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The Mackoul Group Mackoul Fuel…. For Thought
Producer Compensation- You Can’t Legislate Integrity
Robert E. Mackoul, CLU

The more things change the more they stay the same. The NY State Insurance Department reached agreement with the three “Big Boys” of our industry, Marsh, Willis and AON to permit each to once again receive contingency fees or profit-sharing. The NY State Insurance Department said in the press release that this was done….. “to help consumers by providing a level playing field for insurance intermediaries, on which they can easily be compared.”

Yes, and the next time I sit down with the any members of the NYS Insurance Department, I am sure to invite their friends, Alice in Wonderland, Peter Pan and the Easter Bunny, to join the meeting. What world are the people in the State Insurance Department living in??

Level playing field….let’s look at the playing field that these “brokers” play on. Aon from 2006 to 2009 had revenues grow from $6,700,000,000 to $7,600,000,000. Are you counting the zeros. Aon grew in revenue in the soft market by $900,000,000*. That is not premium. That is $900,000,000 in revenue. Am I supposed to applaud them for “voluntarily stopping contingent commissions” in 2004.

Marsh received contingent commissions in 2003 and 2004 (when it stopped receiving contingents) that totaled over $1,265,000,000. That is 1.2 billion dollars in profit sharing, or contingent commissions!!! Are you getting the picture? I wonder why the NY State Insurance Department doesn’t get it? What do any of us have in common with “brokers” that are public corporations, whose stock is listed on the New York Stock Exchange, who employ tens of thousands of employees wordwide, and are larger companies with more clout than the insurance companies that they “broker” business to.

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We’ve have all been duped. After the scandal in which these giants were convicted for immoral, unethical and illegal practices, they threw 60,000 hard working insurance agents and brokers nationally “under the bus” in the name of transparency. They created the furor over broker compensation and disclosure and in the process painted every single hardworking insurance professional as a shyster. Now years later, they and the NYS Insurance Department have come to the realization that it is only fair that they not be treated any differently than the hardworking agents and brokers who they sabotaged in the first place!! Sad. Really sad, but true.

The NY State Insurance Department has issued their final producer compensation regulation and it is going to be challenged in court by IIABNY. From a public relations point of view it can’t be good for us agents and brokers, because, naturally we’ll once again be painted as an industry having something to hide. My feeling is completely different. I have never been asked how much money I would earn on any property casualty, life, health, or benefits case I have ever written, by any prospect or client. I believe clients don’t care. They deal with agents and brokers because of confidence and trust, and the knowledge that their agent/broker is one who looks after their best interests. The State Insurance Department in their quest for transparency, has taken the actions of a very few and painted our entire industry with a brush that they should have reserved specifically for the “Big Boys”. They have nothing in common with the hard working insurance agents and brokers that serve the public, who the regulation is designed to protect and benefit.

The State Insurance Department hasn’t learned that they cannot legislate integrity. But the department should understand the difference between the “Big Boys” and their clients, and the insurance agents and brokers that actually serve the public so ably and professionally. There has been no clamor by the public for producer compensation disclosure, and the words “transparency” and “level playing field” have been manufactured in the past few year to address and issue that doesn’t exist.

*Source- Insurance Journal February 17, 2010