N.Y. Hearing Held on Contingent Commissions

Commitment to customer service and providing clients with “our professional expertise” is the driving force of Buffalo-area independent agencies and brokerages, rather than a potential, end-of-year commission, said David Gelia. The past president of the Independent Insurance Agents Association of Western New York Inc., testified in Buffalo July 14 before a joint public hearing conducted by the New York State Insurance Department and New York State Office of the Attorney General.

The hearing—one of three to be held throughout the state—offered interested parties the opportunity to weigh in on a NYSID concern that contingent commissions—sometimes referred to as profit sharing—create an “irreconcilable conflict of interest.”

Also in question is disclosure to the client of this compensation.

Many insurance companies pay a contingent compensation at year’s end, based on an overall performance involving growth, loss ratios and profitability. These factors do not reflect specific policies. When writing an individual policy, Gelia pointed out that it is unknown at that time whether the agent or broker will “be eligible to receive additional or supplemental compensation for placing that account.”

“As a Trusted Choice® independent insurance agency, my firm provides much more...than just the sale of the insurance policy,” said Gelia. “We are committed to providing customer service designed to help meet our clients’ needs and to provide our professional expertise.” Gelia is also executive vice president of the Amherst, New York-based United Insurance Agency Inc. as well as secretary-treasurer of the Independent Insurance Agents & Brokers of New York Inc.

When asked if he would place business with a carrier that paid profit sharing but whose claims paying practices were poor, Gelia responded, “We won't even quote those companies.”

Gelia’s testimony pointed out that organizations such as IIAAWNY, IIABNY, the Independent Insurance Agents & Brokers of America and others believe in a long-standing agents and brokers’ position that profit sharing is a legitimate method of compensation.

Also, according to Gelia, disclosure of contingent commission should be voluntarily disclosed “when asked by a customer.”

Liberty Mutual Insurance Company was victorious in a recent New York State Supreme Court, Appellate Division, First Department decision that determined “contingent commission agreements between brokers and insurers are not illegal.” The decision further explained that Liberty Mutual “had no duty to disclose the existence of the contingent commission agreement.”

To view his submitted testimony in PDF form, go to http://ny.iiaa.org/externalcommunications/071408_Buffalo_Gelia.pdf.

Tim Dodge, IIABNY’s director of research and external communications, updated his “Ask Tim” blog while in attendance at the hearing via a laptop and internet connection. Dodge’s comments are available at http://insurancegeek.typepad.com/

Editor's note: To see a story from Willis Group on this subject, visit dailyinsurer.blogspot.com/2008/07/willis-group-seeks-end-to-contingent.html