Former New York Attorney General Eliot Spitzer (now the state'sgovernor) probably has few friends among independent agents andbrokers. His investigations of the insurance industry, startingback in October 2004, have led several insurance companies to agreeto stop paying contingent commissions on some or all lines ofbusiness, as of the first of this year. Since Spitzer's probe, aswell as those of other state attorneys general, have focusedprimarily on the behavior of a few national brokers, particularlyMarsh, independent agents and brokers feel with good reason thatthey have been unjustly penalized by the settlements the AGs havereached with such carriers as ACE, AIG, Chubb, Travelers andZurich.

Well, if it's any consolation, the results of the 2007 AmericanAgent & Broker Readership Survey indicate that the settlements'effects might not be as pronounced as some have feared. In oursurvey, precisely one-third of the 315 respondents said theyrepresent at least one carrier that has done away with contingentcommissions in at least one product line. Their responses, however,also indicate that while the revenue loss may be significant, itprobably will be crucial only for a relatively small percentage ofagents.
Specifically, we asked readers for the first time what percentageof their “bottom-line profit” in the prior year was attributable tocontingent commissions. The majority of survey respondents, 59%,checked off “less than 10%.” Another 30% reported thatcontingencies made up 10% to 25% of profits. Five percent saidcontingents accounted for 25% to 50% of their profits, while theremaining 6% indicated they were responsible for more than50%.
Those findings indicate that the loss of contingent commissionsunder the attorneys general settlements, while undoubtedly painful,so far might not be the crisis that some people haveenvisioned. (I've seen reports in which contingents were said torepresent 50% or more of profits for practically all agencies, and80% or more for many of them.) Particularly if insurers provideagents with some kind of alternative compensation, as some alreadyhave indicated they will, the adverse effects of the Spitzersettlements are probably manageable. (The drive by some attorneysgeneral to eliminate contingenices altogher is another matter.)Indeed, our annual readership surveys have always shown that manyagencies don't get any contingent income in a given year. Forinstance, in this year's survey, 39% of the respondents said theydidn't receive contingent income in 2006. That was up from 31% inlast year's survey.
This year's survey was conducted via our Web site, a first for themagazine. About 4,000 readers were invited to complete the surveyonline, and 315 did. In contrast, we conducted previous surveys bymailing questionnaires to a group of 750 randomly selected agents,along with a follow-up to encourage response. Last year's surveywas completed by 342 agents. Thus the two approaches producedcomparable sample sizes. No doubt the different ways in which theywere obtained, however, may affect some of the results. Forinstance, in last year's survey, 80% of the respondents were agencyprincipals or managers. In this year's survey, 71% were. Incontrast, the percentage of producers completing the survey rose to18% in this year's survey from 12% last year. Among other things,it's possible they might not have as accurate a picture of theiragencies' finances, including the significance of contingencies, asthe owners and managers do.
In this year's survey, 40% of the respondents were from“urban/suburban” markets (versus 47% last year) and 17% from“suburban/rural” (compared with 23% last year). Seventeen percentof the respondents characterized their markets as simply“suburban,” and 13% each called them “urban” or “rural.” (Thecomparable figures from last year were 10%, 10% and 12%,respectively.)
In regard to staff size, 26% of the respondents work in agencieswith 15 or more employees, while 32% work in shops with fewer thanfour people. Nearly a quarter (24%) of the respondents work infirms with four to six employees and 18% are on staff at agencieswith 7 to 14 workers. Now let's look at a few other stats from thisyear's survey.
Production: In this year's survey, 19% of the respondents reportedpremium volume greater than $20 million. Eleven percent had $10million to $20 million in volume, and another 11% put their volumebetween $5 million and $10 million. Almost 40% of the respondentshad $1 million to $5 million in volume. Perhaps reflecting theeffects of the soft market, 63% of the respondents said theirvolume increased last year, down 6 percentage points from lastyear's survey. In this year's survey, 59% of the respondents saidthey derive more than 50% of their volume from commercial lines.That was up 2 points from last year. About 30% of the respondentsto this year's survey have full-time life or health insuranceproducers, essentially unchanged from last year.
Technology: The trend for agencies to “go paperless” continued tobe evident in this year's survey. Sixty percent of the respondentshave document management systems, up from 54% in last year's surveyand from 42% the year before. Just under 60% of the respondentswork for agencies that have Web sites, essentially unchanged fromlast year.
Networks: In this year's survey, 19% of the respondents said theywere members of some kind of agent network or cluster. That was upfrom 15% last year but comparable to the 20% figure reported in our2005 readership survey.
Markets: In this year's survey, 38% of the respondents represent 10or more property-casualty companies, while 27% represent six tonine. Twenty-nine percent have contracts with two to five insurersand 6% get by with a single company. The comparable figures fromlast year's survey were 37%, 32%, 27% and 4%. Furthermore, 84% ofthe respondents placed coverage with an MGA or surplus-lines brokerin 2006, unchanged from the year before.