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Henry Kaye testifying (unscheduled)

Chairman Brooks announced that Henry is the final witness. Henry is speaking without notes and drawing the contrast between the mega-brokers and the Main St. agents. He's also explaining how different carriers have different underwriting appetites.

Easton: How do you feel about mandatory disclosure? Kaye: Customers don't care about it. Easton: What if it would affect the customer's perception of conflict of interest? Kaye: I showed all proposals and told customers what my commission was. Easton: Will mandatory disclosure drive commissions down? Kaye: No.

Henry's testimony was short. Hearing adjourned at 12:13 PM.

Unscheduled life insurance witness (continued)

Brooks asked how the witness selects the company to offer to the customer. Witness listed numerous factors.

Berlin: Don't you think customers should know about the trips, gifts, office allowances, etc.? Don't you think the client might find it relevant? Witness: No. Has nothing to do with the overall cost of the policy. Focusing on how producers are compensated will taint the purchasing decision and distort it. When you get off on tangents, it's difficult to stop. This isn't the same thing as what happened with Marsh.

Berlin: We don't have a predetermined agenda. We're trying to gather facts.

Berlin: Why do you think carriers pay you all these things if not to influence the sales decision? Witness: I'm sure that's why they do it, but the producer must focus on the total cost to the client. If there is a regulatory focus, it should be on the carriers.

Brooks: What burdens would you place on carriers? Witness: Less 1st year commission, more for subsequent years. Would encourage agents to provide better service after 1st year.

Discussion is devolving into reform of life insurance commission system.

Unscheduled witness

He speaks softly, so I can't make out his name, but he's from the life insurance side. (Update: The witness's name is F. James Ginnane of Planned Futures Financial Group, Williamsville, NY.) He's testifying on his own behalf and has no written statement. Says commission is only one portion of the premium cost and disclosure would add no value beyond what the consumer gets in the policy illustration. Consumer should focus on best value, not lowest commission. Compensation disclosure may divert buyer's attention from the important consideration -- what is the best value for the buyer. You have to walk a mile in our shoes to understand what business is like. Also, compensation disclosure may result in pressure from clients to illegally rebate commission.

Makes a good point: What about disclosure of compensation for employees of direct writers? "I don't have a problem with disclosing that I get paid for my work." Draws analogy between insurance commissions and the way travel agents used to get paid. Price of airline ticket was the same either way, but travel agent added value by offering advice and information.

Nachman: Are you saying that revealing too much information is harmful to the consumer? Witness: Why stop at commission amounts? Why not reveal insurance company's cost? Focus should be on insurance companies' expenses, of which commission is just one part.

Nachman: Could trips or other incentives impair your judgment? Witness: Yes, it could, but again this information diverts attention from the total cost of the policy. Nachman: It doesn't have to be the primary focus. Witness: Describes unlevel playing field regarding 401K sales as an example of of the wrong focus.

Brooks is asking about the trips he's won. Witness: "Not often enough." He's gone on a cruise to the Baltic and has a trip to Montreal next month. Brooks: How did you qualify for the trips? Witness: Based entirely on commission and premium produced. Brooks: How much was the trip worth? Witness: $6 - 7,000. Brooks: How did you qualify? Witness stated premium level. Brooks: Which carriers offer them? Witness: All of them.

Now they're grilling him about gifts he's received from carriers and office allowances. This is not going well.

Questions for Dave Gelia (continued)

Brooks: Isn't there a conflict when you present proposals from companies that pay profit sharing but not proposals from companies that don't? Gelia: I will always present the most competitive quotes. Brooks: That's not responsive. Gelia: When we are selecting quotes, profit sharing doesn't enter our minds.

The panel is really grilling Dave on the perception issue. Brooks asked if it's not a potential conflict that a company may terminate him if he doesn't put more business with them. Easton: What if a carrier's claims paying practices are poor? Would you still put business with them if they pay you profit sharing? Gelia: We won't even quote those companies. Easton: Is it possible some brokers may not be as ethical as you? Gelia: I can only speak for myself. Marketplace will punish brokers who do not put clients' interests first. Easton: Is your opinion representative of the independent agency community? Gelia: I believe it is.

Easton: Would mandatory disclosure hurt your bottom line? Gelia: No, if not unduly burdensome. Easton: What is burdensome? One form? Gelia: One form is not a problem. A pile of forms from the company get disregarded.

Gold: Why do carriers pay contiengents, especially volume-based? Gelia: I call it profit-sharing. Purpose is to encourage upfront underwriting.

Questions for Dave Gelia

Nachman: What about Bailey's point that profit sharing discourages brokers from advocating for insureds at claim time? Gelia: Absolutely not. Nachman: What about the perception? Gelia: Clients care about their individual situation. Again, it's so competitive, I have to do the best job I can or lose the account.

Berlin: Why would mandatory disclosure be less effective than voluntary? Gelia: Mandatory disclosure would produce information overload that the clients would disregard. Berlin: Do you track your loss results with companies during the year? Gelia: Marketing reps keep us informed. However, can't foresee events like the October storm. Can't recall receiving correspondence telling him that he's close to receiving profit sharing.

Brooks: So you see no conflict of interest at all for agents and brokers? Gelia: No. Brooks: Since you described yourself as a "business partner" with the carrier, does that represent a confict of interest? Gelia: No, the insured is the client of both the carrier and the agent. Brooks: How would you provide specifics if a client demanded it? Gelia: We would have to work that out.

Brooks is trying to pin Dave down on why agents track premium & loss data for companies but not for clients. Brooks: Do clients not ask for this because of their ignorance? Gelia: I as a consumer don't know how my vendors get paid.

Berlin: Don't you advise clients on which policy is best suited for them? Gelia: Yes. Berlin: So don't you think compensation information would help the client make a decision? Gelia: If they ask, I'll be happy to tell them.

Broker Compensation Hearing: The Independent Agent Side

Dave Gelia is the 2nd and last witness. He's just taken the stand.

He says there is no conflict of interest in contingents, they do not result in steering business, and agents and brokers should voluntarily disclose compensation. Profit sharing creates win-win-win situation for insurers, agents and customers.

He just pulled out the WNY Yellow Pages. There are 40 pages of listings of insurance agents. All those competitors force him to do the best job for his customers.

As an independent agent, he takes great pride in independence. They spend thousands of dollars and hundreds of personnel hours shopping their clients' insurance for the best deal. Very few clients ever ask about compensation. Mandatory compensation disclosure would be less effective than voluntary disclosure to those clients who ask for it.

He's summing up by arguing that agents are honorable and employ hundreds of people in WNY. He's invited the panelists to spend a week in his office to show how hard they must work to attract and retain clients.  "If you're not competitive, you're dying."

EDITORIAL NOTE: Very passionate summary.

Willis Testimony continued

Brooks: How does Willis explain not accepting contingents to shareholders? Bailey: Didn't really give a coherent answer.

Berlin: Do you have data to show that this has helped business? Bailey: No data, but has anecdotes.

Matthew Gold: What is Willis' position on contingents for independent agents? Bailey: Buyers see no difference. He says his comments are focused on brokers (as legally defined). Not commenting on agents, but believes agents should commit to full transparency.

Nachman: If state relaxed its rules on contingents for Willis, would Willis start to accept them again? Bailey: We have no plans to accept contingents.

Willis Testimony (continued)

Steven Nachman of NYSID is asking Bailey what his basis is for believing that brokers will not fight for claim payment when they receive profit sharing. Bailey's answer seems to be based on theory or perception as opposed to actual experience of someone doing this.

Michael Berlin of the AG's office asks if Bailey can see some kind of middle ground. Bailey says no, even with transparency there's still a conflict.

Kermit Brooks asks for Bailey's view on supplemental compensation. Bailey says it's the same conflict of interest.

Brooks asked why Willis voluntarily decided to be first to forgo contingents when it puts them at a competitive disadvantage. Bailey says it was the right thing to do. Brooks: Has this impacted your results over the years? Has it helped or hurt business? Bailey: It's given them the moral high ground and given them the a better appearance in the marketplace. Brooks: Shouldn't we let the market sort it out? Bailey: It's been years now and it's still happening.

Brooks: Do you draw a distinction between sophisticated insurance buyers and smaller operations? Bailey: That is a fair distinction. Contingents hurt the smaller operations.

Brooks: If brokers don't support their clients, won't that over the long term hurt the broker's reputation and put the broker at a competitve disadvantage? Bailey: Clients don't have access to that information? Berlin: Would it help if buyers had that info? Bailey: Yes, but it would be costly and complicated.

Rob Easton: Do clients care more about transparency or about their bottom-line premium? Bailey: Clients "crave" transparency. Easton: What kind of transparencty would Willis like to see -- how much is too much? Bailey: Can't say, but more than we have today. Easton: If Willis's agreement with the AG didn't require it be transparent, would it still do it? Bailey: Absolutely.

Willis Group Testifies on Broker Compensation

First witness is Don Bailey of Willis Group. For Willis, the appearance of a conflict of interest was at the core of their decision to forgo contingent commission. At the same time, they created a "client bill of rights" to codify the relationship between broker and client. They strongly support full transparency, but they don't think it's enough. Says transparency doesn't repair the conflict. Questions whether a broker who receives profit sharing will be motivated to fight for payment of a claim when that payment might reduce profit sharing. Calls it a potential conflict of interest.

Says that "there is no level playing field" in insurance today. Claims Willis is at a competitive disadvantage against brokers who accept contingents. Willis's prices seem higher than competitors because other brokers receive a "subsidy" in the form of contingents. He's also complaining about the costs of compliance with their agreement with former AG Spitzer.

Says Spitzer missed a big opportunity to ban contingent commission altogether. Clients will benefit from the abolition of contingents over a "reasonable" length of time. Suggests a 2-3 year phase-in program to allow brokers to adjust business models. Calls for full transparency in the interim.

Willis believes clients do care about contingent commission (all evidence to the contrary).

Willis is asking for 3 things:

• Abolition of contingent commission
• Full transparency of compensation
• Level playing field for all brokers

Broker Compensation Hearing in Buffalo (continued)

Michael Berlin of the AG's office is making his statement. He's reviewing the history. He claims that they have no set opinion, but he's also talking about what "solution" is needed. Do we need a solution?