HISTORY OF COMMISSIONS
By: Don Goldmann
Johnathan Swift, the 1700s English satirist who wrote “Gulliver’s Travels,” is often credited as being the first writer to suggest the Devil invented lies.
If the Devil first invented lying, then everyone who lies, is simply repeating his process, not inventing anything new.
Hence, it’s apt to repeat that what’s old is new again!
What current lies are arising again?
- The consumer is better off without broker commissions by getting a lower premium.
- The carrier can lower its premiums and gain more market share, if it doesn’t pay commissions.
- Brokers only add cost, not value.
Every time those lies are told, the Devil smiles a wicked, evil grin, worthy of the Grinch and happily says, “Everything old is new again!”
Californian insurance brokers, active between 1990 and 2010, heard those claims back then.
During those years, for a period of time, Pacificare discontinued paying brokers until sales started fading.
Also, during that period, Kaiser had a policy of not paying commissions, until they too decided there was value in having broker support.
Politicians decided to join the chorus by passing legislation, without broker involvement, in 1992, for California’s first state sponsored health care exchange titled “The Health Insurance Plan of California” (HIPC), or what became known later as PacAdvantage.
The HIPC’s decision to disrespect brokers by not providing commissions led, in 1996, to John Word and Rusty Brown, of Word & Brown, creating CaliforniaChoice, with a commitment to distribute the product with broker commissions.
Eventually, Pacificare, Kaiser and, what evolved to become Covered California, all concluded that paying commissions was the best thing for consumers, brokers, and themselves.
However, the Devil doesn’t stop!
” Today, carriers throughout the country, selling individual, small group and Medicare policies, have been tempted to believe that there’s no value in having brokers distribute their products. “
In the 1990s, brokers applied pressure to force change in the carriers’ refusal to maintain active commission plans, but those brokers had to do it by convincing each other to not present non-commissionable products. While there was no formal collective bargaining involved, peer pressure helped to stymie sales until carriers no longer listened to the Devil.
As Johnathan Swift correctly noted, it will always be that what is old is new again.
Carriers deciding to forego commissionable plans do so for the same illogical reasons as in the past. However, we now live in a time in which state regulatory rules must be reckoned with.
While there are variations between states, most Departments of Insurance view brokers as part of the consumer protection system that should be encouraged.
The encouragement comes through rules, regulations, and directives prohibiting carriers from certain marketing and commission practices which act to discourage or disincentivize brokers from presenting certain plans to consumers. Such actions, sometimes described as an unfair trade practice, are often seen as attempting to direct consumer choices to products that are more financially favorable to the carrier to the disadvantage of the consumer.
Every broker should make the National Association of Benefits and Insurance Professionals (NABIP) a part of the brand they project to the consumer. They should lean on NABIP to help solidify that brokers represent consumer values, not carrier values, because that’s what NABIP works to publicly present.
In terms of carriers engaging in non-commissionable products to discourage the writing of certain policies that might be better for a consumer, but less profitable to a carrier, NABIP is working with the National Association of Insurance Commissioners to issue bulletins warning of potential fair-trade violations.
As of November 12, Idaho, Delaware, Montana, New Hampshire, North Dakota, and Oklahoma have issued bulletins.
Active discussions are going on with regulators in 17 other states, including Alabama, Arizona, California, Colorado, Connecticut, Florida, Iowa, Maryland, Minnesota, Nevada, New Mexico, North Carolina, Ohio, South Carolina, Texas, Virginia, and Wisconsin.
Customer service and protection should be qualities reflected in every broker’s brand, but non-commissionable plans create a customer service dilemma.
A broker presenting commissionable plans may be asked to compare such offerings against a non-commissionable plan the consumer is aware of, but would like more information, while not recognizing that the broker is being asked to work for no compensation. Even worse, the broker may be endangering their own financial well-being in presenting plans which have no compensation.
While E&O policies can be different, the general rule of thumb is that E&O only applies to the selling of a policy for which there is compensation. Presenting a non-compensated policy opens the broker to being sued if something goes wrong with the E&O policy not providing coverage.
Showing the consumer that you have value is an important part of your brand, but you also need to use NABIP to gain a larger voice in fighting back against the old attitude that the consumer gains no value in having a compensated broker.
” That old lie is once again new and it’s clearly a Devil’s lie that the broker has no value. The consumer without a broker can easily become the big loser in the transaction.“
Donald Goldmann is the former NAHU President and current Chairman of the Independent Board of Directors for the Dental Health Services of America with plans available throughout California, Oregon and Washington state. With over 40 years of industry experience, he also works as an independent consultant, often with the National Association of Health Underwriters. Previously, he was Vice President of the Word & Brown University.
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