Contingency fees will remain part of the independent agent's compensation package, and companies would have to develop an alternative reimbursement if legislators ever outlawed them, top insurer executives say.

"I do not think contingents will be taken away," said Thomas M. Van Berkel, president and chief executive officer of The Main Street America Group based in Jacksonville, Fla. He spoke during a panel discussion at the Young Agents Conference, held here last week in conjunction with the annual conference of the Independent Insurance Agents & Brokers of America.

"We intend to continue contingent commissions. There is nothing wrong with them and they are defensible," Mr. Van Berkel added, discussing the heart of the controversy over regulatory probes into alleged bid-rigging and compensation abuse by brokers and carriers.

"I don't think the issue will get to the level you all are concerned about," observed F.W. "Bill" Purmort, president and chairman at Central Insurance Companies in Van Wert, Ohio. He added that even if the fees were taken away, independent agents "have to be compensated fairly…and the industry will have to find a way to compensate their distribution centers."

"If the laws were changed, we would have to change our compensation plans," agreed Marita Zuraitis, president of The Citizens and Hanover Insurance Companies, a subsidiary of Allmerica Financial Corp., based in Worcester, Mass. "I don't see why good sales behavior should not be compensated."

"I don't think the consuming public has a problem with the way we are compensated," said Thomas A. Grau, who concluded his IIABA presidency during the conference.

Mr. Grau said New York Attorney General Eliot Spitzer's findings that incentive-based fees paid to brokers involved with commercial insurance sales led to price-fixing were understood by consumers to involve a small segment of the industry. He said it did not appear that allegations of kickbacks and steering of insurance contracts in return for profitable contingent commissions based on volume was a widespread practice in the industry.

Ray Thomas, chief executive officer for Schaumburg, Ill.-based Zurich North America Small Business, said the allegations uncovered by Mr. Spitzer were blown out of proportion, and the practices have proven to be isolated instances. The misbehavior of a few has been addressed and appropriate action taken against them, he said.

He defended contingency fee arrangements, noting that preferred compensation incentives are imbedded throughout American industry. He added that a significant portion of an independent agent's compensation comes from such deals. "There is nothing wrong with those contracts," said Mr. Thomas. "Other than that one circumstance, with the aspect of [Eliot] Spitzer, where it was a trial out of control without due process."

The contingency fee controversy was also raised during a CEO panel at IIABA's opening general session. "It is right to have incentives in business," said Fredrick H. Eppinger, president and CEO of Allmerica Financial. "What we do is to compensate for excellence."

He said he was concerned that one outgrowth of the investigation would be the production of excessive paperwork to prove placements are being handled properly, which would be "just silly."

Robert J. Joyce, chairman and CEO of the Westfield Group in Westfield Center, Ohio, echoed Mr. Eppinger's concern, saying: "We should not hide what we do for the fees that we get, but I do fear regulations." He said insurers and producers could face the cost and trouble of complying with different disclosure rules in 50 different state jurisdictions.

"This has given the industry a black eye that we have to overcome," observed Mike McGavick, CEO of Seattle-based Safeco, who will be leaving his post to run for the U.S. Senate. "But [Mr. Spitzer] has gotten out a vile element in our industry, and the sooner the better."

Quotebox, with Grau mug:

"I don't think the consuming public has a problem with the way we are compensated."

Thomas Grau, Immediate Past President

IIABA