Do independent agents serve the insurance company — or the consumer?
One of the most perplexing aspects of the contingencies scandal is the accusation that contingencies lead agents to place business with the carrier that pays the most, not the carrier that provides the best product/price to the insured. I read a politician declare, in almost as many words, “Contingencies that steer clients away from the best price just so brokers can make big bonuses are wrong. Steering for bonuses will not be tolerated.”
Applying this argument to 99% of independent agencies and brokers is ludicrous. First, it assumes that agents have read their contracts, which most haven’t. Second, total contingencies from all companies provide only approximately 7% of revenues for the average agency — and this payout is far from guaranteed. Very few agencies would risk a huge E&O claim by placing a client with a company that didn’t provide the best coverage, especially for such a low payout that’s not even certain.
Third, if there’s an argument that agents have a conflict of interest with consumers, the issue lies with commissions, not bonuses. Being paid by one party but acting as an advisor to another opposing party appears to create a clear conflict of interest. This is the view of many attorneys who seem to believe that only one side can win — and it had better be their side. Their attitude speaks volumes about what’s wrong with our legal system.
I entered the insurance industry with no experience beyond paying Auto premiums that I believed were far too high for a 22-year-old single male. One of the first things I noticed about insurance agents was how hard they worked for their clients. To this day, nearly 20 years later, I’m still impressed almost daily by how far agents will go for their clients, even if in the process they bite the hand that feeds them: The company.
Most independent agents know (and many attorneys could benefit from learning) that an effective intermediary can help all parties to a transaction win. In the case of buying insurance, the carrier can grow and make money, the consumer can get a good deal and be protected — and the agent can make a profit from turning a “zero-sum” game into a non-adversarial, win-win-win situation. Although making sure that all parties win is tough and doesn’t always succeed, a good agent can usually make it work.
The best response to the supposed conflict-of-interest argument is that although insurance companies cut the checks to the agency, the agency doesn’t get paid unless the client stays happy. Steering business regardless of the client’s best interest won’t serve an agency well; especially when it is has only .000001% of the market compared with the 60% market share of the top brokers.
However, I still can understand how most people would believe that a conflict of interest exists — which means that eliminating contingencies won’t be enough. The issue involves something larger and will eventually impact agency commissions unless we educate politicians and regulators about the realities of compensation. These reformers have plenty of momentum, and public opinion, behind them.
Given this fact of life, sooner or later, every agent might well need to choose which “master” to serve: The insurance company or the consumer.