Industry News

It Is Our Responsibility to Ensure the Future of Our Industry and PIA

By Lewis L. Wilson
PIA National Director, New York

Throughout my involvement in business, politics and PIA, one thing I have noticed is that there are few issues upon which almost everybody can agree.

In the agency business, there is one thing almost everyone believes: we need to do more to attract young people into our industry.

Those of us who have spent many years as independent insurance agents might like to think that we will be around forever - but we know better. As business owners, we know that no enterprise can achieve long-term success without attracting a steady stream of new talent that will one day be in charge.

Many of us who chose to work in the insurance industry made that decision because a family member was also in insurance. Involvement in the insurance industry is often something that gets handed down from one generation to the next.  But in today's world, perpetuation by tradition isn't enough.

If we want the American Agency System to continue to flourish, we need to do more to reach out to young people with the message that one of the most exciting, challenging and lucrative career choices they can make is to become a Professional Insurance Agent.

Now, I realize that, for many Americans, "exciting" and "insurance agent" are terms that seldom get used in the same sentence. It can be a daunting task for a person more mature in years (which some people have suggested describes me) to convince a young person just starting out that insurance is a great career choice.

In 2002, this issue was discussed during a CEO Conference hosted by PIA of New York, the New York Insurance Association and the New York Young Insurance Professionals (NY-YIP). What came out of those discussions was that we, as an industry, have to attract college-aged men and women who want to learn about all that the industry has to offer. We must develop more insurance-based programs for these students to test the waters in order to ensure that their entrance into the industry will be long term - and not serve as a r©sum© builder. We need to reach out to young people before they make their career choices. We must go to them; they will not come to us.

In several states, PIA associations have sponsored organizations to encourage the young professionals who already work in our industry and attract others to join us. The New York, New Jersey and Connecticut Young Insurance Professionals associations are thriving groups comprised of dedicated young insurance people who gather to network, enable education, engage in charitable works and have fun. There are also similar YIP organizations, councils or committees in Virginia, Louisiana, Wisconsin, Arkansas and other PIA affiliates.

For years, I have been working hard to help our Young Insurance Professionals gain the recognition they deserve by our national association. That's why I am pleased that beginning in 2006 our national association will inaugurate the PIA National Young Agent of the Year Award. It is especially fitting that the first of these awards will be presented during PIA's 75th Anniversary year. After all, what better way to celebrate the fact that PIA has been in existence for many generations than to give recognition to PIA's upcoming leaders.

As all of us move through our lives and our careers, we try to give back. For many of us, service to PIA is not only in the best interest of our businesses, it is also a chance to contribute something back to the industry that we cherish, that has helped us achieve the best for ourselves and our families.

For many years, the members of PIA have been steadfast in their shared belief in the future of professional insurance agents. In every decade, so-called "industry experts" have tried to sound the death knell for independent agents. And every time they try to c

PIA of Tennessee Presents PIA Boxing Gloves to PIA National

"You may have noticed that lately, some people have been taking a lot of shots at professional insurance agents," said PIA of Tennessee outgoing President Britt Linder, during the PIATN annual convention. "The folks at PIA National have been quick to speak up on our behalf - to state attorneys general, at the NAIC, in Congress, with carriers and in the press."

Linder noted that recently, the National Underwriter reported on PIA National Executive Vice President & CEO Len Brevik's criticisms of a mega-broker's suggestion that contingency commissions for Main Street independent agents should be eliminated. The magazine put Brevik's picture and quote on its front cover, under a big boxing glove.

PIA of Tennessee outgoing President Britt Linder presents PIA National Executive Vice President & CEO Len Brevik with a custom pair of boxing gloves with the PIA logo at the PIATN annual convention.

"It's nice to know that when we have to stand up for our interests, the staff at PIA National is always there to 'fight the good fight' for us," Linder said. "So, as a token of out appreciation, the members of PIA of Tennessee would like to present you with this custom pair of boxing gloves with the PIA logo. We know you'll be able to use them."

In his remarks to PIA of Tennessee, Len Brevik noted the mission statement in PIA National's new Strategic Long Range Plan: "To promote, protect and defend the integrity of our members, the value of their profession and the success of their businesses."

"This says it all," he said. "It is what PIA is all about. At times, it is a difficult task, but our job is to speak truth to power."

He noted that PIA has been in the forefront of the public policy debate resulting from the investigations by New York Attorney General Eliot Spitzer.

"From the moment the first Spitzer story broke, PIA National shifted its focus," said Brevik. "First, we responded to the initial news with a public statement, and assured that all of PIA was on the same page.  Then, we got about the task of exercising our influence with policymakers, to assure that any new regulatory or legislative initiatives did not create a competitive disadvantage for PIA members."

Brevik noted that PIA National has been engaged with the NAIC, NCOIL and with state legislatures across the country, in an effort to ensure that any new legislation is not burdensome for agents. He also noted that at times during the post-Spitzer period, it has been necessary for PIA to go on the offensive.

He pointed out that when a consumer activist, J. Robert Hunter, told Congress that the performance bonuses agents receive are "kickbacks" and implied agents may delay claims filings, PIA took Hunter to task in public. When Consumer Reports magazine advised consumers that by buying coverage from direct writers like State Farm, they can avoid "the bid rigging problem," PIA challenged them in public by releasing the story to the National Underwriter, which reported that Consumer Reports offered no evidence that independent agents were involved in bid rigging.

On the issue of insurance regulation, Brevik says PIA's position is crystal clear. "PIA is a steadfast supporter of state regulation of insurance - always has been, always will be," he said. "PIA has worked closely for decades with the NAIC. But when the NAIC adopted a broker disclosure model that was not in the interest of our members, PIA opposed it publicly."

Another recent area of focus has been company-specific disclosure

Scholars Conclude Profit Sharing Helps Ensure Fair Insurance Pricing

A new study by two Wharton School of Business scholars concludes that profit based contingent commissions are a necessity in the marketplace. The study, "The Economics of Insurance Intermediaries," by Professors J. David Cummins and Neal A. Doherty concludes that "although contingent commissions, like most business practices, can be misused by the unscrupulous, in general this type of incentive compensation plays an important role in aligning incentives between buyers and insurers and thus facilitates the efficient operation of insurance markets." The study was financed by the American Insurance Association (AIA).

According to the study, intermediaries are usually better informed about the risks of their clients than insurers and when such risk information is accurately transmitted to the insurer, carriers compete more vigorously for business and price more competitively and fairly. In this way, the study reports, agents and brokers "assist the flow of information in the insurance market and enhance the efficiency of the market to the benefit of all players."

The authors noted that intermediaries match buyers with insurers "who have the skill, capacity, risk appetite, and financial strength to underwrite the risk, and then help their clients select from competing offers." The authors said that the role of the intermediary is "to increase competitiveness, by providing the buyer access to a wider range of possible insurers and by helping the buyer to compare these bids on the basis of price, coverage, service and the financial strength of the insurer."

"Our research provides empirical evidence that most of the contingent commissions are passed on to policyholders in the premium," notes the study. "However, whether this harms or benefits policyholders is a matter of debate. Despite recent allegations that contingent commissions are a 'kickback' from the insurer that compromises the intermediary's obligations to its clients, such commissions can actually be beneficial to clients."

Among other core aspects/findings of the Cummins-Doherty study:

• The conventional economic-legal role of agents in other industries is contrasted with the role of intermediaries in the insurance buying process, where information must be shared with both sides in order to come up with a product for the buyer. Their analysis argues that if risk information about the buyer is not shared with sellers/insurers, low-risk buyers will be penalized by having to pay higher prices than their risk level warrants; i.e., they would end up unfairly subsidizing higher-risk buyers.
• The authors explain how intermediaries can reduce market inefficiencies and alleviate the cross-subsidization problem for low-risk buyers by assessing the risk level of the buyer and providing that information to the insurer.
• Because the intermediary is, in effect, performing a critical underwriting function for the insurer (conducting comprehensive risk assessments of individual/organizational buyers to establish precisely the risk level represented by those buyers), some form of financial incentive (e.g., a contingent commission) from insurer to intermediary is appropriate.

The study concludes that "although contingent commissions, like most business practices, can be misused by the unscrupulous, in general this type of incentive compensation plays an important role in aligning incentives between buyers and insurers and thus facilitates the efficient operation of insurance markets."

The authors also found that premium-based commissions constitute the vast majority of intermediary revenues, contingent commissions account for about 4 to 5 percent of brokers' overall revenues, and that contingent fees help new insurers break into the property-casualty market.

"Absent contingent commissions," the professors said, "new i

PIA's Brevik Defends Agent Compensation and Conduct

WASHINGTON, April 18, 2005  - The National Association of Professional Insurance Agents today reiterated its support of contingent commissions being a part of the compensation received by Main Street professional insurance agents.

The PIA statement was issued in response to an assertion made by Joseph Plumeri, CEO of Willis Group, who said at the annual conference of the Risk and Insurance Management Society (RIMS) that contingent commissions should be abolished throughout the insurance industry to include mega-brokerages as well as retail independent agents.

"This is a hypocritical suggestion, in that it comes from the CEO of the nation's third-largest insurance broker - a firm that earlier this month agreed to pay $51 million in restitution to policyholders to resolve concerns about anticompetitive practices involving incentive fees in property and casualty insurance sales," said Leonard C. Brevik, executive vice president and CEO of PIA National. "The timing of Mr. Plumeri's comments makes them particularly dubious." The settlement resulted from an investigation conducted by New York Attorney General Eliot Spitzer and Minnesota Attorney General Mike Hatch.

"This is another indication of people talking about the insurance industry in broad terms without having a complete understanding of all the issues involved," Brevik said. "One mega-broker's experience should not be extended to pontifications regarding the entire industry."  

Brevik noted that even New York's Attorney General has clarified his position to distinguish between mega-brokers and Main Street agents.

"As he continued his investigations, the attorney general developed a more complete understanding and appreciation of the entire industry, of the differences between its sectors and the honesty of its participants," Brevik said. "So much so that in January, Mr. Spitzer said he did not think contingent commissions should be banned industry wide. And, in February, he said the vast majority of agents and brokers are honest, and he cautioned against anyone generalizing or jumping to conclusions."

In a speech to the National Press Club on January 31, 2005, Spitzer said contingent commissions "may be appropriate...I don't want to say they should be banned industry wide." And in an interview broadcast on FOX News on February 15, 2005, Spitzer said, "...the vast majority of insurance brokers and agents are honest, hardworking, good individuals...the last thing anyone should do is generalize or jump to conclusions about an entire group of people who are in a sector that is vitally important. The importance of the insurance sector to our economy can't be overstated."

Brevik added he hopes Willis CEO Plumeri, like Eliot Spitzer, develops a better understanding of the various participants in the insurance industry.

Founded in 1931, PIA is a national trade association that represents member insurance agents and their employees who sell and service all kinds of insurance, but specialize in coverage of automobiles, homes and businesses. PIA will celebrate its 75th anniversary in 2006.