Contingent Fee Criticism Draws More Heat
By Mark E. Ruquet
NU Online News Service, Jan. 27, 4:28 p.m. EST?Insurance industry groups continued to heap criticism on the Consumer Federation of America for comparing independent agent's contingency fees for personal lines business to alleged payoffs made to Marsh brokerage for commercial business.[@@]
Three industry groups?the National Association of Professional Insurance Agents based in Alexandria, Va.; the American Insurance Association in Washington, D.C; and Des Plaines, Ill., Property Casualty Insurers Association of America?roundly criticized the CFA's report, calling it "absurd" and "wholly without merit."
David Snyder, AIA vice president and assistant general counsel, slammed J. Robert Hunter, CFA's director of insurance, for making "absurd statements about the competitive nature of the property-casualty industry [that] lack any factual basis."
"There is nothing new or valid in this so-called ?study,'" said Leonard Brevik, PIA's executive vice president. He said Mr. Hunter, "as an American, is entitled to his opinions, and he is also entitled to be wrong as often as he desires. He is wrong once again."
"[The] ?study' makes a quantum leak between the payment of ?contingent commissions' and the steering of business by independent agents to certain insurance companies to the detriment of consumers," said PCI in a statement.
CFA said it found "wide use of troubling contingency fees" that could lead to similar problems with conflicts of interest that have risen with MMC. Marsh MacLennan Companies, the parent of Marsh brokerage, has been sued by the New York attorney general for bid-rigging and accepting from insurers payoffs to steer business their way that were reported as fees.
The CFA said fees paid to agents could lead to unscrupulous agents manipulating the reporting of claims and steering business to carriers paying more profitable contingent fees to the detriment of the consumer.
The groups said the report jumps to conclusions that are not based on the facts. PCI pointed out that the figures supplied by CFA show only that contingent fees are paid and does not show evidence of steering.
Mr. Brevik took Mr. Hunter to task for questioning the integrity of agents, noting he made the same allegations before Congress in November of last year.
Both PCI and AIA disputed the notion in the report that there is a culture of non-competitiveness in the industry, stating that there is tremendous competition.
The Independent Insurance Agents & Brokers of America weighed in on this issue yesterday, also criticizing CFA's report (see NU Online, Jan. 26, "Insurer Fees Sway Agent Placements, Group Charges").
The report went on to say that consumers can avoid the potential conflict by dealing with captive agents or direct writers who do not receive contingent commissions.
In response to the criticism, Mr. Hunter said that he has "not heard anything substantive yet" in the criticism.
"It's a knee jerk reaction of anger rather than a careful analysis," he said. "I did not say anyone did anything wrong; I said there is a potential for conflict for agents and brokers who are getting commissions."
"I'm not here to please people," he added. "I just report on things of interest to people."
The full report can be found at www.consumerfed.org/contingent_commissions_study.PDF.
© 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.