Last week, I suggested that rather than ban contingency fees, itmight be time to lift compensation restrictions on mega-brokersunder a probationary agreement including strict disclosure andoutside auditing. Reader reaction on my blog was mixed.

J. Robert Hunter, director of insurance for the ConsumerFederation of America, said that "all contingent fees createpotential conflicts of interest and should be banned. That wouldlevel the playing field in a way that protects consumers."

Craig Dolan agreed. "The proposal you have made creates anotherBig Brother agency...It is better not to need the oversight byremoving the contingent fees completely. Greed creeps back wheneverpossible because there will always be the few for whom most of usmust pay the price."

Wayne Salen chimed in on my blog that "I fail to see whereupfront commissions/fees can't serve as the sole means tocompensate the retail agent or broker. There is no question in mymind that when an agent/broker places coverage (especially if theyare a principal and know how their carrier agreements read), theirback-end revenue is a consideration."

One regular blog contributor, who only identifies himself asMikk, said "the whole system of carrier-paid commissions(contingent or otherwise) is fraught with well-known conflicts ofinterest," which he suggested could be minimized or removed bycreating three classes of producers:

o Captive agents, who should tell buyers they represent only onecarrier, which "may pay the agent whatever compensation the agentand carrier agree on," with no disclosure to the buyer.

o Independent agents, who would be "required to disclose theyare appointed agents of whatever carriers they represent--and thatas such, they are loyal to the interests of the carriers, not thebuyer."

There would be "no need to disclose" their compensation, hesaid, since buyers "have already been warned that they need to lookafter their own interests and not rely on the agent." He added that"buyers need to protect themselves by getting quotes from at leasttwo different agents, but whether they actually do so is up tothem."

o Brokers, who "purport to be loyal to the interests of thebuyer, not the seller," Mikk said, should disclose that fact "inwriting to buyers, along with a fee schedule for the broker'sservices."

He added that "carriers should pay nothing to a broker foracting as the buyer's representative," noting--in what should bemusic to the ears of risk managers--that "premiums charged forinsurance...should reflect that reduction in the carrier'sexpenses. Brokers would get paid by collecting their fees frombuyers."

Yet Philip Lieberman wondered whether "people who sell washers,dryers and all kinds of other merchandise [should also] be requiredto disclose their commissions, co-op ad rebates, sales successtrips and other incentives," adding that "the consumer is free toshop elsewhere if he has any question about the validity of theprice" of insurance.

Mikk conceded that "the possibility the buyer may seek acompeting quote from another agent helps [producers] resist" thetemptation to cheat the consumer. "However, it seems a shame that,to do the right thing, they have to resist the incentives that thesystem offers them."

He added that "obviously, not everyone has resistedsuccessfully--that's why the bans on contingent commissions wereimposed on the big miscreants that got caught. We ought to have asystem that offers incentives that do not need to be resisted!"

What do you folks think?