The insurance industry recently has been in the spotlight concerning illegal actions, and that's led to a review of the compensation structure in the industry. However, this is an issue exploited by individuals for political gain.
The original incident took place in New York involving two multi-national insurance brokers, who controlled more than 75 percent of the market, and a bid rigging scheme. This has nothing to do with Main Street agents. In Illinois, thousands of companies offer coverages through more than 80,000 insurance agents, as well as directly from insurance companies. There have been few, if any, consumer complaints to the Illinois Division of Insurance involving agents and their commissions.
In all lines of insurance, agents are eligible for incentive compensation-just like any other professional sales force in America. All fees separate from commissions are required to be disclosed. The proposed NAIC model the governor leans toward attempts to craft a solution to the problem of alleged bid-rigging at several major Fortune 500 brokerage firms but then over-reaches by placing unclear and potentially onerous compliance burdens on insurance agencies and treating all compensations earned by agents as potential conflicts of interest.
The compensation system in the insurance industry is not unlike most other retail businesses. Agencies make a modest commission on the sale of a policy. The agency may or may not be eligible for a year-end bonus based on production and profitability. Most sales professionals, regardless of product, have at least a portion of their compensation tied to production and profitability. As ethical insurance professionals, our first responsibility is to the customer. We have an obligation to provide an insurance product that fits the customer's needs at an affordable price. This promotes long-term customer loyalty and satisfaction. It would be short sighted for an agent to steer customers to a specific company or program that doesn't fit their needs because of an incentive program for the agent.
Instead of additional cumbersome regulations, I suggest enforcement of the consumer laws already in place. The insurance industry, like most other professional organizations, has a few people willing to push the envelope for disproportionate financial gain. There are laws in place to investigate and punish these individuals. But this administration has eviscerated the Department of Insurance to the point that as of January 1, there are only two investigators left to audit more than 80,000 insurance producers in the state.
The problem that's attracted the attention of the attorney general of New York is a problem on Wall Street-not Main Street. Our governor should avoid painting with a broad brush and enacting additional restrictive controls on another business sector in Illinois. As a business community, we should be very concerned about what some politicians are trying to do to the insurance industry. It starts a slippery slope for many businesses and the free market system. IBI