Disclosure, Marketing Dominate Young Brokers and Agents Conference
Agents and brokers must unite and work together so that their industry is able to flourish despite recent challenges involving broker disclosure, participants learned at IBA West’s Young Brokers and Agents Conference held June 9-11 in Rancho Mirage, Calif.
Attendees were briefed on the history of broker disclosure issues and learned how the industry has responded thus far. They also were encouraged to not lose focus on their agency and brokerage business, in order to survive industry challenges.
A brief history
Steve Young, senior vice president and legal counsel for IBA West, gave attendees at the conference a history of the issues surrounding broker disclosure and contingent commissions. He said that the issues surfaced when an obscure pro-business foundation called the Washington Legal Foundation sent a letter to every attorney general and every insurance commissioner stating that contingent commissions should be prohibited because of the inherent relationship that exists between broker and client.
New York Attorney General Eliot Spitzer then proceeded to investigate the issue and eventually filed a lawsuit against Marsh McLennan and several insurance companies. Young said that California Insurance Commissioner John Garamendi, after seeing all of the attention that Spitzer was getting in the press since April 2004, filed his own lawsuit against Universal Life Resources, who settled.
In October 2004, Garamendi proposed a set of disclosure regulations which state that brokers are obligated to place a client with the “best available insurer.”
“[They] would require every agent and broker in the state not only to recommend but actually procure for their customers not just suitable coverage, not just adequate coverage, but the ‘best available’ coverage from the ‘best available’ insurance company,” Young said. “The way they defined it, there’s no way that any of you could have done it. [The commissioner] would propose to set up fiduciary duties on agents and brokers that have absolutely no precedent anywhere in the country and no legal support whatsoever in California law.”
Young said that in February 2005, the California Department of Insurance sent out letters based on a National Association of Insurance Commissioners’ template to hundreds of agents and brokers demanding information.
“[They were asked] to reveal every client, to reveal all compensation paid by every insurance company they dealt with over the last seven years and to reveal all compensation paid to producers,” Young said. “They asked for producers to admit whether or not they engaged in criminal conspiracies to rig bids.”
“We said, ‘Wait a minute. We appreciate the fact, commissioner, that you’ve got the legal authority to ask for this information, but you’ve got to provide some confidentiality.’ This is the most sensitive and valuable information that an agent or broker has,” Young said.
Young said that IBA West proposed to treat the information as if had been subpoenaed to maintain confidentiality, but despite negotiations, CDI declined to offer minimal confidentiality. Young said that now subpoenas have been served.
In April, Garamendi abandoned his proposed “best available” regulations, and instead posited new broker fiduciary duties regulations.
“All producers, agents and brokers in all lines of insurance would have to tell their customers if they intend to seek one quote or multiple quotes from insurance companies,” Young said. “Then, if you were seeking multiple quotes, you’re then required to tell the customer whether you were acting on behalf of the insurer (i.e. you’re an agent) or acting on behalf of the customer (i.e. you’re a broker). You’ll also be required to disclose all compensation paid by the insurer, if any. So that means full commission disclosure and any other incentives.
“The way the regulation is written, [disclosure] would have to be done before the time the policy takes effect,” Young continued. “Before the deal is done you have to tell the customer all of this information. If you’re charging a fee, in the department’s view you’re acting on behalf of the client. [CDI] views an independent agent who has more than one company and is making a recommendation as to which quote to accept and which company to do business with as acting on behalf of the client. You have to get the customer’s consent to receive the commission.”
Young said that IBA West responded to Garamendi’s new proposed regulations by submitting a written opposition.”
He added that he thought it was likely that the new set of proposed regulations would eventually be rejected.
Industry response
Andrew Valdivia, past president of IBA West and currently IIABA director for California, said that broker disclosure is primarily a business practice issue.
“I think the official position of IBA West on disclosure is that that all of our members are going to live up to whatever the law says that we have to live up to, but it’s a business practice issue,” Valdivia said. “If the law says that a broker must disclose a fee and do so in writing, we have to live up to that law. If the law says that you have to disclose contingent fee arrangements, then we will live up to that law. But anything more than that is really a business practice issue.”
He said that if agents and brokers decide to be transparent with their clients, their behavior will likely raise the level of market conduct.
Valdivia compared the broker disclosure challenge to the workers’ comp struggle faced a few years ago.
“I don’t see any difference between what is challenging the industry right now as far as broker disclosure and what was challenging the industry two or three years ago with workers’ comp,” he said.
It is important for agents and brokers to remain unified, he said. “What is the greatest threat to your business today?” he asked. “It’s not Spitzer or Garamendi … but ourselves. When we have these challenges to our industry, we lose focus and we become fractionalized.”
He said that even producer trade associations are at odds with each other over broker disclosure issues. But he stressed the important of working within those associations to improve the overall situation for everyone.
“It’s important for us to stay focused and to participate with the associations,” he said. “You need to stay involved. The most important thing that you can do as far as the association is concerned is know what your production goal is and meet that goal because at the end of the day we’re all salespeople. We are a distribution force and if we lose focus and we don’t bring back value to the organizations that we work for, then it’s all for naught.”
Marketing
One of the ways to bring value to agencies is to step up marketing efforts, attendees learned in a workshop titled, “How to Differentiate Your Agency From the Competition.”
Marilyn Chelini, principal of Insurance Results Marketing Group, suggested several ways of improving marketing efforts: Know who your prospects are; Know what your prospects want and try to give it to them; Know what to say when and when to say what; Test your marketing materials; Automate your marketing process; and Track your results and make changes when necessary.
“Your prospects cannot know who is any better, any worse or any different than the agency down the street,” Chelini said. “The consumer says, ‘You guys are all alike. I hear the same thing all the time.’ You need to build a case for your services just like an attorney would, to help your prospects to reach a decision to take the next step in the sales process.”
There are several ways to draw consumers in through direct marketing efforts, Chelini said. Using evidence to support your case, including articles, associations, awards, books, charts and graphs, client lists, comparisons, endorsements, examples of savings, facts and figures, performance audits, product demos, quotes, specific details, standards lists, statistics, test results and testimonials, will catch the attention of the customer and differentiate your agency from others.
“There are over 26,000 agencies in California alone,” Chelini said. “That’s a lot of competition. You really have to know how to differentiate yourself from your competitor. Marketing is not advertising. It is truly a process. It does not have a beginning and it does not have an end. It’s continuous.”