentified.” Despite the press attention, consumers did not connectthe Spitzer bid-rigging investigation to the actions of their ownMain Street brokers. “There was nothing that they heard that wasnegative about their agents,” Bissett said, “and there was no needto change the way in which they purchased insurance.”

Many within the industry today see the investigations as only amemory. “The issue of contingent commissions that was raised duringthe Spitzer era has receded into history,” said Ted Besesparis,senior vice president of communications at the National Assn. ofProfessional Insurance Agents and AA&B advisory boardmember. “Fortunately, the attempts by Spitzer and others to tarnishthe reputations of those who did nothing wrong were ultimately notsuccessful.”

Rather than facilitating deception and wrongdoing, agentsdescribe incentive programs as vital to maintaining a robustenvironment that's competitive and fair. Houldin said of the MainStreet agencies, “The contingent commission contracts that we haveI think are very healthy. I think that they are making sure that wewrite profitable business, that we stay hungry in themarketplace.”

Besesparis agrees. “The insurance industry pays up-frontcommissions and year-end bonuses [contingent commissions] in thesame way as other industries do. Contingent commissions are bothlegal and ethical.”

The level of consumer interest seems to have remained relativelystatic. “We have not seen any evidence that consumers are all of asudden more interested in what agents make than they were 10, 20,30 years ago,” Bissett said. “What we find is that consumers careabout what they have always cared about: Is the total priceappropriate? Is it a sound policy with proper terms and conditions?Is the company a highly rated company? What's its history of claimspayment? Those are the issues that consumers have cared about inthe past, and those are the things that we hear consumers continueto care about.”

Disclosure then and now

Houldin said his agency doesn't offer compensation informationunless a customer asks for it, although most customers receivedisclosure as part of the insurance companies' policies. “We do notdisclose for the simple reason that we do not think the consumerreally cares,” Houldin said. “It is just another piece of paperthat has to be produced and shown to them. But certainly, whenasked, we give full disclosure and we are happy to. And if I wasbeing asked 60 percent of the time, then I would probably make abusiness decision to just proactively tell them.”

Other agencies, such as Adams', offer the same disclosure theyalways have, where consumers interested in more information areinvited to inquire further. “Most of them do not even payattention,” Adams said. “We tell them, 'Hey, it just means that weare not going to place your business just to make sure we get abonus. We are placing you exactly where you fit in the insurancemarket.'” He said after that, consumers are ready to move on.

Related: Read the article “N.Y. AG Withdraws Charges Against MarshExecs” by Mark E. Ruquet

Only New York has a comprehensive, across-the-board disclosurerequirement, and “even in New York, you are not required todisclose your actual compensation,” Bissett said. “You only have todisclose that you are compensated and that if you, as a consumer,want more information, you have the ability to request it.” TheIIABA said that New York's disclosure requirement “was not ameasure that was considered by the legislature, and we arechallenging what the department did there because we do not thinkthey had the proper legislative authority to do it.”

Disclosure mandates spark worries that consumers will begin toplace more importance on producer compensation than is warranted,while making business processes more onerous for agents andconsumers alike. “If you mandate this sort of heavy-handeddisclosure, are we telling consumers to focus on that when it isnot—it should not be—the focus of what they are looking at anyway?”Bissett said. “I think that is the concern that we have.” He saidacross-the-board disclosure mandates are not justified from acost-benefit perspective. “It is a lot of work for agents andhardly any value for consumers at the end of the day.” Instead,agents recommend that consumers focus on the quality of the policyand the company behind it.

The (quiet) road ahead

The crystal ball shows little on the horizon for disclosuremandates. “What we see is this has been a very quiet, almostdormant issue for five years now, with the exception of New York,”Bissett said. “There is no indication or suggestion that otherstates are considering similar actions. I work with all the states,and I do not know of a single state that is contemplating enactingsome sort of measure that addresses contingent commissions ordisclosure in any way.”

When asked about what the future of disclosuremandates might look like, Houldin was circumspect. “I think it is abigger issue inside the industry than outside the industry,” hesaid. “I am a firm believer that we should have transparency anddisclosure, but I also do not think we should be creating burdenand wasting paper to deliver something that the consumer does notreally care about. I think we need to be completely transparentwhen asked and I think we need to certainly encourage theconversation, but to have me send out a disclosure notice when theconsumer does not really want to receive it, I do not think is asensible solution to anything.”

“I do not know, from a regulatory perspective, where things areheading,” Jones said. “I do think that we will continue to seepressure for full transparency, full disclosure of revenue streamsand how people are getting paid.”

“I think you will continue to see the competitive environmentplay itself out,” Bissett said. “Consumers who want to know moreabout how an agent is compensated will ask. If there are agenciesor brokerage firms that think they can get a competitive advantageby not receiving contingent commissions, they will alter theirstructures.” If legislators and public policy makers continue toallow the marketplace to function without interference, thecompetitive nature of the industry will likely offer sufficientprotection against improper or anti-consumer activity.

Many, including Besesparis, believe the government should not beinvolved in determining how producers are compensated, just asthere is little to no intervention in the pay structures of otherprofessions. “How insurance producers or anyone else is paid is abusiness decision; it is not something to be determined bygovernment bureaucrats,” Besesparis said.

For all the attention paid to incentive compensation structuresat the height of the investigations, agents aren't worrying aboutcommissions falling by the wayside. Houldin said that eliminatingbonuses would cause a shift in agent compensation resulting inlittle net difference from the current structure.

“What it would cause to happen, I am very confident, is that theinsurance companies would just simply have to raise commissions.”Houldin believes today's increased financial pressures givecarriers little choice. “I am confident, because they have to. Theyknow that we cannot survive. There are agencies right now, a veryhigh percentage, that are barely staying afloat as it is. If youtake away that income, they are going to sink.”