Independent agents representing Zurich Insurance in the U.S. will have to disclose their income before binding any commercial lines policies for Zurich and some Zurich agents may be denied contingency compensation under the terms of recent class action settlements.
Zurich Insurance must provide its agents across the country with a compensation disclosure statement for all Zurich new and renewal commercial lines policies that agents will in turn be required to give to policyholders prior to binding coverage, according to a March 20 agreement in which Zurich also agreed to pay $171 million.
The pre-binding disclosure document informs the policyholder of the standard commission Zurich pays agents by type of policy and, if the agent also has a contingency compensation arrangement, provides a description of the factors weighed in contingent payments. Insureds are also directed to a Web site for more information.
The pre-binding disclosure is part of a settlement Zurich signed with 10 states (California, Florida, Hawaii, Maryland, Massachusetts, Oregon, Pennsylvania, Texas, West Virginia and Virginia) to settle charges related to questionable transactions between Zurich and large brokers.
The compensation disclosure provisions in that March 20 agreement differ from those of a second $153 million class action settlement with Connecticut, Illinois and New York that the insurer confirmed a week later on March 27. This tri-state agreement does not require pre-binding disclosure; it only requires a notice with the policy referring insureds to a Web site or toll free number for information on compensation.
However, the March 27 tri-state pact adds several twists regarding contingent compensation. It prohibits Zurich from paying contingent commissions on any excess casualty policies until 2008. In addition, the tri-state order bans Zurich from paying contingencies in any line of insurance in which companies with 65 percent of gross written premiums do not do so. These conditions on contingencies match those incorporated into the $1.6 billion settlement with American International Group back in February.
Zurich officials say they will apply the disclosure requirements of both settlements nationwide, but they acknowledge they aren’t quite sure yet how to meld the two.
“We’re not sure but we’ll probably do both,” Keith Owen, Zurich spokesperson, told Insurance Journal, while suggesting that the pre-binding rule might satisfy both agreements. The company has 180 days to implement the disclosure agreements. The company is in 18,000 agency offices nationwide.
“We are confident our agents and brokers will agree this is a good thing that helps everybody,” Owen said.
The pre-binding disclosure rules in the Zurich contract mirror the model producer disclosure amendment developed by the National Association of Insurance Commissioners. Illinois Director of Insurance Michael McRaith, who heads the NAIC Broker Activities Task Force that worked to include the NAIC’s views in the settlement, stressed that the NAIC is “very sensitive” to the concerns of agents but he defended the terms as necessary in the particular case of Zurich.
“We respect that agents and brokers do not want to disclose their amount of compensation and that it is an issue of difficulty for them. However, the conduct of Zurich was exceptional and so egregious we think this disclosure is particularly appropriate for Zurich,” McRaith told Insurance Journal.
He acknowledged that the questionable activities in the case involved large brokerages like Marsh and not local independent agents.
He also maintained that the NAIC is not advocating using the Zurich pact as a model for other carriers that have been sued. Each suit should be handled on its own merits, he added.
The total cost of the two settlements to Zurich will be $325 million.
The settlements are intended to resolve suits brought by New York and other state attorneys general and insurance regulators charging Zurich with bid-rigging, price-fixing and improper use of finite reinsurance.
Zurich did not admit to any wrongdoing but did apologize for the conduct of certain employees who “violated both acceptable business practices and Zurich’s own standards of conduct.”