Fee Debate Wont Die
At night, vampires rise from their coffins. When the moon is full, tortured men turn into werewolves. But what, pray tell, prompted the controversy over broker compensation to rise from the dead and run amok? Is it political opportunism? Na?ve ignorance of "the way its always been done" in the industry? Or is it buyer mistrust of intermediaries coming to a head again?
Tongues are wagging furiously about the various government probes and where they might be heading. I fanned the flames by suggesting that it might be time to reconsider the inherently conflicted system of commission-based compensation and perhaps replace it with negotiated feesat least for those buyers sophisticated enough and willing to go that route.
Will the changes ahead be that radical? Or will minor fines be levied for show and inconsequential reforms hoisted on brokers? Two reader e-mails I received about the fee debate and its implications are worth sharing.
Anthony Verreos, an agent from San Francisco, is nervous. "While both insurer and agent associations seem to pooh-pooh the idea of this being serious, I think the record shows that their successes tend to be more in the lobbying arena, and not in the courts," he wrote. "I'm certainly not comfortable betting my future income on the ability of insurers or agent associations to protect me!"
However, Mr. Verreos is willing to embrace change. "Twenty or more years ago, I came to the conclusion that the status quo in property-casualty insurance was flatly unfair. The way I see it is that our small customers may be either paying us far too little for the services they receive, or at times far too much, because a commission rate never has any bearing on the work required either to apply, shop, or service an account. The same goes for the larger customersome pay 10-times more, but the work is no greater, and others may pay two- or three-times more, but require four-to-10-times the effort."
He went on to contend that "the agents who say it all averages out are wrong, and I doubt they'd want to be charged on that basis at a restaurant or gas station, or by their CPA or attorney."
However, while change might be necessary and perhaps inevitable, Mr. Verreos urged caution before turning the industry upside down, warning that "regulators who think they can meddle with a system as vast and crucial as insurance without understanding the consequences are asking for trouble."
Meanwhile, a Nashville agent wrote that she believes it's unfair to put brokers on the hot seat over contingency fees. "What about competition the fact that any client can just pick up the phone and call another agent at any time to get a different quote? What about the responsibility of the agent as not only a representative of the client but also of the insurer? Agents have professional underwriting responsibilities in the process of quoting a risk."
This agent said the government should be focusing on bigger threats facing the insurance market than brokerage fees "What about the fact that such frivolous suits brought by wealth-seeking plaintiff attorneys only undermine the financial health of agents and brokers overall and thus in the end result in worse service for the average insurance client?"
Brokers dodged a bullet in the late 1990s, stalling the debate over contingency fees by agreeing to disclose all such arrangements. I think it's unlikely they'll get off that easy this time around. What about you?
Sam Friedman
Editor-In-Chief
Reproduced from National Underwriter Edition, June 25, 2004. Copyright 2004 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.
© Arc, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to TMSalesOperations@arc-network.com. For more information visit Asset & Logo Licensing.