Grady's letter to McCarty includes the following statement:

“We are aware of the concerns recently expressed by the OIR regarding increased agent commissions associated with rate increases requested by various insurers. Please understand we have always asserted that agent remuneration is not dependent exclusively on the “amount” of work or service provided by the agent, although that is certainly an important component. Agent remuneration is also directly correlated to the overall cost of transaction business. This explains why virtually every insurer pays to its agents a percentage of premiums as compensation.

“This approach automatically increases and decreases agent compensation to address the dynamic costs of providing services to insurance buyers. Routine expenses related to agent E&O insurance, personnel, property insurance premiums on their plant, wages, fuel costs, taxes, and so forth are only a few examples of the costs incurred by agents. Failure to adequately assess changes in the underlying costs via a comprehensive analysis could have a material adverse affect on agents' ability to provide quality service to their policyholders.

“For these reasons we believe sudden changes to agent commissions should not stem directly from the review of a pending rate filing nor should they be focused simply on what 'additional services' are being provided. In our view, agent compensation is best determined by the insurer, each of which has a unique set of circumstances that drives this decision. In light of this, we believe the OIR should focus on the validity of expenses as provided and afford the insurer an opportunity to adjust commissions to account for their individual business objections.”

Letter to Executives

In a letter to company executives, Grady took the position that any move to regulate agents' fees was outside the purview of the government. He also maintained that any such move on the part of regulators would be detrimental both to agents and carriers since it would force them to change long-established business practices:

“The insurance code requires the OIR to evaluate rate requests and confirm they are neither excessive, inadequate, nor unfairly discriminator., While it is logical and appropriate to ask for support on trend factors, anticipated losses, reinsurance costs, and the like, we believe the OIR may be stretching its authority in 'second guessing' discretionary management decisions.

“We are focusing on the fact that attempts by government to micromanage carrier decisions have the potential of extending into other insurance decisions like those regarding service contracts with adjusting organizations, what you pay a managing general agent or officer, or a chief executive officer. It also forces agents to demand OIR consistency whenever a carrier voluntarily reduces or restructures agent compensation. For example, we are not aware of any commensurate reduction in work or functions performed by agents when a carrier voluntarily decides to reduce commissions statewide or in a particular territory.

“In large metropolitan areas like South Florida, agency operating costs are generally higher and may grow at a rate greater than anywhere else in the state. Yet, material property commission rate reductions have become common in these territories without regard to whether production requirements have changed. To our knowledge, there has been no regulatory analysis to determine whether these decisions are appropriate and further, we do not believe there should be. Just like the strategy you employ to distribute your product through agents, the decision on what you pay agents should be up to you and the agent. To allow government intervention in such matters is a basic violation of the American competitive market system and may constitute interference with a contract.

“We respectively ask that you consider agents' rising costs and additional burdens created by Florida's tumultuous property market should this matter come up during future rate hearings. With the contraction in the market, agents are increasingly being asked to replace coverage and find markets where many have dried up. While these factors are important considerations, they pale in comparison to the precedent of yielding to misguided regulatory pressure that could have a detrimental impact on your company's future business strategies and competitive position in our industry.”