CFA: Higher Agent Fees Don't Improve Service

He said CFA also found "plenty of companies where high commissions translate into lofty rates, with no gain in service quality."

CFA said it reviewed commission data from the 20 leading writers of insurance for both private passenger auto and homeowners insurance. The report compared total commissions with price, insurer profitability and service quality as measured by complaint data and consumer satisfaction indices.

According to the study, insurers with lower commissions tend to have lower rates, but not always.

Analyzing rate data for 30 territories around the country, CFA said it found an average commission of 3.9 percent for those insurers with personal auto insurance rates below the average rate.

The average commission paid by the insurers with above average rates was 7.7 percent. In home insurance, the average commission for those insurers with below average homeowners insurance rates was .3 percent. The average commission paid by the insurers with above average rates was 11.4 percent.

CFA said it found there is no evidence that paying higher commissions to an agent or broker produces either better service or higher consumer satisfaction.In fact, there appears to be no correlation between the amount of commission paid and the quality of service rendered.

The consumer group said by example, the average commission for personal auto insurers with far fewer complaints than average (less than 50 percent of the average complaint ratio) was 5.6 percent. Among other insurers with complaint ratios below the national average, the average commission was 8.4 percent. Among insurers with complaint ratios that exceeded the national average, commissions averaged 7.1 percent.

CFA mentioned United Services Auto (USAA) as a consistently low-rate insurer with excellent service ratings and advised that "military personnel and their families who qualify for USAA insurance should be sure to get a quote from USAA.

Nationwide, by contrast, tends to have high rates, CFA said.

The organizations said it appears that State Farm, which traditionally has offered very competitive rates, is offering rates overall that are slightly above average.

CFA said it has observed large State Farm price hikes during the last few years. According to CFA, this finding is surprising since State Farm has been known for its competitive pricing for decades. It recommended that "State Farm policyholders may want to shop around now if their rates have significantly increased over the last few years."

"In less competitive markets, some insurers may be tempted to attract market share by offering higher commissions to agents or brokers along with higher prices and, often, higher profits for the insurer," said Mr. Hunter. "Credit insurance is one area where this kind of ?reverse competition' is particularly common."

CFA said its study found that premium charges tend to rise with commissions, but this is not always true. Consumers, it advised, should be sure to get quotes from some of the lowest premium insurance companies, including the direct writers of insurance that typically do not pay commissions.

Some of the companies with the best service records, CFA said, have low prices and low or even no commissions.

CFA warned consumers that some producers representing more than one insurer could place the consumer in a higher-priced insurer with larger commissions even when the consumer qualifies for a lower price. States do not require agents or brokers to place the applicant with the best policy for the customer.

CFA advised buyers to ask agents who they are representing and if they are getting the lowest price among all the insurance companies that they represent, and also to get a full explanation of all fees and commissions and ask how they are being placed with a particular company.

CFA's study, "The Impact of Commissions on Prices and Service Quality for Home and Automobile Insurance," is online at http://www.consumerfed.org/commissions_home_auto_study.pdf .)