The Council – CIAB – Disputes Characterization of Broker-Carrier Relationship as Adversarial

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Nov. 16, 2004 – WASHINGTON � The following is a statement from Ken A. Crerar, president of The Council of Insurance Agents & Brokers, in response to testimony at Tuesday’s hearing of the Senate Governmental Affairs Subcommittee on Financial Management, the Budget and International Security.

The Council represents the top tier of commercial insurance brokers who annually write more than 80 percent of the commercial property/casualty insurance premiums and administer billions of dollars in employee benefit accounts.

“Although very little new was added to the debate by the attorneys general and regulators who testified at today�s subcommittee hearing, The Council understands the concern that has been raised over fraud and bid rigging by New York Attorney General Eliot Spitzer and others. However, we would challenge the contention that such activity is widespread in the industry. Quite the contrary, the vast majority of insurance brokers are ethical, honest, upstanding citizens who have built their businesses on a bond of trust with their customers that they take very seriously.

We categorically challenge assertions that fraud, bid rigging and kickbacks are commonplace in the insurance brokerage industry. It is wrong to translate a handful of isolated charges into an indictment of an entire industry.

To the extent that there has been wrongdoing in isolated segments of the industry, we support any and all efforts to bring those wrongdoers to justice. Fraud and bid rigging are wrong, they are illegal, and they have no place in an industry built on trust. We take second place to no one in urging punishment of the wrongdoers to the fullest extent of the law because they have not only damaged their companies, they have unfairly besmirched the reputations of thousands of individuals who have absolutely nothing to do with the conduct alleged by General Spitzer and others.

Contingent commissions were not central to the fraud, despite what is alleged. It is the lack of effective disclosure in some cases, combined with the intent to fraud in isolated cases, that is at issue here. While isolated bad actors created a corrupt scheme to limit real choices for some customers, the role of contingent commissions in this evil equation has been irresponsibly hyped and misrepresented.

The Council has been on record since 1998 with a strongly worded policy calling for disclosure of contingency commissions. We believed then – and believe now – that disclosure is the best practice to guard against conflict or the appearance of conflict in any compensation agreement.

We commend the National Association of Insurance Commissioners for taking a responsible first step to begin drafting a model regulation on disclosure of compensation a broker receives for the placement of insurance. We look forward to working with the NAIC to develop a logical and reasonable compensation regulation that can be applied uniformly from state to state.

We are anxious to work with the appropriate legislative and regulatory agencies to find a responsible, balanced solution that will guarantee that these isolated examples of fraud are never repeated.

We all want a solution that continues the trust of our customer. We want a responsible solution, crafted with the facts, not the headlines or the next lawsuit, in mind. We stand ready to lead the search for a solution, but at the same time, we are determined to defend the value of the broker to the customer and defeat baseless attacks on a proud industry.”

The Council of Insurance Agents & Brokers is the voice of the market leaders and the premier association for commercial insurance and employee benefits intermediaries in the United Statesand abroad. From its headquarters in Washington, DC � with programs conducted throughout the nation and world � The Council represents the largest, most productive, and most profitable of all commercial insurance agencies and brokerage firms. Only the top one percent of all agents and brokers qualify. The Council’s members in more than 3,000 locations, place 80 percent � well over $90 billion � of all products and services protecting business, industry, government and the public at-large, and they administer billions of dollars in employee benefits. Since 1913, The Council of Insurance Agents & Brokers has worked in the best interests of its members, securing innovative solutions and creating new market opportunities at home and abroad. Web site: