New York–Insurance executives said they believe contingent fees will remain part of the independent agent compensation package, and companies would have to develop an alternative reimbursement if legislators outlawed them.
The comments concerning the controversial fees, that have been the focus of regulatory scrutiny, were made Saturday in New York at the annual conference of the Independent Insurance Agents & Brokers of America based in Alexandria, Va.
Their remarks were delivered during a panel at the Young Agents Conference, held in conjunction with IIABA's meeting.
"I do not think contingents will be taken away," said Thomas M. Van Berkel, president and chief executive officer of The Main Street America Group based in Jacksonville, Fla. "We intend to continue contingent commissions. There is nothing wrong with them and they are defensible."
"I don't think the issue will get to the level you all are concerned about," observed F.W. "Bill" Purmort, president and chairman of the board for Central Insurance Companies based in Van Wert, Ohio. He added that even if the fees were taken away, "You [independent agents] have to be compensated fairly for what you do and the industry will have to find a way to compensate their distribution centers."
'If the laws were changed, we would have to change our compensation plans," said Marita Zuraitis, president of The Citizens and Hanover Insurance Companies, a subsidiary of Allmerica Financial Corp., based in Worcester, Mass. "I don't see why good sales behavior should not be compensated."
"I don't think the consuming public has a problem with the way we are compensated," said Thomas A. Grau, president of IIABA.
Mr. Grau said that New York Attorney General Eliot Spitzer's findings that incentive-based fees paid to brokers involved with commercial insurance sales led to bid-rigging and price-fixing were understood by consumers to involve a small segment of the industry.
He said it did not appear the allegations of kickbacks and steering of insurance contracts in return for profitable contingent commissions based on volume placements was a widespread practice in the industry.
Ray Thomas, chief executive officer for Schaumburg, Ill.-based Zurich North America Small Business, said the allegations uncovered by Mr. Spitzer were blown out of proportion, and the practices have proven to be isolated instances. The actions of a few have been addressed and appropriate action has been taken against them, he said.
He defended contingency fee arrangements, noting that preferred compensation arrangements are imbedded throughout American industry, and added that a significant portion of an independent agent's compensation comes from such arrangements.
"There is nothing wrong with those contracts," said Mr. Thomas. "Other than that one circumstance, with the aspect of Spitzer, where it was a trial out of control without due process."
The fee compensation topic was also raised yesterday during IIABA's opening session.
"It is right to have incentives in business," said Fredrick H. Eppinger, president and CEO of Allmerica Financial. "What we do is to compensate for excellence."
He said he was concerned that one outgrowth of the investigation would be the production of excessive paperwork that would be "just silly."
Robert J. Joyce, chairman and CEO of the Westfield Group, based in Westfield Center, Ohio, echoed Mr. Eppinger's concern, saying, "We should not hide what we do for the fees that we get, but I do fear regulations."
He said that would create the issue of complying with different rules in 50 different state jurisdictions.
"This has given the industry a black eye that we have to overcome," observed Mike McGavick, CEO of Seattle-based Safeco. "But [Mr. Spitzer] has gotten out a vile element in our industry, and the sooner the better."
© 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.