Contingent Compensation

A recent article describes why banning contingent compensation might be bad for insurance agents and bad for consumers.  An interesting read for insurance agents.  The article (see here), by Sean Fitzpatrick of UCONN School of Law, provides an overview of Spitzer’s investigation, producer compensation and regulatory responses.  It also offers a simple approach to agent compensation disclosure.

an industry-wide ban on contingent compensation might … undermine the financial stability of small insurance agencies.   this could well lead to the further consolidation of insurance brokerage business in large global firms.

the state of affairs that first drew Attorney General Spitzer's attention--large commercial insurance brokers allegedly manipulating the market for their own benefit--was the result of nothing so much as the coupling of time-honored sales incentive practices developed on Main Street, USA with an unprecedented level of market power attained by a few global mega-brokers following a consolidation spree in the 1990s

The press and Spitzer have focused on bid rigging, misrepresentation and contingent compensation as the problems.  What we have not heard much about, and this article discusses, is the market power that a very few of the largest brokers wield over underwriters.  Independent agents do not have this market power.