A contingent can of worms

Last week saw New York State Insurance Department superintendent James Wrynn’s final compensation disclosure regulation come into force and put contingent commissions back into play for brokers.

I’m sure many will not need reminding that contingent commissions fell foul of Eliot Spitzer’s crusades a few years ago and were the subject of multi-million settlements by some brokers. But, for some the issue never really went away as some smaller producers continued to use them quietly while the larger brokers cries of unfair fell upon deaf ears.

Now Wrynn’s decision to allow them – although the new rules require full disclosure of all remuneration by the intermediary, which must also state up front whether it is acting as the agent of the insured or the insurer – has opened a real can of worms.

Wrynn says: “Today the department publishes the producer compensation regulations, and essentially they require that the broker describes his/her role in the transaction, including details of volume and profitability – and if the purchaser wants more information they can request it.”

However, there was immediately dissent from brokers and buyers alike.

Business Insurance reports that in fact the Independent Insurance Agents and Brokers of New York is so strongly against the new regulations it has threatened legal action calling them “overly burdensome to their businesses”.

In a statement, it added. “We cannot sit back idly and let the department impose an unnecessary rule that will only serve to add another time-consuming and costly requirement for our members, which in turn could also result in additional costs to consumers.”

Meanwhile The Risk & Insurance Management Society Inc was more measured in its response, saying that “the final rule that falls short of complete and mandatory disclosure, for which RIMS has been a longtime advocate”.

Of course Willis have made great play over the years from the fact that they voluntarily gave up contingent commissions – unlike their two big rivals.

In a statement Willis CEO remained consistent in his opposition to the payments.

He says: “Simply telling clients that you are taking contingents does not make it okay. It does not change the fact that you have an incentive to act in the interests of someone other than your client – and that when push comes to shove you might not fight for the best deal in the marketplace or advocate fiercely to recover a claim if you know your compensation from the insurer will suffer. It sounds like transparency, but it can never be true transparency.”

Adding: “I am convinced that the only way to resolve the conflicts inherent in contingent commissions is not to take them. We stopped taking them because we want to be paid for the value we provide our clients, not the insurance companies.”

However there are supporters of the new regulation, such as the The Council of Insurance Agents and Brokers.

Ken Crerar, president of the CIAB, said: “The New York requirement appears to be not a heavy burden. It’s a basic transparency requirement and we don’t see any major issues with it per se.”

He adds: “More than anything, it’s time for the industry to move on from this.”

That last comment can surely only be wishful thinking, there is a long way to go before all sides are happy with both commissions and dislcosure.

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