"Power to Agents" #4

by Dean Auten

This is my 4th article on "Power To Agents". With this article I'll explain how I feel about commission reductions in Georgia Based on what I heard in Clearwater, Georgia is probably having less problems than other States. However, I know that what happens negatively in one State for Agents is followed by other States. The train appears

to rolling and it must stop -- if we have to do something in New York -- so be it. I will support as I know Georgia may be next if companies are successful in NY This is a follow up on Georgia. One of the most damaging as it involves a company-Travelers- that has been known as having one of the better agency contracts. Probably the most selective of commission reductions in Georgia has been by Travelers as the change only applies to Specialty Auto Insurance. I don't represent them but an agent sent me a copy of new contract they want him to sign.

Changes:

1. Changes in contract can be made with 60 day notice (was 180 days); however on commissions it specifically says that Travelers can change commissions on any new and renewal policies by providing 30 day notice whenever a reduction is involved.

2. If company forced to continue business, they will pay Zero commission for agent to service. Before agent could request (and get) a one year renewal after cancellation of agent where they would pay agent a commission for service.

3. New and Renewal commission changed to 13% from 15%. 4. Travelers says in its notice, "Please do not make any changes to the document." Last year we had an agent (Hoke Rawlins of GIAA Board) that changed the Mendota contract and sent it back to them. Of course they did not accept his changes and they separated (Mendota bought

International Indemnity where Hoke had a book of business) A couple of agents have told me they will not sign new contract. The agents, however, that don't plan to sign do not have a large volume with them. In Georgia, auto insurance is, for all practicable purposes, non

cancelable and for an agent with a large volume not signing the contract is not a good option. Currently I am getting business from one canceled agency (St. Paul cancellations-I have Met P&C and they bought USF&G and St. Paul). They are sending me their problem business and I must accept. Soon I will be in the opposite status as I just received notice of a company (Vesta) that will be canceling a book of Homeowners. Fortunately I do not have a volume since they cut me off from new production over five years ago. They finally found a way to get off the coast (or at least they think they have. It may not work.). (The agent that sent me a copy of the new Travelers contract wrote on his copy to me: "This should require a refiling of rates and approval by the Commissioner. It constitutes a rate adjustment in favor of the company. Too, we should not be forced to work for nothing.")

Another part of the new Travelers contract has: "A review of competitor contracts indicates our terms remain quite liberal, however, the changes made by the amendment will provide the flexibility needed to enhance our position, and yours, in the non-standard auto arena." My friend wrote in the margin, "this is almost humorous!" It is evident to me if agents do not do something we will only see more of the type contracts that Travelers has. It has not been long since we did not have any company paying less than 15% new and renewal. Today companies paying 15% new and renewal are few. Yes we could have refused to accept less than 15% the first time we got a contract; however, what is an agent to do when he/she has over one million of business with a carrier and he/she knows they can either sign or lose the company and probably most of the business (in our State where insured can keep insurance with company after agent cancellation). The first commission

cut we got was from Progressive -- they said it was to help us compete with State Farm, Allstate, and the standard companies -- Since I did not have a company writing in the preferred market at that time, I thought it was a good move for us. At that time they did not change commission structure on non-standard. NAAA/GIAA I hope will take up the problem and speak for agents -- whatever it takes!!! One company person said "NAAA was signing it death knell" -- My reply is that "Death is death" -- if it comes from the law suit -- so be it-- because unless we are able to stop the trend of the past few years, we will be dead any way.

Bob Feldman of Auto Insurance America responded to my previous comments: "Dean is absolutely correct. Also interesting to see that Travelers is attempting to put a ZERO commission clause into the contract. If they felt that they could arbitrarily chop commissions and had no legal exposure, why would they add that provision? Any agent who signs such an agreement is agreeing to those terms not unlike agreeing to "tiered" programs. If one has no other markets, I could understand agreeing to slow death. Otherwise, who would sign?"

To Bob I reply ...

I appreciate your comments and willingness to help with the problems agents are having. In reply to your comment about signing a contract with the Traveler's provision on Specialty Auto, I have two statements (even though I do not represent Travelers); 1. With most changes, we only get a notice. They don't even ask for our signature. They start by quoting part of agreement that permits them to make change and they make it. With Travelers they are separating their specialty auto from other lines. Progressive, for example, has not had

me sign a new agreement since I first started with them with 15/15. 2. While not representing Travelers, I know of agents with a large volume of specialty auto with them. What do you do if: A. You have over 2,000 policyholders insured with Travelers B. You are an office of five people and you are certain you cannot rewrite the 2,000 within the time period of a run-off. C. Your agency has over 50% of its volume with Travelers. I don't have answers. Only questions. Companies came to us and asked to make them #1 or #2 in agency. Agents were told that they needed to represent fewer companies. Companies built name recognition while part of the independent agency system but are now using that name recognition to sell direct. In my opinion we should have a good case of "Unfair business practices".

Dean Auten

Dear Dean,

Unfair Business Practices is just one of the options that will be discussed at the NAAA Board meeting in Atlanta at INSURANCE EXPO 2001. As you are a voting Board member, you know that NAAA Board voted unanimously to explore several actions, including filing class-action suits. Over the next 30 days, the association, which represents about 2,500

members in 18 states, will be seeking an attorney to handle the suit. At this time NAAA is not identifying what companies may be named in the suit or what states it could be filed in.

The organization is looking to file a multi-million-dollar class action lawsuit against insurers who have reduced the agents commission on auto policies without passing on those saving to the consumers. The suit would seek to have commissions reinstated to their original figure or see the savings from the commissions passed onto consumers. In the past six months the frequency of commission cuts by some companies has increased dramatically, to where an agent receives anywhere from five to zero percent commission. While most of these cuts are coming on renewal business, there are cases where NAAA members are

seeing cuts on new business. May I stress that some companies work closely with agents and are not cutting commissions, and the suit would be directed only at those reducing commissions. No monetary figure has been set yet. The Travelers' contract change is the purest example of what our industry has always been ... not where it's going. As I see it, Travelers made two mistakes.

Mistake #1: Travelers thought it proper to offer nonstandard agents the same fair treatment given to standard agents ... a contract filled with guarantees and laced with loyalty. Unfortunately, Travelers soon learned that most nonstandard auto agents define loyalty as something with George Washington's picture on it. (I stole that one from Farris Evans,

Sr., of The EBCO Group). The contracts offered by every one of our carriers are one-sided and open-ended by design. It has always allowed for quicker adjustments without having to go hat-in-hand to the DOI for approval. Travelers should never have offered such a contract. If they had simply copied clauses from their competitors, we wouldn't be having this

discussion.

Mistake #2: Travelers still doesn't understand the beauty in ambiguity. If they had simply said "Commissions are subject to change at any time" without using the dreaded word "ZERO", again we wouldn't have blinked. The only basic difference between Travelers' contracts and those of most of the rest of industry is that Travelers put in writing what everyone else secretly holds as an "ace-in-the-hole". NAAA's bringing the issue into the clear light of day is going to cause a great deal of discomfort for the company side of this industry. Since you don't represent Travelers, please allow me to introduce you to them. They will be staffing an Exhibit Booth at INSURANCE EXPO 2001. Just do me a favor and wait until I have time to stand around and listen to your conversation with them. I don't want to miss a word! We'll speak more on this subject at the GIAA Conference of Champions on

Jekyll Island on July 19-21. Then we'll continue the conversation at the National Open Forum on August 24th at INSURANCE EXPO 2001. See you at Jekyll Island if not before...

Eddie

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