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Commissioners Standard Ordinary (CSO) Table
A mortality table depicting the number of people dying each year out of the original population, not as individuals, but in age groups. CSO tables are used to calculate minimum nonforfeiture values and policy reserves for ordinary Life insurance policies. The tables provide minimum values that must be guaranteed to policyowners as approved by the National Association of Insurance Commissioners (NAIC).
Insurance Industry News from ProgramBusiness.com
Looking at ContingenciesTo make a case that agents should not receive contingencies, someone has to make a case that they are injuring their insureds in a manner that violates their responsibilities (keeping in mind the definition of agent versus broker and the Weisblatt v. Minnesota Mutual Life Insurance Co. case). Outside of a few huge brokers, no one has made that case or for that matter, I am not even aware of anyone trying to make that case against agents. It seems easier to use conjecture, to claim that if a bonus exists, it must be used illegally rather than proving an actual crime.
Illogical Solutions
As mentioned above, along with the ban on contingencies, some regulatory proposals and solutions have called for agents and brokers to disclose their compensation. Mr. Richmond, again from the article noted above, makes four great points why this is wrong.
1. Most states have anti-rebating statutes so even if the agents’ commission is stated, they cannot do anything about it if the insured complains.
2. The insurance departments review admitted companies’ rates (and the companies who have signed these agreements are admitted companies), which consider agency compensation, and those departments approve the rates. (Which makes one wonder why the insurance departments approved rates that included contingencies but now say contingencies are wrong.)
3. To quote Mr. Richmond, "It is illogical to impose on agents or brokers a duty to disclose their compensation when insurers have no duty to disclose how they calculate their premiums." He goes on to make a great point, that to require commission disclosure, " . . . would open the floodgates to a whole new duty to advise, theoretically obligating agents and brokers to inform insureds at the time of sale about all aspects of an insurer’s pricing." This is obviously totally impossible.
4. To disclose commission is to suggest the insurer would have issued the exact same policy for a lower price simply because the commission could be less. For example, if one company is paying 10% and another company is paying 11% and the agent discloses both, then the agent also must prove that each policy provides exactly the same coverage, that claims service is equal, that their financial and claims paying ratings (these are two different ratings) are identical, and their customer service is identical. Otherwise, if the two policies and two companies are not identical, then the one paying 10% may be paying 10% for reasons detrimental to the insured, or vice verse. Either way, it may have nothing to do with the commission rate.
Many, many factors other than the commission an agent receives go into placing business. Based on my experience with insurance agencies and companies, if an insured protests they have been steered to the company paying the higher commission rate, the honest agent could likely prove that the company paying the higher rates had the best product, the best claims paying rating, and the best claims practice and that is why the agency placed the customer’s account with that particular company.
Summary
So we have a situation with a solution that bans a legal and ethical practice while doing absolutely nothing to prevent future abuses. The elimination of paying for results may actually make the situation worse because now insurance companies are being motivated by the settlements to guaranty money to insurance agents. We all have seen how well guaranteed money motivates people to do what is right and to work hard. Serious checks and balances exist through E&O to prevent agents from moving business that cost customers coverage. Simple acts from clients can ferret out agents and brokers trying to charge too much money (and if those folks are too lazy, that should be their problem as the courts have noted). My experience has been that most agents and brokers are too paranoid of losing accounts to try to charge t
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