Expanding Contingent Commission Restrictions on the Agenda at NY Hearings this Month

As previously reported in the "Daily NewsFlash", New York State officials are evaluating whether to expand restrictions on contingent commissions to all agents and brokers. Hearings on this issue will be held July 14 in Buffalo, July 23 in Albany and July 25 in Manhattan, and will be webcast live.

The state's Insurance Department and Attorney General's Office will conduct the joint hearings, which will cover issues including contingent and supplemental commissions, producer compensation disclosure and deceptive or anti-competitive practices.

A statement from the two offices said that state officials want “to hear views about whether agents, brokers and all other insurance producers should be required to make full disclosure to the insured and obtain consent in writing for any compensation from an insurer or other entity relating to the issuance, renewal or servicing of the insured's insurance policy or annuity contract.”

It said they “are also seeking views on contingent commissions, and whether such compensation creates an irreconcilable conflict of interest for producers.”

The statement indicates that New York officials are considering expanding to all, or most, brokers and agents terms similar to those imposed on the world's largest brokers as part of a 2005 settlement of an investigation begun in 2004 by the New York Attorney General’s Office that other states joined. In 2005, Aon Corp., Marsh & McLennan Cos., Willis Group Holdings Ltd. and Arthur J. Gallagher & Co. entered into settlements with the attorneys general of New York, Illinois and Connecticut, and the insurance departments of New York and Illinois, ending an investigation into alleged steering of insurance contracts by brokers and undisclosed compensation.

The brokers committed to terms including eliminating contingents, disclosing to clients the quotes sought and received and disclosing and receiving client approval for any compensation the broker would receive in connection with those quotes.

They also agreed to reimburse clients: MMC paid $850 million, Aon $190 million, Willis $50 million and Gallagher $27 million.

Published on July 8, 2008