Do you remember a few years ago, before he was caught using prostitutes, the former New York Attorney General Eliot Spitzer’s crusade to require insurance carriers to disclose agent’s compensation? At that time the entire industry was in an uproar because it was afraid of commission disclosure. There was also a lot of fear that traditional insurance company profit sharing arrangements would become illegal.
Some carriers like Travelers reacted to this by changing their bonus compensation plans. Others began to disclose agent’s commission. The world according to insurance agents was coming to an end.
Of course that didn’t happen and business soon returned to normal. I’m not sure it should have.
The idea that disclosing commissions is somehow harmful to agents is preposterous in my view. In the first place consumers generally know, or think they know, what we get paid. When they actually don’t know they generally think we get paid more than we do. So what’s the harm in actual disclosure? Secondly, what used to be “trade secrets” about profit margins and income for practically every industry no longer exist in the information age. If you want to know anything you merely have to do a Google search.
One of the big fears of agents was (is) that if consumers knew how much they got paid they would demand more or better service. What’s wrong with that? Disclosure would, in my view, be much better for good agents as the mediocrities would find their business fleeing to quality even faster than it does anyway.
My personal problem with commissions is one I have had my entire career. Why should an insurance company determine what I make for servicing my customers? That is anti competitive and makes little sense to me in a free market economy. If I want to charge less and still offer the basic services a carrier requires why can’t I? Currently, the only way to do that is rebating and it’s illegal. If I want to provide a much higher level of service, to people who are willing to pay for it, why can I not do that? Currently, it is illegal virtually everywhere to charge a fee in addition to receiving a commission.
In the coming years, as insurance companies continue to reduce agents commission percentages, this issue is going to become one we need to address in my opinion. For example when carriers reduce auto commissions from 15% to 8% does the agent’s cost of business go down by 50%? Of course not! What can we do about it – make it on volume? Of course not! Provide less service? I don’t think consumers will tolerate that.
Why shouldn’t we be able to charge what we want, and what the market is willing to bear, for our services? Let the people who want bare minimum service save money and those that want bespoke service pay what it costs.
Much of the insurance we sell is a commodity. But insurance agents are not. Let the carriers commoditize their pricing to compete if they must. But let agents differentiate themselves and price their services accordingly.