Agents and Brokers Are Deserving of Fair Commissions

Employers would be far better served if the CDI focused on the reforms it helped enact rather than continue to cajole State Fund over commission levels.

Recently the California Department of Insurance issued a report suggesting that State Compensation Insurance Fund could reduce premiums to employers by reducing the commissions it pays to agents and brokers.

After 16 months of communicating with the commissioner and his staff about the tangible services that agents and brokers provide, we find ourselves again confronting a recommendation based on the mistaken notion that agents and brokers simply provide a fulfillment service to employers. If all agents and brokers did was pull the product off the shelf and ship it out the door, then clearly there might be reason to make this charge. But, as employers know, their broker or agent does much more than sell. Our members provide real services that help reduce employers’ costs and workplace injuries.

As agents and brokers we find it ironic that we have to defend our role in the workers’ comp system to the insurance commissioner since it ought to be obvious to him that we validate our value proposition every day in the marketplace with our clients. It is also frustrating because it ought to be patently clear that we too want to see premiums come down. Every agent and broker hates to deliver a large increase on renewal. We are in the relationship business. When one of our good clients gets irritated after receiving a huge workers’ comp premium increase and decides to “shoot the messenger,” the insurer loses the workers’ comp renewal but the broker or agent loses the whole account and often a friend.

A recent report by Standard and Poor’s is not very sanguine about the future of the California workers’ comp market, short or even long-term. Outsiders looking in on our state wonder why the commissioner is so focused on forcing down premium rates in the face of escalating costs; granted we hope costs will go down when SB 899 reforms are fully implemented. But it is far too early to know whether that will prove out.

Agents and brokers don’t want their clients to endure more market instability, set off by another round of cutthroat pricing. Yet members report that some companies, especially a few with not much experience in the line in California, are substantially underpricing the State Fund and each other to lure away business.

We at IBA West see it as our job to make this case. And we do it even though we risk the ire of the insurance commissioner on the one hand or insurers on the other.

I had the good fortune to work with the State Fund to set up its broker program. For 80 years the State Fund had permitted only “direct” sales, when in fact its applications were often prepared by an agent or broker, who wrote the rest of the account and helped the client behind the scenes. Our agreement with State Fund simply formalized the relationship with agents and brokers and compensated them for their efforts. As evidence of the importance of the broker program, State Fund eliminated its direct sales force. State Fund recognized our value and we in turn earned our place at the table by continuing to provide service to our customers.

At the insistence of the insurance commissioner, we’ve seen our State Fund commission rates cut nearly 50 percent. Plus there now are nearly 100 other classifications where there is no commission at all. But we still service this business because we don’t see the workers’ comp policy in a vacuum. We have a relationship with those employers, and we are committed to our clients. The workers’ comp simply is part of the larger portfolio of risk management services we offer our clients.

I suspect that most employers don’t care about the agreement we have with State Fund; they simply want us to service their account and to have State Fund as an option for their workers’ comp insurance. Frankly, they’d rather not even think about workers’ comp. That’s for us to obsess about.

But employers would be far better served if the CDI focused on the reforms it helped enact rather than continue to cajole State Fund over commission levels. The cost-saving reforms in SB 899 will not be realized unless we all give our full attention to developing and implementing the required guidelines and regulations. Let’s work together and make sure that gets done right. That is the only way we will truly reduce costs for employers.

In the way of a postscript, I would like to add that the title to this column “Parting Shots” is not of my making; and my commentary is not intended as such. In the first instance, though I will be retiring as CEO of IBA West at the end of this month, I will continue to be an advocate for IBA West, especially in Sacramento, as a consultant. Moreover my comments here are intended only as a spirited defense of the value that agents and brokers bring to the workers’ compensation system. They deserve much better. In time I sincerely hope that everyone, including our good insurance commissioner, will agree.

Jerry O’Kane is the executive vice president and CEO
of the IBA West. His special areas of expertise include strategic planning, insurance laws and regulations and agency mergers and acquisitions.

Topics California Agencies Workers' Compensation