The Alan Katz Health Care Reform Blog

Health Care Reform From One Person's Perspective

Understanding Broker Anger

Posted by Alan on December 13, 2010

Non-insurance brokers reading this blog may be wondering what the fuss is about. Yes, commissions are being reduced, especially in the individual market segment. Who didn’t see the writing on that wall? Given the Patient Protection and Affordable Care Act’s medical loss ratio provisions, a substantial cut in individual health insurance commissions was a mathematical certainty.

So why the anger, despair and sense of betrayal? Yes, fear that one won’t be able to make a living in one’s chosen profession has a tendency to make macro events very micro – and personal. This would explain the despair, but more is going on here than concern over a reduced revenue stream.

Most brokers reading this blog are far more engaged in insurance sales and service than I currently am and can express how brokers feel far better than me. (Hopefully they will – and will do so civilly). However, I’d like to offer some observations to non-broker readers to start the dialogue.

First, let’s get the obvious issue out-of-the-way. Yes, the money matters. Professional brokers add value to the products they sell and service. (The service aspect of what brokers do is too often overlooked, but it is a major part of the job). Brokers want to be fairly compensated for that value. There are bills to pay and other products to sell. Time and resources are being spent and commensurate compensation is deserved.

The commission cuts we’re seeing vary greatly from state-to-state, carrier-to-carrier and product segment-to-product segment. In the individual market (where consumers buy coverage without support of an employer) commission reductions of roughly 30-to-50 percent appear to be the norm.  Cuts of this magnitude would disrupt any enterprise. Imagine telling GM that their new $41,000 Volt must now be sold for $25,000. So much for paying back their government loans. Look at what happened in California when state revenues fell by roughly 20% from fiscal year 2007-08 to 2008-09. (For those not paying attention, the result has been a fiscal, policy and political nightmare).

Brokers recognize that during the Great Recession others have sustained even harsher financial hits. Yet when it’s your cash flow, company doesn’t reduce the misery. Yes, brokers are better off than the owner of a neighborhood business bracing for the arrival of a Wal-Mart in their neighborhood or of a worker watching her job shipped overseas. After all, when a business closes or a job ends, all compensation revenue and income ends, too.

Brokers, however, still have strong relationships with their clients. There are other products to sell and service. Some producers no doubt have already calculated that the size of cuts to commission rates in many instances do not necessarily reflect commensurate cuts in actual compensation (in some circumstances, unfortunately, they do). Between 2004 and 2009 the average premium in the individual health insurance market segment increased by 31% for single coverage and 43% for family policies according to two reports published America’s Health Insurance Plans, a trade association for carriers. Premiums have no doubt increased in 2010 and will again in 2011 – the PPACA will see to that.

Still, given commission reductions of the magnitude being reported, the response of many brokers is neither surprising nor inappropriate – and it is intense and genuine. Because there is more involved here than the money.

Professionals who have devoted their careers to serving their clients and supporting their carriers are being told by those same companies that those services will no longer be worth tomorrow what they are today (in a monetary sense). At the same time, carriers are reminding brokers that their role in educating consumers has never been more important given the new health care reform law. How could anyone in this situation feel anything but devalued personally and professionally?

Intellectually most producers knew changes to the commission structure were inevitable even in the absence of reform. Tying broker compensation to the rate of medical inflation, which brokers know has greatly outpaced general inflation for years, was becoming increasingly difficult to justify. Knowing this, however, doesn’t make commission cuts any easier to accept. This is especially true when some carriers seem to be hiding behind health care reform to lower average commissions below what the math embedded in the PPACA’s medical loss ratio provisions seems to require (roughly to 7-to-8 percent of premium). Were these carriers to fully explain why they were reducing commissions significantly below their competitors, brokers might find the situation more easy to accept. Instead, brokers are being told “Here it is, take it or leave it.” A message that does nothing to address brokers concerns, but simply inflames their anger.

Worse, some carriers have apparently chosen to apply the compensation reductions to brokers’ existing block of business. This is a tactic brokers find unacceptable (and I feel for the sales executives of these carriers who have to explain and justify an approach they vehemently opposed).

Why are brokers concerned about retroactive commission cuts? For the same reason no health plan CFO would let their company offer a policy empowering subscribers to unilaterally lower premium payments simply by declaring that “household costs must be cut.” Yet these same CFOs are asking brokers to accept such an arrangement.

That even one carrier would attempt to take this approach undermines trust in all carriers. Brokers entrusted their clients and a portion of their livelihood to these insurers. Yes, there are contracts governing these arrangements, but there’s a large element of trust involved, too. Brokers rely on insurers to provide the coverage promised in their policies, to treat their clients fairly, and to be dependable business partners. Retroactively cutting commissions on existing business defies the definition of dependable.

My guess is that when their sales drop precipitously, as they inevitably will, these carriers will reconsider this approach. Insurers have, after all, retreated from similarly bad compensation ideas in the past (more on these examples in a future post). Even then, however, the sense of betrayal brokers feel today will linger.

Complicating brokers evolving view of their carriers is that while the commission cuts are obvious, other cost cutting measures insurers are taking are less apparent. The ranks of home office executives are being reduced at many companies, for example. but unless these terminated officers worked directly with brokers, their departure goes largely unnoticed. As a result many brokers feel, (in many cases wrongly) that carriers are not accepting their a share of the pain necessitated by the PPACA.

Brokers rightfully consider the services they provide their clients – and their carriers – to be valuable and important. And they are. Clients trust their brokers far more than their carriers. Consumers listen to their agents when it comes to choosing a health plan; I’ve never heard of a consumer listening to a carrier when it comes to choosing their agent. Most carriers seem to be making the cuts that the math requires of them. Brokers who expect that 20% commissions in an age of 80% medical loss ratios can continue are being unrealistic. And attacks on all carriers for unfair or inappropriate actions taken by a few insurers are unfair. Yet doing so is all too easy – and human.

Whether as a non-broker you believe producers have been overly compensated or not, the reality is that the imposition of commission cuts understates and undermines the perceived value of the profession. Brokers may have been reassured by the resolution passed by the National Association of Insurance Commissioners expressed their concern about the negative impact the PPACA could have brokers this past summer. They may be heartened to know that state regulators was calling on the Administration to “protect the ability of licensed insurance professionals to continue to service the public.” But outcomes trump good intentions. And while the position of the NAIC may impact the role of brokers in the future, what producers are seeing now is a devaluation of their work.

I believe that’s the greatest source of anger. Yes, selling and servicing individual health insurance will be less profitable next year than this year. Producers will determine on a broker-by-broker basis whether selling and servicing individual health insurance will be profitable enough to justify continuing to do so. What works for one broker may not for another.

The income being lost today will, I predict, be replaced through an influx of new customers and increases in the cost of coverage. What will be far harder to set right is the diminished trust between brokers and carriers. Loyalties and relationships have been strained and must be reforged. Harder still, however, will be restoring brokers’ sense that the value they provide is recognized and respected. Doing so will require carriers, lawmakers and regulators to treat brokers differently than has been too often the case to date.

Whether they are inclined to do so remains to be seen. Until they do, however, broker anger will continue, even when the lost income is replaced.


45 Responses to “Understanding Broker Anger”

  1. Alan,

    Ready for a new installment. Saw this CPRights.

  2. Jen said

    I spoke with one of the senior executives of Blue Shield of CA yesterday. He is located in the El Dorado Hills, CA office. He told me that Blue Shield will be rolling back to the REQUESTED effective date of all applications that are now pended. So, if you instructed your clients to request a 12/30/2010 effective date and the case is cleared in late January, they will roll it back and YOU will get the full comp, not the paltry amount you will get after Jan 1. That is a good thing.

    We talked about the MLR and the the agent sales force. This executive is very sure that agents will simply suck up the comp cut and continue to write IFP… especially those who have a large book and make a lot of money off of renewals. He said he and a lot of senior Blue Shield people sat around the table for many, many hours trying to work out a “strategy” to preserve their sales force in the wake of a 50% cut in earnings. It pretty much boiled down to the fact that agents are not capable of doing much of anything else and that they will just double their production if Shield can spin it correctly. Personally, I don’t see what alternative Shield (or any carrier) has except to spin it that way.

    He agreed that a number of agents will leave either IFP or the whole health sector, but he and his team were sure that they will get the same production out of the agent sales force at half comp as they did at full comp.

    I told him that I would not write IFP again for any carrier and he said that all I had to do was double my production. I asked if he had ever been an agent and I got a lot of silence on the phone… followed by an “uh…no.” I told him that if it were so easy for agents to double their production they would have already have done it!

    I also asked if Blue Shield had cut his salary by 50% and he said no they had not. I asked him what he would do if they did and he said that he “got my point.”

    This was a nice young man who was in a difficult position of having to “spin” a lot of bad news to the sales force in the hope of keeping them as producers. He put up a brave front, but I could hear that he knew that it was a losing battle and I pointed out to him that if thousands of agents like me left the IFP sector that perhaps his job would be “redundant.” He said he understood, and I believe that he did.

    I told him I was telling all of the agents that I know and come in contact with that staying in the health sector is a waste of time. IFP is not sustainable economically. Building a group book is also not sustainable because when the exchanges open in 36 months, most of the small employers will drop coverage and tell their employees to get insurance from the exchanges. He and I agreed that the senior market is still viable but it may only be a matter of a few years before the government makes changes such that Med Supplements are discontinued (and we know what is going to happen to Medicare Advantage.)

    Today (Dec. 31) is my last day writing IFP and group. I’ll cross sell Medicare Supplements, but from now on I will devote all of the hours I spent on prospecting and selling health to the same for life and annuity. I’m sure that the worst nightmare that the carriers have is if every agent decides to do what I’m doing.

    I’m convinced that the execs of most carriers live in a world of denial and truly believe that most agents are just not smart enough to be successful in anything more complex than heath insurance. They may be right about some or most, but they are not right about me.

    My parting words to my health carriers and the many health agents I know is “Thank you for the use of the hall. Will the last agent out please turn off the lights.”

    • Jen said

      I re-read my post above and want to clarify a few things that might be interpreted incorrectly. There is no way to edit a post here so let me write a few words of explanation.

      I don’t mean to imply that anyone at Blue Shield thinks agents are “stupid” and can’t do anything else. What we agreed upon is that agents who have been selling health and only health for a long time may have a rough road in diversifying to other products. I’m in the process now and it is not easy and I’m looking at a huge income cut in 2011… and am also considering hanging it up and getting a job as cook at Chick-Fill-A!

      I also don’t mean to give the impression that Blue Shield wanted to cut comp or has some kind of “vendetta” against agents (the way that some carriers across the country have… you know who they are.) I believe that Blue Shield of CA truly, truly, truly loves and values their agents and I honestly believe that cutting our comp was a very difficult decision for them to make and that they know and understand and emphasize with the hardships that it will cause people who have been loyal to them for many years.

      Yes, they have to “spin” it with the message of “we can get through this if you folks will just keep producing” because… what else are they going to say? If you were their CEO, what would you say and do? What choice do you have. And while I think a lot of agents WILL leave the health sector and while I think they should given the economic and political realities, I totally understand why they and other carriers are trying to shine as good a light on this as possible… at least in the near term. And I think they and their agents understand that in this economy half is better than none… and that it is better for both the carrier and agent to lose half their income than all of it.

      When I said that they are “confident” that they will get the same production from agents in the near future, I should have said that they are “very hopeful” of that fact. Hope vs. confidence? It’s a thin line and I inadvertently crossed it. And while I said that “most carriers are in a world of denial,” Blue Shield of CA is surely not one of them. They have good management and are trying to do the best they can for their employees and agents in a very difficult situation. Contrast that to another carrier that starts with the letter “A.”

      Blue Shield of CA is a good company run by people who really DO care about serving their members and treating their agents fairly. This MLR mess is not their fault and it is going to impact their employees almost as much as agents. As much as I “hurt” for myself and my family, I feel badly for the many reps, agent phone staff and underwriters I’ve gotten to know over the years because when the exchanges open in 36 months all of these people will be out of a job… and I know some of them have been with Shield for many, many years.

      There is a warm place in my heart for Blue Shield. I worked a 1 Beech Street and then 2 Northpoint at their headquarters in San Francisco in 1975 (yes, I’m a dinosaur!) where I met my first, current and very expensive wife who was an administrative assistant to one of the VPs. I carry a Shield card in my wallet (HSA 4000 plan) and they have always been my carrier of choice (but unfortunately they have underwriting standards that reject most of my victims… oops I mean clients. I work mostly with boomers in the 50+ range… because I’m even more ancient than that!!)

      There is a lot of anger and frustration in the agent community and some of it is earned by the carriers, but I can’t say that Blue Shield is one of them. Bottom line, when the history of all of this is written, it will be said that the current system was not sustainable, that while carriers tried hard with PPOs and HMOs and consumer-directed health plans, they were not able to stabilize the price of healthcare and that without governmental action the entire system would have collapsed.

      Case in point, I got a notice from Shield that my premium will go to $597 just for me in March. I can’t afford $7164 for premium and then $4000 for deductible… $11,164… especially not after my income is cut in half. I just don’t have the budget for it. I’m looking at going “naked” for six months and applying to one of the pre-ex state plans that just opened. While they are not cheap they will probably be a better value than what I have now. But what is any carrier to do? If they don’t raise the rates they can’t pay the claims and will go out of business.

      We all know that there are other solutions out there, but unfortunately our leaders are not adopting them or even looking at them. I think the entire new law is designed to fail so that single payor will be instituted. If/when that happens what happens to all of the people who work for our carriers? Answer: The same thing happing to us now.

      Yes, we can be angry at Blue Shield or Anthem or Aetna or HealthNet or any of the others, but I don’t believe any of them wanted the MLR and in the case of Blue Shield in my heart of hearts I believe they feel as badly about the cuts they had to make as we do.

      It’s a bad deal. If you work on 100% commission you can continue and either make half AND work around the clock to double your production… OR you can walk away and spend that time selling to another sector… life, annuity, LTC, DI, etc., or maybe get a 6 or 7 license and work in equities. Me? I’m going the life/annuity route… but I have to admit that being in a happy environment all day where all I have to do is say “Welcome to Wal-Mart” has some attraction!

      • Jen, you said in your amended post: “Yes, we can be angry at Blue Shield or Anthem or Aetna or HealthNet or any of the others, but I don’t believe any of them wanted the MLR and in the case of Blue Shield in my heart of hearts I believe they feel as badly about the cuts they had to make as we do.” IN your first (not-amended) post you said: “I’m convinced that the execs of most carriers live in a world of denial and truly believe that most agents are just not smart enough to be successful in anything more complex than heath insurance. They may be right about some or most, but they are not right about me.”

        I liked what you said in your first post much better. It spoke truth. Truth and “hurt” perhaps, “hurt” from recognizing that the companies do not give a whit about the Agent Community and have been “looking” for ways in which they could cut the Agents from the “Chain of distribution” of their products (I don’t think they give a royal D@mn about educating the public) for many years.

        I watched, from a front row seat, as a Vice President from NYL addressed a group of 180 Agents who would be selling the just approved PEBB (Public Employees Benefits Board) NYL Long Term Care product to the State Employees in Washington State. And when he told those Agents that they should sell whatever they could, and never mind pushing inflation protection, just “Sell, sell, sell”, I stood up and said “Wait!” “You are giving all of these Agents very bad advice and YOU, Mr. Vice President, should know better! NO policy should be sold without an inflation protection to help our clients as they age.” When the next speaker went to the podium, Mr. NYL VP sent an underling to call me to the back of the room to “discuss” my comments with him. I went to the back of the room, listened to him start to lecture me, and stopped him. I said, “Listen Joe (not his real name), I do NOT work for you, I work for the client, first, last and always. And NYL doesn’t pay me a dime, the client does when I recommend you and place the case with you, and then I pay YOU. Get it?” He attempted to have me taken off the PEBB program, not knowing that I had helped push the program through the Washington State Legislature and sat on the PEBB Committee. Imagine his chagrin when he discovered that I was not “removeable, not by him.

        Jen, you need not dilute your good message. The companies are not unhappy with any opportunity they think they have to treat the Agent/Broker Community as irrelevant. There may be some of the smaller companies who don’t feel that way, but the big ones expect to swallow the smaller ones, as big fish eat smaller fish, and they DON’T feel a whit of loyalty to us. Not yet, they don’t.

        They will discover their vast mistake as those Health Agents who remain in some form of Health Insurance explain to an ever increasing angry public why their rates continue to go up, why their benefits seem to be less than they were, and that while the public may appreciate the role that we have always played in EDUCATING as well as designing benefit plans for them, the companies couldn’t care less, as long as they get those bucks.

        Further, as the legal issues wind their way through the courts, should the “Individual Mandate” stay intact, and the cost of ignoring it increases to make it meaningful (it is presently a bad joke) the public will grow more and more angry; conversely, should the “Supremes” rule the mandate Unconstitutional, and few more than now buy protection, the PPACA, along with other of its ill thought out sections fail, the PPACA may well implode, leaving the US Electorate in a rage that the current administration and the Democrat Controlled Congress chose to harm the US Electorate in such a corrupt manner, and then really take out that rage in the polling booths. Remember, much of what allowed Congress and the White House to jam this program through to law was not done in an open and clear manner, it was done using corrupt, sinister, back room opaque ways, such as having secret deals cut by President Obama with Unions, the AMA, Big PHarma, and Congress was no less complicit in their back room deals cut with Blanche Lincoln, Ben Nelson, and others who could be bought.

        The PPACA smells to high heaven of corruption, “cigar smoke” and “Rancid pork” as any corrupt deal ever cut by an administration and Congress who are operating in league with each other to the benefits of Big Insurance, Big Business, Big Unions, Big Pharma, Big Medical Delivery Companies, Big Hospital Chains, and against the best interests of the public.

        Does that mean that we, as Agents, shouldn’t do our best to move forward and discover alternatives to going broke? Of course not. It also doesn’t mean that we should ignore the reality that we are thought of by Big Insurance as irrelevant, useless, and simply not needed. It’s time that we make clear, through our actions, grass roots efforts, and constantly being in the politicians’ faces, that they were wrong, very seriously wrong, to assume that we would just go along, shut up, and go away, leaving them all to their obscenely big profits, at the expense of the Public and the Agents.

  3. Jay said

    I will be quite surprised if the big carriers don’t throw more money at the field in the individual via bonuses or other incentives. They will need to do this unless they can employ super star phone reps, they’ll be chum for seasoned sales sharks. There are many supplements and indemnity plans that can be woven together to nearly mirror major medical. And the premiums on those plans are much lower. Any agent who can explain risk management to their clients will flourish.

  4. Bill Towles said

    Most of the comments have been fairly accurate with the exception of non-brokers and non sales people. A lot of my anger is not focused at the carriers because of m.l.r. what enrages me is the carriers attitude of complete disloyalty to people like myself who have loyally kept their business on the bookes for 25- 30 years. These carriers will gladly hire new agents with no experience or background the same commissions as they pay me. As for the ignoramus who stated that “all you have to do is pass the test for your license,” try telling that to my poor exasperated clients who come into my office clutching their EOB’s begging me to explain them after they have been frustrated by some just hired home office person. Or, if they have been turned down by some underwriter because the on line salesperson simply described medicines and gave no input as to the causes or conditions. I have to stop now before I give myself a stroke!

  5. For decades, carriers have longed to sell their products without having to pay the middleman (aka agent). This is their chance to reduce agent commissions that they’ve always wanted.

  6. Scott Shipley said

    Hi Alan, one thing I found disappointing about Anthem of California is the fact that we will not participate in the rate increases for any business written after 1.1/2011. So while their wealth will increase, ours will not.

    I find it hard to believe that with a 50% cut in commissions that the company needs all the revenue from the increase as well. How is that sharing the pain?

  7. Frank Tilley said

    I have to take issue with one statement you made. Insurance sales is not a profession. It’s just a business.

    By definition, nobody who sells insurance is required to have a level of education even mildly approaching the level of education required for the true professionals, such as doctors, lawyers, accountants, engineers, etc.

    In fact, all it takes to get a license to sell insurance is a relatively clean criminal background and a weekend at a sales school where they teach you the answers to the licensing exam.

    It’s a far cry from the rigid requirements of the true professions.

    Sorry, just stating the facts.

    • Ann H. said

      Hi Frank –

      A vast divide separates salespeople from professionals. A wide gap separates “navigators” from professionals, which is a point that the future is certain to prove. Almost everyone I’ve met says “I used to sell insurance a long time ago…”. For truly, getting your license is easy. However, long-term players in this business have learned to be professional in their service to the customer. It will be a shame to see many of them seek employment elsewhere while unlicensed navigators attempt to fill the role. “Professional” is a noun that often labels a lawyer, CPA or doctor, but “professional” is also an adjective that describes the attributes of a truly qualified specialist whose career is built on quality service and advice. To this end, I support the licensed, professional insurance agent/broker who is dedicated to an admirable career.

    • Curt Cella said

      Good grief, Ann: Your response was far too kind to this guy. Please allow me:

      Outstanding assessment Frank – please enjoy buying your health coverage from a guy who was hired on Monday and is manning the phones by Tuesday. Also – while we’re at it – let’s de-license securities sales, life, long term care and oooo – here’s one I like: Medicare Supplements! Yes, let’s let your mum buy her health coverage needs in the same storefront where she gets her hair permed….and oh yes: Let’s do away with licensed hair stylists. What the ^#^& do we need that nonsense for: Just put a bowl over your head and snip snip snip it’s back out to the golf course!@ (Lookin’ good my man!)

      So uhh Frank: By definition then: doctors, lawyers, accountants, engineers, etc.? All geniuses by virtue of their job title? Yep there’s no bad doctors, lawyers, accountants, engineers: Each and everyone is a total professional deserving of our awe and admiration (Bet that will come as a real shocker to medical malpractice lawyers…)

    • Larry said


      Yes it is true that obtaining an insurance license just puts one at entry level, however, many insurance agents and brokers do have professional designations which require a fair degree of ‘rigid requirements’ to obtain.

      Personally speaking, I have a bachelors and a masters degree and I will tell you first hand that going to school and completing the so called ‘rigid requirements’ for most areas of study (like engineering and accountancy, for example) is simply showing up and following directions. Admittedly, it does take a certain amount of effort to complete a degree program, however, most of the people whom I went to school with are far from what I would consider ‘consummate professional material’ (and yes, I did go to reputable schools). To be honest, part of me really feels that anyone with half a brain and enough money can go through the higher education system and obtain a very expensive piece of paper (the only exception being science and medicine – which in the end do not pay as much as most people think they do).

      Even the best products and services ever invented are doomed to failure if there is no one to sell it. One of the biggest mistakes any organization can make is underestimating and under appreciating their sales force. I’ve been involved in two different situations (both times outside of the insurance industry) where upper management, directors and/or owners of the companies tried to increase their bottom lines by short changing their sales force. Both times ended disastrously and those companies ended up failing within 12 months. All they accomplished was simply “killing the goose that laid the golden eggs”.
      Good, seasoned sales professionals in any field are typically the hardest working, most knowledgeable people in their respective organizations. It sounds like to me, Frank, based on what you have stated, that you have never been in a business decision-making position in your adult working life.

      Sorry, just stating the facts.

  8. Robert said

    Gee…an article about brokers’ fears that mentions only reduced commissions. How about discussing the possibility that brokerage services could be almost entirely provided through federally-mandated “Exchanges”? How about mentioning the possibility that some of the biggest brokerage customers (association plans and, in many states, school districts) may stop using brokers entirely?

    The possibility that there will be some limitations on MLRs (which currently afford huge carrier profits nationwide, even in states whose insurance commissioners have some statutory ability to impose limits) should come as no surprise to any industry observer or participant. Especially in the individual and small group markets, carrier earnings have significantly exceeded the demonstrable risk of these segments–and have contributed significantly to our runaway health costs.

    The likelihood that many groups and segments will now be pooled, and made available through exchanges that largely duplicate a broker’s functions, could eliminate brokerages, is to my mind of much greater moment than a short-term decline in commissions.

    Given these very large structural matters, your blog seems trivial and strangely myopic.

    • Curt Cella said

      Hey folks – don’t shoot the messenger. While Robbie has incorrectly pointed to the health insurance industry as THE bad guy here, he has correctly noted that come Exchange time we may be going the way of the dodo bird. Robbie I’m afraid that you are correct in the sense that we do seem to continue holding our hands up over our eyes and crying NAANAANANANANANANANNANAAA!!!!!! when it comes to the devastation Exchanges may bring forth on our industry and the sales distribution model as we know it. I certainly don’t think the carriers are closing their eyes to what the Exchanges mean – heck just about every other post here is a shout out to carriers who have seen the future and it doesn’t include agents.

      I think I saw a couple of posts here from agents who have started to admit the future is bleak and are trying to change their business model – as for the rest of us? Denial apparently isn’t just a river in Egypt.

      Let the thumbs down commence!

  9. James Thornton said

    Alan, as a non-broker, I very much value your explanation here. It has given me a lot more sympathy for what you and your fellow brokers are contending with.

    I once wrote a speech for a 3-M executive who had taken a year’s sabbatical to work at the CIA. One of the most fascinating aspects of what he learned were the leading ways to convince a foreign agent to defect. (This guy was not into international espionage per se, but he was interested in understanding how to better foster loyalty within a corporation.)

    Anyhow, some of the techniques that work well are pretty obvious–bribery, sex (i.e., the so-called honey trap), and blackmail (threatening to reveal, for example, an individual’s closely guarded secrets–from being gay to having extra marital affairs.)

    But arguably the most effective technique of all is to find a person who feels disrespected by the organization that hired him or her.

    He cited the case of a dedicated career agent who was passed over for a promotion to some sort of ambassador-related position. The person who got the job instead was a fat cat donor to the former President “W” Bush’s presidential campaign–a guy with absolutely no diplomatic experience whatsoever, just money to burn.

    Anyhow, to all you brokers out there who have worked hard to find good deals for your clients, and been compensated fairly for your dedication (only to see this slashed and/or devalued in some way by the insurance companies), you have this non-broker’s sincere empathy.

  10. Bob said

    “I’ve never heard of a consumer listening to a carrier when it comes to choosing their agent.”

    While I agree it is very rare, it does happen (at least in small group). We have a handful of clients who hated their old agent. They called up the carrier and asked for a better agent. The carrier referred them to us because they know we take good care of our clients.

    Here are my frustrations:

    1. Aetna has made it clear that if they can, they’ll get rid of us.
    2. The biggest carrier in my state (the local BCBS franchise) hasn’t even released their new commission structure for 2011. All we know is that they promised to not cut commissions on existing sales.
    3. We’ve got one carrier who may offer child-only policies (there are none in my state now) but with no commission.
    4. Cigna came out and said if anyone in the family is max rated, no commission will be paid on the whole family. I realize they are doing this to discourage sick cases, but it is hardly fair to the brokers.

    • Bob,

      You said: “I realize they are doing this to discourage sick cases, but it is hardly fair to the brokers.”

      I have never heard of any company being fair to the agents/brokers. They do appear to be fair to their highly paid executives and to the board of directors. To their Agents and Brokers? It isn’t going to happen.

      Those carriers (companies) that feel that they can get their product to market and not use agents or brokers, won’t. Nor will they care if their policyholders know what they’re doing, or are educated. They only have one bottom line; To put as much money in their pockets with the least amount of cost to them possible. That has always been their bottom line. Were they found to be one of the primary “drivers” of implementing the PPACA, it would surprise me not. Do we really know the role that they played?

      • Alan said

        Spence: With all do respect — hogwash. You’ve never heard of a carrier being fair to their agents/brokers? Talk about painting with a broad brush. Lots of carriers have treated you fairly for the vast majority of your career. And many are trying to do so today. Yes, some carriers are coming making changes that are harmful to independent brokers. (And I’m hearing some of them reconsidering what they’ve done). Whether this is through incompetence or as a result of animus for brokers I don’t know. But condemning all carriers for the actions of a few would be the equivalent of carriers condemning all brokers because a few have been incompetent or dishonest. I’ve been as critical of what some of the carriers have done as anyone else, but that doesn’t mean I’m going to brand all carriers as being unfair to brokers. The hyperbole feels good, but you know as well as I it’s inaccurate.

        • Alan,

          Perhaps, I was a bit rash.

          We certainly were treated with a lot more respect later in our careers, when we had developed large books of business. And by several companies before we had.

          What I’m witnessing now really has me angered at the us against them mentality being exhibited by many of the carriers. I’m not personally feeling any of the new pain, I’m retired. That said, I do feel angered for those who are being truly harmed in today PPACA climate.

          None of this had to happen in the manner it has. And who is going to make whole, those who are being so harmed? They will simply be viewed as “collateral damage”.

        • Alan said

          I’ve seen carriers help new agents get started, mature agents overcome setbacks and a lot more. And, as you know, I’m not fond of overgeneralizing.

    • Alan said

      Bob: Thanks for the information. Not sure what state you’re from, but it strikes me your Department of Insurance may want to take a look at Cigna’s approach. First, there’s the basic unfairness: brokers don’t control the rate-up an applicant receives. So punishing the broker by withholding commissions when even one member of the family is max-rated makes no sense — it’s placing consequences on results over which the broker has no control. Second, your Insurance Commissioner may find it violates your state’s fair marketing rules. By reducing commissions to zero the carrier is obviously trying to encourage brokers to take these cases elsewhere. This raises all sorts of flags. Again, your state results may vary.

      And before folks start flaming that carriers often are unfair to brokers, I disagree. Most carriers, most of the time do treat independent brokers fairly. Yes, they place their own interests before those of brokers — just as brokers put their own interests before those of their carriers. Just because a few carriers behave badly some of the time does not mean that all carriers should be blamed — just as the acts of lousy, unprofessional brokers (of whom we all know too many) should undermine the standing and value provided by professional brokers. So criticize specific carriers for specifiv actions, but the broad brush some folks are using is unreasonable and unbecoming.

      • Andrea said

        Alan: I am in Georgia and Coventry is doing the same thing. Rated up children = zero commission. Not the whole family, but, even if the family accepted the rate up (which can be up to 900%) we don’t get commission even on the base premium.

        As for saying none of the carriers are fair, unfortunately it is true. We have a lot of competition here, and they all are cutting our commissions drastically, some, if not the entire existing block, then policies written from 8/1/10 on, and excluding commissions on rated children. Except for Kaiser Permanente, which unfortunately my clients have something against (the dreaded HMO).

        Sorry to be unreasonable and unbecoming but we’ve gotten the letters and again all of them are doing the same types of things. No on is making this stuff up. There is a foundation of mutual respect and trust (utmost good faith) that has to accompany the written contract between an agent and insurer (and agent and client) and I personally see it as being violated.

        • Alan said

          I totally agree about the relationship between carriers and brokers being built on trust, not just a contract. And you know better than I about what’s happening in Georgia. I don’t intend to apologize for carriers either (although I’m sure I’ll be accused of that). And what some carriers are doing is inexcusable. But some carriers are doing the best they can with the mathamatical realities they were given. Carriers whose commissions average 7 or 8 percent over 3 years are probably acting in good faith. Those going lower than that should explain why.

          Bu the main point oif my previous comment is that overgeralizing is usually misguided and often wrong.

  11. Jay said


    It’s unfortunate that you haven’t found a trusted health advisor in NH. I can assure you there are plenty of professionals in your state, and the industry as a whole who would be willing to help you navigate your coverage options.

    Most agents that are worth their salt in this business do a fair amount of monetarily “free” work by educating consumers and heading them in the right direction.

    Take care

    • Ann H. said

      Dear Mulp – I agree with Jay above. You felt that you didn’t get thorough answers from your broker, which leaves a distaste for brokers in general. However, there are many professional brokers that can explain all of your options, and guide you to the choice that best fits your situation and your budget. Your comment, however, is conflicting. You mention that your broker said your “choices were very limited”, and you “had no real options”. Then you proceeded to tell us why choices should become even more limited. I hope you seek the professional advice of another agent, review your choices, and find the agent that best serves your needs. Good luck in your search for employment and for insurance.

  12. mulp said

    Yes, the money matters. Professional brokers add value to the products they sell and service. (The service aspect of what brokers do is too often overlooked, but it is a major part of the job). Brokers want to be fairly compensated for that value. There are bills to pay and other products to sell. Time and resources are being spent and commensurate compensation is deserved.

    Sorry, but as an unemployed worker whose COBRA ran out, basically the work my broker did was tell me I had to get an individual policy from the insurer I had used for a decade via my employer through him, that my choices were very limited, the cost was going to be much higher than the group coverage even with a high deducible, and I had no real options. And he gave me the forms to fill out that had to be reviewed by the insurer to see if I really qualified.

    He was polite and all as I expressed my dismay at the cost and inefficiency of the system. What value did he provide, exactly.

    NH isn’t a large State with a lot of options, but even in larger States, I can’t see lots of options doing anything but make the health system more expensive. Providers forced to deal with 50 insurers with different systems and policies merely increases provider costs. If the insurers standardize, then it is like 50 brands of carrots produced from the same kind of seed, and a broker added to help mediate the different prices charged to different customers buying a commodity.

    Standardization has put a lot of people out of jobs. Once each manufacturer had his own design of screws and employed lots of screw makers with lots of people connecting the people needing a screw to the right source of the right screw. The government started dictating standard screws to cut battlefield costs, and that put lots of screw makers and all the brokers out of business as screws became commodities defined by what are effectively government mandates – government buys enough of output using government specs that it becomes an industry standard and the industry standard becomes the government standard. I’m sure there were many screw makers complaining they provided a lot of value to their employers and the customers be providing a screw tailored to the application, but standard screws were just part of the process of reducing costs and boosting industrial production.

    By the way, my career, indirectly, has killing jobs: I developed computer systems which have put millions of bookkeepers, secretaries, file clerks, calculators, et al out of work. And I wasn’t immune to job loss….

    • Larry said

      Are you talking about metric or standard screws? (And how ironical that you use the ‘screw’ as an analogy…)

      • Larry,

        Mulp isn’t making an analogy in using the word “Screw” to “pound” home his point. He seems to feel that he has been “screwed”, royally, and therefore, “screw” us.

        Not as opaque a post as Mulp may have thought.


    • Curt Cella said

      Well Mulp – because you didn’t like the answer doesn’t mean the answer didn’t have value. You turned to a PROFESSIONAL and asked for PROFESSIONAL advice. Would you have preferred to go ask your question(s) of a parking lot attendant?
      Put another way: If someone needed PROFESSIONAL guidance related to a supercomputer would you prefer they ask a hairstylist?

      Your commentary on screws? Screwy. There are different health plans out there because there are different consumer needs and different strategies to meet those needs. Buying the wrong health plan can end up costing the client a lot of money in the long run. That is why a PROFESSIONAL licensed agent learns what the client’s needs are and matches up plan strategy with health coverage needs/objectives. By your analogy let us also now declare that there are too many different stocks, mutual funds, annuities, long term care, disability, travel insurance options to choose from….and oh by the way: There’s too many different damn medical specialties, mortgage options….etc etc etc to choose from as well – let’s make the entire world a more simple place: Just one of everything. Yes, comrade – that’s what this country is missing: One thing….and a very long line to stand in in order to buy it…Hope to see you at the International Workers’ Day parade comrade – I’ll be the one wearing the “I Love Brezhnev” lapel button.

  13. Near the end of his well researched article, Alan says: “The income being lost today will, I predict, be replaced through an influx of new customers and increases in the cost of coverage. ”
    My wonder is how will the “cost of coverage” make a difference, given that the new IFP agreements freeze the commissions to be based upon the first year that plan is sold?

  14. Hayley Friedman said

    Seriously, I sent a quote via email to a prospective client last week and her response, was “thank you, Hayley- now the price in the right column is yearly, right?” I just had to laugh out loud sitting at my computer and shake my head- this is what we are up against! This was a 34 year old female with two kids, ages 12 and 10. The premiums quoted ranged from about $288 to $348- all being high deductible plans. She was sincere when she asked if it was a YEARLY rate. The “people” just don’t have any idea! No wonder the legislation sounded great, affordable Health care for everyone!

    I’m in California and have already talked with people who wanted the gauranteed issue plan we can now sell, well, 80% of them saw the price and coverage and decided they didn’t want it. I wonder- how will they respond in 2014 if in fact THEY HAVE TO BUY IT!

    Yes, we are justified in our anger but we should not remain there, we should allow it to motivate us to work harder at educating the masses and help to bring about the change needed. Because as soon as “the people are angry” and they are when they figure it out, that’s when we can all be a lot more realistic! Private matters should remain private and the government should serve and protect not dictate!

    • Curt Cella said

      Oh Hayley – I hear ya! My favorites are the ones with uninsured children: YOU quote them a plan (and we both know that here in CA there is ONLY one carrier and hence one option!) and you get “I’m going to think about it….and gee with the Holidays and all…I’ll probably circle back around to this in….January!”

      Uhh seriously?? Your child is uninsured and the GIFT of health insurance isn’t on the radar?? When HAVING a health plan IS the law of the land some folks are going to be in for a VERY RUDE awakening and we can all clearly see that skyrocketing premiums and MANDATORY health insurance in Mass is one lousy recipe for Health Reform. I’m virtually certain that insurers have run the numbers and Health Reform legislation is going to be a license to print money – the ones who take it in the chops are going to the Brokers.

  15. Well said Alan. Thanks for writing this blog. I agree with all the other agents above who have commented. I worked for Aetna back in 1998 – 2000 and they loved loved loved the US Healthcare model. Remember that? They had direct sales reps competing with brokers and if a case was sold that way, Aetna would NOT pay commissions to the broker. We even had clients who agreed to increase their premium to cover the costs and they wouldn’t budge. I have to say about 75% of the brokers that I went out to present to told me over and over and over how bad the US Healthcare model was, and I completely agreed with them.

    The carriers pretend that they support us 100% but we know that isn’t quite the way it is. In California, Kaiser doesn’t pay commissions to brokers on any group written before 11-1996. It doesn’t seem to matter how much “volunteer” work we do for out clients, Kaiser will not give in.

    So we are left with trying to come up with new business models and still provide the same level of service to our clients. I’m still angry about Humana cutting commissions for all products, even ancillary if we don’t have a certain level of business. Needless to say, I am working really hard to find alternatives for my clients that will give them a better product for less premium and pay a decent level of commission to me for all that I do.

    I am a very small operation and I may have to let my part time employee go. Is this how PPACA was supposed to help?

    • Andrea said

      Same here in Georgia. The problem with Humana cutting your commissions – they aren’t the only ones. Even if you move your clients to a better plan, more than likely they have done the same thing with their commissions. We have a very large block of business (individual) with numerous carriers and, the more clients you have, the more service work, especially at renewal time. Cutting back staff will make it more difficult to service their needs, which in turn makes them angry because they don’t see you doing anything for them. I am not sure what the answer is here. Perhaps we should just let the insurance companies figure it out on their own without us (ah were it that simple, go do something else)!

  16. I was explaining the cost structure and problems with the loss ratio to some friend’s last weekend when I heard an interesting argument for why Insurance Carriers have culpability in inflationary costs of providers. The argument goes something like this; carriers are in a position to drive costs down because of their unique position in the industry. Carriers have failed to force more competitiveness in the provider distribution channels because they can just pass the costs along to consumers. This argument only holds water if we also include the Federal Government in the picture since the Fed is the biggest payor in the industry. I’ve been in markets when a couple of hospitals in the market are trying to prevent deeper discounts by carriers. It can get really ugly. The monopoly power of providers is very effective in most markets at allowing for high levels of inefficiency and/or higher profit margins for those providers.

  17. Again, you capture the sense of betrayal and irony coming from insurance companies to brokers. Last week I finally got notice from one company that unless I placed more all my business with one company my future commissions were to be cut 90%.

    The reason why I am an independent agent and appointed with several companies is to allow my clients to have choices between carriers. Now I am forced to drive all my clients to the same company or face a much reduced commission. It is almost as bad as working for a captive agency again.

    Starting on January 1, I have to reinvent my practice to Medicare Supplements. If someone under age 65 wants health insurance they can quote and apply for them from my web presence exclusively unless they wish to hire me as an Insurance Counselor.

  18. In your blog you note that brokers are not necessarily seeing the measures the carriers are taking to comply and prepare for the MLR change — I will grant you that. However, in a recent interaction (a teleconference) here in Colorado a Cigna VP responded when asked if the Cigna staff was being cut and if the staff was getting their pay cut as are the brokers, the VP responded that “no, pay was not being reduced” because the staff had no other way of supplementing their income as is available to brokers (ie. by selling other products). In addition, recent Aetna individuals rates came out that make a mockery of even paying attention to their product line, and this on the heels of their announcement that they are exiting the small group market in the state.

    Yes — it would appear that the carriers are creating a very rough relationship with brokers, and yes, I would hate being the sales manager that tries to explain a lousy deal that he/she hates themselves.

    At one point you make the most salient point, in my opinion, as to why this grates so harshly on the health insurance broker — we have literally had to spend countless hours to comply with government and carrier requirements, educated ourselves in new products, etc etc. We have made the commitment to professional development. This is the midst of a PPACA stipulation that suggests non-licensed and untrained personnel (ie. navigators) will be able to sell insurance.

    Going into the 3rd year, those brokers that participate in Medicare Advantage and PDP sales, have been told by the government how much they can make, and for how long. We are confronted with the untenable situation of having to pass extraordinary certification requirements that even Medicare employees are not required to do, while facing situations such as discussing coverages with a person who has been on a MA plan of one sort or another for over 6 years, knowing that the law will not allow us to be compensated at all!

    Is it any wonder that professional brokerage has been demeaned to this point? I would tend to think we would be best served by consolidated our professional credentials in much the same way as has the securities industry.

    • Bob said

      I was on that Cigna call you were talking about. On top of that, the “broker” who started talking right after that seemed like a Cigna plant to me. That call was completely mismanaged by Cigna. Still, in my market, Cigna is offering the best commissions on individual products.

      Aetna’s rates were almost always high before but we would still usually quote them. Their insane commission cuts moved us to the point that I think it will be unusual for us to even quote them now.

  19. Robert Lehrer said

    Alan, your post not only reflected the emotion of us brokers, but did a great job of framing up the issue for non-brokers.

    The most compelling line from a broker standpoint is “… many brokers feel, (in many cases wrongly) that carriers are not accepting their a share of the pain necessitated by the PPACA.”

    I bet that at the end of the day, carrier profits will explode due to the sheer volume of new business that they’ll write. They’ll price it so that their necessary profits are built in.

    For decades, carriers have longed to sell their products without having to pay the middleman (aka agent). This is their chance to reduce agent commissions that they’ve always wanted.

  20. Jerry Cohen said

    Not sure what is going on in other states but… here in NY starting January 1, 2011 all agents ( P and C included ) will be required to inform and document that customers have been told of commission amounts earned on any product provided. This is interesting for 2 reasons I can list right away:

    1. no form has been provided by the state for this purpose so a misinterpretation of the law could get an agent fined or worse.
    2. In NY rebatting is illegal. Once the subject of commissions comes doesn’t it leave the door open for a customer to ask for money back? An agent would be required to close their briefcase and leave once this occurred.

    Watch you back folks! No one else is.

    • Rebating has been legal in California for over ten years, but I’ve never once been asked for money back. I tell all my customers that I make “between 5 and 10% on the average” and none of them think I am over-paid. You are right, though, no one is watching our backs very well except other agents. I will need to start charging a consulting fee to stay alive and keep my two employees, and who knows exactly how that “charging a fee” will play out in terms of meeting State insurance requirements? I do not!

  21. Jerry Cohen said

    Disappointing. Agent and broker lives have been hit hard by the commision cut backs being fostered by PPACA. It’s bad enough when an employed person is terminated, however – for a period of time they have some relief with unemployment insurance ( under current scenario it seems to go on for a long period of time with little requirements) when unemployed, 100% of time and energy can be devoted to finding alternatives for income – find a new job / start a new business. Agents have neither the assurance of unemployment compensation and they still might have service responsibilities that smart business would suggest they can’t walk away from. Your post mentions individual insurance – here in NY we don’t even have a commissionable individual policy. The fear here – centers solely on the loss of group based commissions. There is a time to be philisophical and a time to be practical. I would suggest that philosophy is not appropriate at this time. We need to look at the real impact the whole mess PPACA will cause not just to the agent/broker community but to the citizens of this country.

    • Andrea said

      How do your clients buy individual coverage – direct? I am in Georgia and offered to find a quote for a client whose daughter moved to NYC, just to research for them to see what they were looking at for her. I forget how I got the quote, but wow the rates were astronomical! Or, do they expect you to sell their policies for free?

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