One of my heroes this year is Michael D'Arelli, vice president of legislative and regulatory affairs for the Western Insurance Agents Association, who recently hammered national brokers for suggesting that all producers should give up their contingency fees because of the shame brought on the industry by a notorious few in their ranks.
Agents have been up in arms ever since New York Attorney General Eliot Spitzer caught some national brokers in the act–rigging bids and steering business to cash in on volume-based bonus fees. But their retorts have been relatively restrained.
Mike's salvo, however, was an outright rant, and I give him raves for voicing the frustration of independent agents everywhere who are tired of being painted with the same broad brush–a transgression I must admit I committed myself early on.
What set Mike off were statements by J. Patrick Gallagher, president and CEO of Arthur J. Gallagher, to the effect that a bifurcated market–in which some brokers can't get contingent commissions but others do–cannot survive long term. His implication was all agents and brokers should just give up–or be forced to surrender–such bonuses.
“This is America, where performance is rewarded, not punished,” said Mr. D'Arelli–his harsh words screaming off the page of his press release. “At this time, it would be wise for the large brokers and insurers who have already brought enough shame to the industry to sit down, take their medicine and shut up,” he added.
If Mr. Gallagher and his fellow brokerage giants don't like losing contingency fees just because a few of their colleagues got too greedy, that's just too bad, he said.
“Society treats those who break the rules differently from those that follow the rules. There's no double standard there,” he said. “Some people follow the rules and are rewarded. Some people break the rules and are punished.”
What really ticked off Mr. D'Arelli was that just because the national brokers stepped over the line, doesn't mean independent agents who didn't do anything wrong should be forced to give up their income. “They are fighting to save their own skin by pulling everyone else down. It is really sad and unfortunate,” he said.
“How could you blacken the eyes of the industry with alleged anti-competitive and bid-rigging activity…and shamelessly attempt to force all other agents and brokers to do the same–in essence pay the price for your bad behavior?” he said. “This is just unbelievable chutzpah.”
I'm with Mr. D'Arelli. While no sales compensation system is flawless or beyond corruption, unless someone can prove that independent agents are abusing their contingency fee deals, they shouldn't be forced to give up bonuses tied to the performance of their book.
If the big brokers feel it's unfair that the playing field is no longer level, well, it never was level in the first place. Just look at how many middle-market accounts Marsh purged after signing their settlement with Mr. Spitzer, forcing them to give up volume-based contingencies. They were like a whale eating all the plankton that came their way, getting fat off the resulting, volume-based contingencies. When the fees were cut off, they burped up the smaller accounts–which agents were all too happy to bid for.
What do you folks make of this? Should contingency fees be banned altogether, as has been suggested by Willis's outspoken CEO, Joe Plumeri? Or, as Mr. D'Arelli suggested, should the big brokers just swallow their medicine and shut up?
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