Posted on 30 Nov 04
If you somehow still think this bid-rigging scandal will pass-by the average agency, you had better think again. Below I am quoting extensively from Fortune, November 15, 2004. Mr. Brown is Mr. Spitzer's deputy.
"And Spitzer is widening his inquiry still further. The attorney general told Fortune he's also looking into mom-and-pop agencies that sell insurance to small businesses and consumers. He says he's found a similar pattern there of undisclosed inducements. "This affects what you and I are encouraged to buy-and how much we pay," says Spitzer. "That's where everybody gets hurt."
"Brown says he's already uncovered a variety of "really bad practices" among insurance operators all the way down to the "strip mall" - slippery incentives for business that insurers pay to small retail agents and brokers. "For them, these types of backdoor payments are very, very important," he says. "They've all grown up on them." Some take the form of cash. In other cases, insurers lend independent insurance agencies money, then forgive the interest if the agents write enough policies with the underwriter. "If you hit a target, you don't pay the interest on a $10 million loan," says Brown. "That's a lot of dough." The goal, he says: "real transparency and price competition where insurance is sold everywhere. None of us knows what a world with insurance price competition would look like, since it's never existed."
Now, I have only been in the insurance industry since 1987 but during that time, it has been my experience that price competition within this industry is very high. I would recommend everyone reading this begin educating everyone in sight just how price competitive this industry really is, how, because it is so price competitive, we had a very long soft market resulting in some cases where companies were virtually giving away insurance. Educate them how we are already so price competitive that prices are again falling.
Furthermore, don't use the very weak argument that because all sales organizations, like car dealers, use sales incentives. I've heard this analogy far too many times and who ever wanted to be compared to a car dealer? Let's choose a better analogy. Explain the benefits of your compensation system to the consumer. Explain how it benefits the consumer. Explain how the lack of this compensation system will hurt the small consumer (which it really will in my opinion). Explain how the elimination of this will injure 30,000 small businesses. We need to get in front of the issue and get proactive. This is very serious.
For more information or to contact Chris Burand, visit http://www.burand-associates.com.