The paper attempts to define some of the critical problems relating to agents' compensation-from the standpoints of the insurance companies, policyholders, regulatory bodies and the agents themselves. The provisions, purpose and implications of Section 213 of the New York expense limitation law are reviewed. The impact of various new agents' financing plans and patterns of agents' compensation (i.e., renewal commissions, vesting provisions, service fees) is explored. Particular attention is focused on the problem of inadequate service, orphaned policyholders and related agents' compensation. A study of New England Life agents' income levels by years of service is set forth. Compensation problems in certain special markets (Minimum Deposit, Pension Trust, Tax-Sheltered Annuities, Split-Life, Mutual Funds, Salary Savings, Variable Life) are reviewed. The paper concludes with some thoughts regarding possible changes in the Ordinary agency distribution system of the future, particularly as it relates to the expanded financial services concept. For many years the traditional method of compensating agents selling individual Ordinary insurance has been to pay first year commissions, a scale of substantially vested renewal commissions for a number of years, and non-vested service or persistency fees thereafter. Within this extremely general framework many variations have evolved -relating to special financing arrangements for new agents, heaping of early renewals, degrees of vesting, production incentive bonuses, and commissionrelated company contributions to agents' retirement and deferred compensation plans. Advocates of maintaining this fronted commission pattern state that it is the very cornerstone of the life insurance Harold C. Ingraham, Jr., F.S.A., C.L.U., is Senior Vice President and Chief Actuary, New England Mutual Life Insurance Company. He is Examination Chairman of the Society of Actuaries' Education and Examination Committee. This paper was presented at the 1972 Annual Meeting of A.R.I.A. distribution system and point to the dramatic growth of life insurance sales over the past several decades. They state that this form of compensation is needed if highly motivated, enterpreneurial agents are to be attracted. They further assert that, as long as life insurance must be sold, as long as human behavior is such that it requires counsel, advice, and motivation-an urgency to act-such commission compensated agents are essential. However, in recent years, this form of agency system has been subjected to a mounting threnody of attack by congressmen, insurance commissioners, consumer advocates, consultants, college professors and some insurance company executives. The essence of their criticisms is that the cost of this agency system is too high and that the insured public should not be subjected to the current levels of commission costs attributable to person-to-person selling.' More specific1 Zimmerman, C. J., Discussion of Marketing Options for Management, Proceedings LIAMA 1971 Annual Meeting. u. 87.
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