Agents Angered by Insurers’ Cut in Commissions
The state’s largest association of insurance agents and brokers has bitterly assailed Aetna, Cigna and four smaller insurance companies for allegedly trying to get out of the auto insurance business in California by cutting the commissions they are paying to agents, thus discouraging them from making sales.
A statement issued by the Independent Insurance Agents and Brokers of California said that a year after the passage of Proposition 103, “some insurers have learned little. They continue to treat agents and brokers in the same arrogant and arbitrary manner in which they’ve treated customers for years.”
The statement, a sharp departure in tone by the group representing 2,000 insurance agencies, comes as companies are facing new pressures: a freeze on auto insurance rate increases imposed by Insurance Commissioner Roxani Gillespie and the implementation of a Proposition 103 provision requiring all companies to sell to anyone who qualifies for a good driver discount.
Stymied from giving their customers a rate increase and forced to accept customers in high-claim areas, a few companies have decided to save money by cutting back on commissions. In most cases, they also hope to cut their exposure by discouraging sales.
The agents fear that both strategies mark the beginning of trends. For the time being, many agents will maximize sales for companies still paying higher commissions, but they are afraid there will be fewer and fewer of these.
In recent weeks, Aetna and Cigna have announced commission cuts in personal auto lines from 15% of annual premiums to 10%. The cuts will be effective Jan. 1 for Cigna and April 1 for Aetna, the companies said.
Meanwhile, four smaller companies, Evergreen, Sequoia, Unigard and New Hampshire, also have announced impending commission cuts, in some cases to the 7.5% level.
Jerry O’Kane, executive vice president of the agents and brokers group, was particularly vitriolic when it came to Aetna.
“Aetna’s like a wolf caught in a trap,” he said. “The wolf will chew off its own leg to escape.”
“Some carriers are desperate to escape writing private passenger auto business in California and will resort to anything to do so--even if it means cutting off customer service to do it, tightening underwriting guidelines, shutting down for new business and terminating their agency force,” the agent and brokers association statement said.
Aetna, which only last month unsuccessfully challenged Gillespie’s rate freeze in court, quickly responded with a sharply worded statement of its own.
“Aetna recognizes that the status quo is no more,” said John J. Martin, president of the personal financial security division of Aetna Life & Casualty.
“We invite the Independent Insurance Agents and Brokers of California to do the same. Their unfortunate comments show a lack of understanding of the real issues in California.
“Aetna has met with its agents’ advisory councils to discuss our actions and we will continue to work with our agents on ways to make the independent agency system in California more competitive. With almost 74% of the market handled by non-independent agent companies (agents that work for only one carrier), it’s clear that our method of doing business will have to become more competitive in order to survive.”
A Cigna spokesman, meanwhile, said that in cutting commissions in California the company was only bringing its California agents down to the level of commissions it paid in most other states.
“We have a standard commission level of 10%,” said Jim Beattie, assistant vice president of communications. The move toward that level in California “falls in line with our strategy where we’re trying to make some money out of the business,” he added. “We feel a commission adjustment is one of the steps we must take as part of an expense control.”
The agents and brokers association statement, however, asserted that “a 33% reduction in income for agents means the agents cannot continue the high levels of quality service for which their customers choose an independent agent or broker.”
Meanwhile, in another insurance development, a California Field Poll on the race for insurance commissioner showed that a number of prospective Democratic candidates have taken a strong lead over Gillespie, who has said she is considering running as a Republican. Under Proposition 103, the post becomes an elective job for the first time next year.
In the poll, television commentator Bill Press held a 42% to 22% lead over Gillespie, with the rest undecided. State Board of Equalization member Conway Collis held a 39% to 20% lead over the incumbent commissioner, as did Common Cause Director Walter Zelman.
In the contest for the Democratic nomination, Zelman led with 18% support, Press had 16%, Collis 8%, trial attorney Ray Bourhis 7% and 51% were undecided.
