Texas Independent Agents Oppose Agency Compensation Settlements

The Independent Insurance Agents of Texas reported it has joined other agent groups in denouncing the latest attack on independent agents and agency compensation represented by the settlement between St. Paul Travelers and the attorneys general of New York, Connecticut and Illinois. Among other requirements, the settlement limits the payment of contingency income, including profit sharing, on certain lines under certain conditions.

The St. Paul Travelers settlement follows a similarly worded settlement by the three attorneys general with Zurich. The settlements were negotiated following allegations that the companies participated in bid-rigging and other anti-competitive practices with broker Marsh & McLennan Cos. The income paid by these companies to brokers included income contingent upon steering business to the company.

IIAT President-Elect Robert Hempkins said agents are frustrated by this latest settlement. “Honest agents who are following the law and producing profitable business for their companies should not be punished for the sins of the few. Yet, insurance companies continue to buckle under to the bullying tactics of a handful of ambitious politicians. It is time for agents to speak up and voice their objection to these attacks,” Hempkins said in IIAT’s announcement.

According to IIAT, this settlement agreement, like its predecessor with Zurich, is based on wrong assumptions and unfairly targets an innocent group of retail agents. For instance, the agreement applies to lines of insurance, such as personal lines, that have no proven connection to the kinds of misbehavior that gave rise to the allegations of wrongdoing. The settlement also does not apply to captive agents who also are compensated for both production and profitability. Perhaps the most inexplicable part of the settlement agreement is a far-reaching requirement that St. Paul Travelers support any legislation that eliminates agency contingent income.

“This settlement attacks profit-sharing agreements with no proof that such agreements actually result in anti-competitive behavior. The contingent compensation negotiated by Marsh and other large brokers bears no resemblance to the typical agent’s profit-sharing compensation which is under attack today,” Hempkins said.

Hempkins said the companies may be the real victims of these settlements. “Ironically, in the long run, these agreements may have the worst effect on the companies that sign them. If the settlements result in the loss of profit-sharing agreements, these companies will have lost one of the best underwriting tools available to them.”

Source: IIAT