Agents Hit With Cheap Shot

Is the Independent Insurance Agents and Brokers of America lobbying against federal regulation out of fear it would facilitate more direct sales via the Web and telephone, thus bypassing its members? That's the ridiculous charge leveled by Datamonitor, a global analytical firm, which contends that while IIABA emphasizes concern for consumer protection, it has a hidden, self-serving agenda.

IIABA's "recommendation to keep the state-based regulatory structure intact is not wholly in the interest of the consumer...Indeed, the current regulatory regime favors agents and brokers, at the expense of the consumer, by making it difficult for insurers to sell direct," wrote Jonathan Steiman, a Datamonitor analyst, in a Feb. 17 "Independent Analyst Comment."

"IIABA's reasons for opposing the development of an effective federal regulator are simple," according to Datamonitor. "A federally regulated insurance commission would accelerate the amount of premiums sold direct over the Internet or through call centers. This is good for both insurers and consumers, but terrible for agents and brokers, which has provoked the IIABA's tenuously argued opposition."

Datamonitor contends that forcing insurers to apply for licenses in every state discourages them from launching national direct sales campaigns, thus insulating state-licensed agents from more competition.

"In short, the current regulatory regime is a classic barrier to entry, [as] enterprising players with hopes of selling direct cannot achieve the proper scale," Datamonitor argues. "Furthermore, existing national insurers with agent forces do not have great fears of new entrants selling direct, therefore they do not have the incentive to take the risk of moving away from their agent force and toward a direct-to-consumer strategy."

Datamonitor's Mr. Steiman concluded that "IIABA's opposition to a national regulator has little to do with the consumer, and everything to do with protecting the status quo of the U.S. insurance industry. This is a shame, because the status quo elevates the cost of compliance for insurers, which is inevitably passed on to the consumer. But even worse, the status quo hinders the growth of direct distribution, which is what today's customers want and tomorrow's customers will come to expect."

I think Datamonitor's argument is a stretch, at best. To suggest that IIABA is merely arguing against federal regulation to prevent the growth of Internet and phone sales is crazy!

I also dispute Datamonitor's basic premise--that consumers would benefit from more direct sales. NU's annual surfing surveys to see what it's like to try to buy insurance on the Web have revealed a process that's anything but simple, with consumers at risk of being misled, overcharged and underinsured.

Apparently, Datamonitor thinks consumers automatically get ripped off using an independent agent to shop for coverage, but I would argue you get what you pay for. Cut out the agent, and you are on your own. Good luck with that!

IIABA's fundamental and most compelling argument against federal regulation--which Datamonitor dismisses as "tenuous"--is that states have basically done an excellent job protecting consumers. It's no accident that insurance is the least of our financial problems right now--with the federally regulated banking and securities industries in far worse shape.

Is Datamonitor throwing agents under the bus to pitch its own services to insurers looking to go direct? Their e-mail did advertise a report--"Catching Up: Online Direct Sales in U.S. Personal Lines Insurance"--authored by Mr. Steiman.

Whatever Datamonitor's motivation, by dismissing the value of having an independent agent in your corner, they are the ones not putting consumer interests first.