In an earlier posting, “Why Insurance Agents Fear Insurance Companies”, the point was made that there appears to be an inherent conflict of interest on the part of insurance agents representing carriers on behalf of their clients who pay them.
Agents and brokers who represent insurance companies have Producer Contracts which outlines each party’s duties and responsiblities. Common to all of these contracts is the carrier’s right to terminate the contract with as little as a two week notice, without cause.
As a result, a carrier can arbitrarily terminate a contract without cause at any time. The independent agent who places business with them over time, immediately loses commission dollars upon termination, in most cases. In truth, the client who is paying the insurance premium is in fact paying the agent, albeit indirectly. Yet, it is the insurance company who has “Veto Power” over the client as to whether the client’s insurance agent (representative) gets paid. So, who does the agent really work for, the insurance company who controls his paycheck or the client who is paying the bill?
Insurance agents attempt to protect themselves by convincing the carriers that they have “control” of their accounts. “If you terminate my contract, I will move my client to ABC Insurance Company” is an unspoken threat employed with some success.
A wise insurance agent should work on a fee basis to be paid directly by his client, rather than rely on the whims and wishes of the insurance company and their employees. But, there is a big problem with doing that in the eyes of may insurance agents and brokers; to do so would expose the compensation paid to the agent, something that could end up as being an embarrasing thing to explain, and maybe even hard to justify in the eyes of the employer paying health insurance premiums that may be costing him up to 15% of his total payroll.
Some insurance companies have developed control of insurance agents to an art form. They know how to cement “loyalty” by controlling a well constructed honey-pot with various forms of revenue streams strategically placed within insurance contracts with third party vendors.
But, these strategies may now be in jeopardy.
With the new ERISA disclosure requirements for 2009 reporting purposes, carriers are scrambling to comply. Some are issuing memorandums to their agents and their clients announcing the new reporting requirements and their intent to provide direct and indirect compensation figures as required. Some are not, as yet.
Money influences behaviour. A bribe is a form of influencing behaviour. Are insurance companies guilty of influencing insurance agent and broker behaviour?
Editor’s Note: We know of many instances wherein insurance companies have terminated agent contracts without cause and then assign a “friendlier” agent to handle the account. We have had one insurance company representative brag that he was in the process of terminating John Doe’s contract because “he doesnt give us a fair shot at new business.” And, it is the big brokerage houses that have the most to lose in upsetting insurance companies; they have enormous bonus and profit sharing arrangements which they fear would go away at any time if the carrier so desired.