Joe Plumeri, head of Willis Group Holdings, launched a broadside at the independent agent community in last week's National Underwriter, not only citing the potential conflicts for any intermediary accepting contingency fees, but also urging buyers to remember who "independent" agents actually work for.
In his July 19 "Final Say" column (available at http://bit.ly/9KaCVW), Mr. Plumeri, chair and CEO of Willis, wrote that "whether you're a big global broker…or a local insurance agency…you can only serve one master. It's either the carrier or the client. You can't work for both."
Mr. Plumeri argued that those who accept volume-based contingent bonuses from insurers might be tempted to compromise their primary duty to place a client's business with the best company for the best terms and price, while profitability-based fee deals create a disincentive to provide aggressive claims service.
"Willis, unlike most retail brokers and agents, has planted its flag firmly on the side of its clients," he added. "That means not taking bonuses from insurance companies that would put us at odds with our clients' best interests."
This is old news. Since Eliot Spitzer, then New York's attorney general, exposed bid-rigging and account-steering among top brokers and insurers back in 2004, the propriety of contingent commissions have been hotly debated. For a time, they were banned for certain brokers. That ban has been lifted, although Willis continues to shun the practice and markets that choice as a competitive advantage.
However, Mr. Plumeri went on to challenge agents on a more fundamental level when he warned in his column that when doing business with an agent, buyers should be aware "they are dealing with a sales representative of the insurance company. There is nothing 'independent' about an independent agent. They work for the carrier, not the customer."
He also wrote that since "some agents count on these [contingent] payments for, maybe, 100 percent of their annual profits…those who buy coverage through an agent should know those agents aren't obligated to get them the best price, terms and conditions, or fight for them when they have a claim. No amount of compensation disclosure will change that fact."
As they used to say in the westerns, them's fightin' words! I can only imagine how many online comments we will receive about Mr. Plumeri's column, and I imagine the independent agency community's leadership will line up to respond in their own "Final Say" columns.
Mr. Plumeri's column was a response to an earlier "Final Say" on June 28 by Kenneth Auerbach, immediate past president of the National Association of Professional Insurance Agents and a managing director and general counsel of E&K Agency in Eatontown, N.J. Mr. Auerbach was inspired to write because of attacks by Mr. Plumeri and others who say contingents are by their very nature an irreconcilable conflict.
This dispute is particularly relevant given that New York is preparing to implement a controversial new producer compensation disclosure law, prompting some, including Mr. Plumeri, to declare that contingents and integrity simply cannot coexist. (See "Don't Penalize Agents for Mega-Brokers' Sins" at http://bit.ly/cY8u5x.)
Part of New York Insurance Department Regulation 194, scheduled to take effect Jan. 1, 2011, would require producers to describe to consumers their role in the insurance transaction. Clients could request a more detailed explanation about their agent or broker's compensation. Agent groups are suing to stop implementation (although the local PIA affiliate is not part of that suit.)
We welcome a continuing dialogue on this subject, particularly about the notion that independent agents are truly loyal only to their carriers, to the unavoidable detriment of their clients.
Does the average insurance consumer really understand that "independent" means agents are free to represent multiple carriers, but don't necessarily represent any and all insurers, along with the practical implications of that? I wonder sometimes.
I'm very curious to hear your views about this latest controversy. Is Mr. Plumeri just blowing smoke, or has he raised a legitimate issue here?
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