The impact on the rest of the agency and brokerage community will not be as immediate or as direct. For the majority of the industry, contingency income is not going away. Some volume-based overrides or incentives may not continue, but the bulk of contingent income, from everything that we have seen, will continue to be paid. And it is unlikely that Mr. Spitzer will force major restitution from other agents or brokers.

With all that said, I firmly believe that Mr. Spitzer is going to have a material impact on the entire agency/brokerage system because of the transparency and disclosure requirements his probes have spurred.

Fee-based compensation is a fairly common practice for larger accounts written with the public brokers or larger regional firms. In spite of that, the vast majority of the property-casualty business written throughout the United States is on a commission basis, and agents' and brokers' compensation is rarely, if ever, discussed.

That is about to change, and potentially in a big way. The push for this is going to come from several directions, including:

o State regulatory disclosure requirements based on the National Association of Insurance Commissioners model.

o Insureds who, more sensitive to the compensation issue in the wake of the Spitzer probe, will insist on full compensation disclosure.

o Competitors who will disclose their compensation and challenge insureds to question their agents and brokers to do the same for comparison purposes.

With all that is going on, the industry is moving toward full disclosure of agency/brokerage compensation. Some might not feel that it is that big a deal, but in my opinion, it is going to raise a line of questions that will potentially have a material impact on the relationship between agents and brokers and their insureds.

When the delivery of a proposal or a renewal includes full disclosure of compensation, it is only logical that an insured is going to ask what you are going to do for that compensation–not just what the insurance company is going to do, but what you, the agent or broker, are going to do.

They will want to know how your compensation compares to what others are making, and what services you will provide versus the services offered by your competition.

In addition, they are going to want to know what the relationship is between your compensation and the total premiums they pay. It's a logical question from buyer to broker: If you lower your compensation, will our premium be reduced by the same amount, or potentially more?

All of this would suggest that agents and brokers better be prepared to respond to challenges to their compensation and the services that are provided for that compensation. This is obviously going to come directly from your insureds, but will also be fueled by your competitors.

You can be assured that there are some agents who will be open to write the business at lower compensation. There are also some agents and brokers who are able to provide broader services than you, or are better at communicating what they do.

If this is the case, the producers in your organization are going to have to be better equipped to sell the services provided by your organization and the value of those services. It is also going to require that you take a hard look at the breadth and depth of the services that are provided.

You better make sure that you are in a position to provide a level of service that is at least comparable to, if not better than, your competition, and that your services justify the compensation you are receiving.

The implication of transparency and full disclosure of compensation should not be taken lightly. For agents and brokers that do not prepare their production staff to explain and defend their compensation, or for those not providing a competitive level of services, Mr. Spitzer's lasting legacy is going to be a problem.

For the more professional agents and those who provide a better value proposition, full disclosure of compensation has the potential of shedding light on their value proposition and giving them a competitive advantage.

This once again illustrates that good things can come out of negative circumstances if there is an appropriate response. You want to make sure that your response is appropriate.

Caption For story:

Agents and brokers will have to honestly disclose all their compensation not only because regulators and buyers will demand it, but because service-intensive competitors will force them to justify what they charge.