Hunter Says Contingents Need Closer Monitoring

WASHINGTON–A consumer advocate addressing agents here called for greater monitoring and regulation of contingent commissions, but stopped well short of calling for their elimination.

The comments from Bob Hunter, director of insurance, Consumer Federation of America, were made Friday when the Independent Insurance Agents & Brokers of America held a panel discussion and town hall meeting that also included a regulator, a congressman and two representatives of the insurance industry.

The participants were:

o Alex Soto, president of the IIABA.

o Tom Van Berkel, chairman, president and chief executive officer of the Main Street America Group.

o Roger Sevigny, insurance commissioner for New Hampshire and vice president of the National Association of Insurance Commissioners.

o Rep. Earl Pomeroy, D-N.D., former president of the NAIC and former insurance commissioner of North Dakota.

The program was held as part of the IIABA's Legislative Conference and Convention.

Robert Rusbuldt, IIABA's CEO and moderator of the program, joked that the audience could throw hand grenades at Mr. Hunter when it came to the town hall meeting portion of the program. But the verbal fireworks never materialized, despite sharp disagreements on some issues between Mr. Hunter and the rest of the panel.

Closest to the heart of many agents was the issue of contingent commissions.

In what may have been a surprise to some, Mr. Hunter called for the review and regulation of the fees, but did not advocate their abolition. He said the major problem is that there is a potential conflict of interest built into the program and because of that there needs to be regulation and monitoring.

When asked by Mr. Rusbuldt why there is no call for the abolition of similar incentive programs in other industries, Mr. Hunter said, “I don't know why. I study insurance.” He added that the outcry over the fees came from investigations that uncovered the conflict.

In defense of agents, Mr. Soto said the fees are “important to the health and well being of independent agents,” and to believe an agent would jeopardize his long-standing relationship with his client for a meager gain “is to fundamentally misunderstand the relationship of the independent agent with their client.”

Mr. Rusbuldt added that it is impossible for agents to rig bids, something the major brokers were accused of doing, because a company would laugh at them.

However, Mr. Van Berkel said while the illegal activities needed to be “shut down,” the end result will be more and more elimination of the contingents as carriers move to a flat fee.

In defense of what Mr. Rusbuldt termed the NAIC's silence on this issue, Mr. Sevigny told him that because the relationship between attorneys general and insurance commissioners differed in each state, it was not possible for the association to take a position. He added that in New Hampshire his investigation turned up no problems.

Probably the sharpest division between Mr. Hunter and the rest of the panel was the issue of company profitability.

He said carriers are making too much and with their profit they should be taking better care of clients.

“When making record profit it seems to me you should be behind your promises and hang with people when the going gets tough,” he said. Mr. Hunter singled out Allstate as one company that has not kept its promise because it is pulling out of markets despite premium increases.

By contrast, Mr. Van Berkel said that while the industry earned record profits last year, in the previous 10 years carriers posted only 7 percent return on equity, half of the rest of the Fortune 500 corporations. Despite this, he said the industry has managed to take care of its clients well.

Mr. Hunter was critical of the continuation of insurers' antitrust exemption under the McCarran-Ferguson Act, saying it does “sustain a cartel” with the control and manipulation of data.

He dismissed the idea that small companies would not be able to collect data to help them in their underwriting. He said there was no reason why uniformity in forms should not continue, but that states should exert greater oversight of the forms.

Mr. Van Berkel disagreed with Mr. Hunter's assessment, saying that small and medium-size insurers need the protection afforded them under McCarran-Ferguson. The inability to collect data, he added, would “create a hole in the marketplace.”

Both Rep. Pomeroy and Mr. Sevigny said the industry was being targeted for the wrong reasons and, as Mr. Pomeroy said, “You get frustrated with a catastrophe event like Katrina, but it doesn't mean you kick over the entire industry.”

Rep. Pomeroy added that he did not see any repeal of the act “on the fast track, nor should there be.”