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A Brief History of Contingent Commission Agreements http://www.insurancejournal.com/magazines/west/2005/02/07/f...
didn't exactly amount to double-dealing, it did confuse the question of Agency Success Lessons Learned from Computer
just who brokers were ultimately serving. As contingent commissions Manufacturers
grew into an important revenue source, some national brokerages by Alan L. Shulman
pushed their people to write more policies for insurers who paid them.
By the late 1980s, the practice had become widespread. At this point, World's Biggest Broker Faces Uncertain Future
many brokers were more focused on earning those contingent by Charles E. Boyle
commissions than getting customers the best deal. But the
What Makes a Great Owner'
arrangements were generally unknown about outside the insurance
by Catherine Oak
industry.
Q&A with USI Holdings' Jeff Jones
By the mid-1990s, the situation was complicated even further as
insurance transactions began to be placed nationally, rather than Crossing the Border: Mexico Travel Offers
locally. Contingent commissions represented a significant portion of a Opportunities for Agents
brokerage's profits, so it was incumbent on brokers to ensure that by Cynthia Beisiegel
business went to the right insurer--the insurer who paid the highest
fees, that is. Industry Responds to Relief Efforts for Southeast
Asia Tsunami Victims
To make that happen, some unscrupulous brokers deemed it
necessary to generate "friendly bids" that would never be as cheap or Sexual Harassment Training Now Mandatory in
had terms as favorable as the preferred carriers'. While end buyers California
thought they were getting several honest bids, they were actually being by Kevin Ribble and Martin LaPointe
presented with offers designed to steer them toward the carrier that
A Brief History of Contingent Commission
paid the best contingent commission. But this was never disclosed to
Agreements
the customer. And it is unclear how much regulators knew about the
by Roger Wade
details of the practice.
Calif. Appeals Court Dismisses Claims of Former
As recently as April 2004, the Risk and Insurance Management
State Farm Agents
Society, the trade association representing the interests of commercial
by Cynthia Beisiegel
customers, looked into these arrangements and concluded that they
"are endemic to the manufacturer/distributor relationship, and there is Utah Flooding Causes More than $150 Million in
nothing inherently wrong with them." Smaller, regional brokerages Damages
have steered clear of the issue simply because they can't generate the by Dawn Love
volume of business that national and international brokers can for the
carriers. Therefore, the smaller brokerages have managed to stay Parting Shots: Agent' Or Broker' Consumer
clean by default. Some large national brokerages also avoided the Choice Dictates Disclosure
controversy through a decentralized organization that did not make the by Wayne Carter III
shift from local to national transaction placement.
Departments
Despite the controversy surrounding the practice, it is still possible to
use contingent commissions ethically. There seems to be a broad Fraud Roundup
consensus that three simple rules need to apply in each case:
(1)buyers must be informed if such an arrangement is in place; (2)the New Markets
agreement doesn't create bias in brokers as to which carrier customers
should use, and, (3)obviously, all false or friendly bids should be Newsbriefs
eliminated from any list of possibilities offered to a client.
People & Places
Roger Wade is senior manager of KPMG's casu-alty/actuarial practice.
Ratings
This article is reprinted with permission from KPMG's Insurance
Insider. Copyright 2005 KPMG LLP. All rights reserved. Disclaimer: All
information provided is of a general nature and is not intended to
address the circumstances of any particular individual or entity.
2 of 3 7/19/10 2:34 PM
A Brief History of Contingent Commission Agreements http://www.insurancejournal.com/magazines/west/2005/02/07/f...
3 of 3 7/19/10 2:34 PM