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PIA Main Street Insurance Agents Go to Court to Protect American Free Enterprise System

WASHINGTON, September 25, 2006 - When the National Association of Professional Insurance Agents filed a friend-of-the-court brief on September 15, 2006 in the...
September 25, 2006

Proposed Settlement Agreements Would Put Businesses in "An Anti-competitive Straitjacket"

WASHINGTON, September 25, 2006  - When the National Association of Professional Insurance Agents filed a friend-of-the-court brief on September 15, 2006 in the U.S. District Court for New Jersey, the Main Street insurance agents that the group represents were doing more than simply standing up for their own business interests.

The Main Street agents entered the legal arena to oppose a proposed settlement involving major insurance companies and by doing so, protect a guiding principle of the American system of free enterprise: the ability to pay salespeople compensation based on their performance.

"That this principle should need defending in a federal court demonstrates just how far a handful of state Attorneys General have strayed in their attempt to address abuses by a handful of individuals," commented PIA National Executive Vice President & CEO Len Brevik. "At issue is a systematic, coordinated assault on the manner in which almost all American businesses operate."

Starting in late 2004, several state Attorneys General announced that they had uncovered instances of alleged bid-rigging in dealings involving a handful of top-of-the-marketplace "mega brokers" in insurance. The resulting settlement agreements sought to ban certain contingent commissions. They were then applied not just to the mega-brokers in question, but broadly to include Main Street insurance agents, who had never been accused of wrongdoing.

"This is where the train wreck occurred," Brevik said. "Despite public statements from officials to the contrary, these settlement agreements are increasingly being crafted in a manner that seeks to bring about the total elimination of contingent compensation, across the board."

Brevik said the prohibitions and a flawed mandated disclosure form combine to place both insurance companies and their Main Street agents into "an anti-competitive straitjacket that will inhibit the kind of free market competition that benefits all insurance consumers."

"In these proposed settlements, we have seen some insurers compelled to drop some forms of contingent compensation outright," said PIA National Vice President/Treasurer-elect Kenneth R. Auerbach, Esq., PIA's lead internal counsel. "And in a provision we believe raises serious First Amendment questions, companies are required to support legislation and regulations to abolish contingent commissions for insurance products or lines."

"These ill-advised remedies that are being proposed for a few isolated instances of anti-competitive behavior are themselves anti-competitive by their very nature," Auerbach said. "We have already seen attempts to apply them to sectors of the insurance industry that have been free of such abuses. PIA is very concerned that if left unchallenged, these kinds of prohibitions could be applied to other sectors of our economy and adversely affect a wide range of small and mid-sized businesses."

"Commissions, contingent or not, are a mainstay of our economy," Brevik said. "They motivate salespeople to greater productivity and they spur competition in the marketplace. In our industry, they also support critical, professional first line underwriting by agents to assure the financial health and solvency of insurers that we all rely on. These settlements propose to fundamentally change the way in which most American businesses operate. State Attorneys General should not be attempting to bring about the elimination of incentive compensation as a means of discouraging abuses of the system. Rather, they should concentrate on policing such abuses."

"The day when it becomes illegal to sell on commission is the day when the American Free Enterprise System will have suffered a death blow," he said.

Founded in 1931, and celebrating its 75th anniversary in 2006, PIA is a national trade association that represents member insurance agents and their employees who sell and service all kinds of insurance, but specialize in coverage of automobiles, homes and businesses. PIA members are Local Agents Serving Main Street AmericaSM. PIA's web address is:

Brief of Amicus Curiae (PDF file)
Unites States District Court, District of New Jersey
in opposition to Proposed Class Settlement with Zurich Insurers
National Association of Professional Insurance Agents

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