A leading consumer advocate addressing a conference of independent agents called for greater monitoring and regulation of contingent commissions, but stopped well short of recommending their elimination.
J. Robert Hunter, director of insurance for the Consumer Federation of America, addressed the issue during a panel discussion and town hall meeting at the Independent Insurance Agents & Brokers of America's Legislative Conference and Convention.
Robert Rusbuldt, IIABA's chief executive officer and panel moderator, joked that the audience could throw hand grenades at Mr. Hunter, a frequent opponent of positions taken by the industry. But verbal fireworks never materialized in spite of sharp disagreements on some issues between Mr. Hunter and other panelists, which included two industry representatives, a congressman and a regulator.
Closest to the heart of many agents attending the session was the issue of contingent commissions.
In what may have been a surprise to some, Mr. Hunter called for their review and regulation, but did not advocate abolition. He said the major problem is that there is a potential conflict of interest built into contingent commission programs, 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, IIABA President Alex Soto said the fees are "important to the health and well being of independent agents," and to believe an agent would jeopardize his longstanding 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.
Tom Van Berkel, chairman, president and CEO of the Main Street America Group, based in Jacksonville, Fla., said while the illegal activities needed to be "shut down," the end result will be more and more elimination of contingents as carriers move to flat fee arrangements.
In defense of what Mr. Rusbuldt termed the NAIC's silence on this issue, New Hampshire Insurance Commissioner Roger Sevigny, who is also vice president of the National Association of Insurance Commissioners, told him that because the relationship between attorneys general and insurance commissioners differed in each state, it was not possible for the NAIC 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 that with their profits 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-sized insurers need the protection afforded them under McCarran-Ferguson. The inability to collect data, he added, would "create a hole in the marketplace."
Mr. Sevigny and Rep. Earl Pomeroy, D-N.D., agreed that the industry is being targeted for the wrong reasons. "You get frustrated with a catastrophe event like Katrina, but it doesn't mean you kick over the entire industry," said Rep. Pomeroy, who is a former insurance commissioner of North Dakota and former NAIC president.
He added that he did not see any repeal of the act "on the fast track, nor should there be."
"When making record profit, it seems to me you should be behind your promises and hang with people when the going gets tough."
J. Robert Hunter, Director of Insurance
Consumer Federation of America
"You get frustrated with a catastrophe event like Katrina, but it doesn't mean you kick over the entire industry."
Rep. Earl Pomeroy, D-N.D.
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