Conn. agents could face fight on contingent pay

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Insurance executives would likely create a replacement incentive should lawmakers in Connecticut ban contingent commissions, as the state regulator has warned could happen.

Executives voiced their dismay over possible legislation to ban incentive pay at the recent meeting of the Independent Insurance Agents of Conn. where Insurance Commissioner Susan Cogswell warned independent agents that they should expect to see legislation to restrict or wipe out their contingent commissions.

Cogswell said that legislation should be expected because the state’s attorney general is among those behind settlements with several insurers to prohibit contingency pay as well as dictate how agents and brokers should disclose their pay.

“I believe there will be legislation that will eliminate contingent compensation. I can guarantee you that you are going to see that in this legislature,” she told agents, adding, “That’s a heads-up.”

Cogswell did not identify any specific advocate for such a bill in her state but she suggested it would come because of recent settlements between a number of large insurers and officials from New York, Illinois and Connecticut, including Conn. Attorney General Richard Blumenthal.

When the anti-contingent commission legislation surfaces, agents will not have the support of some of their own company partners because these insurers have pledged to several states that they would back elimination of contingent commissions, Cogswell added.

But they would have the support of other insurers, as evidenced by comments at the meeting.

“The world thrives on incentives. They can be used to incent good and bad. We use it to do the right thing,” said William Siclari, president and chief executive officer, Patrons Mutual Insurance Co. “If it goes way, we’ll have to come up with a new way. I’ll build another incentive. It’s very important. I can’t imagine not having one.”

Judy Jackson, New London County Mutual Insurance Co. chief executive and president, said the idea of banning contingencies is “kind of crazy” and likened not having contingent pay to not having the team that scores the most runs win in baseball. “It’s an American way of life,” Jackson maintained.

Thomas M. van Berkel, The Main Street America Group, chief executive officer and president, said his company would obey whatever the law is but he hopes such a ban does not become reality. “It’s very disheartening to hear about this legislation. We use contingent commissions. They’re used in many businesses. And we hope it continues,” Van Berkel told agents. “We would comply with whatever the law is but we’d have to find another way.”

Warren Ruppar, executive vice president and lobbyist for IIAC, told Insurance Journal he was unaware of any specific sponsor or bill but acknowledged that such legislation is possible given that AG Blumenthal has an alliance with companies that have signed the settlements.

Cogswell criticized the multi-state settlements Blumenthal is behind for infringing upon her state’s public policy on compensation and for making Main Street agents pay for the sins of large insurance brokers.

The Connecticut Legislature has adopted an amended version of the National Association of Insurance Commissioners model rules governing producer disclosure of their income. The law permits contingency pay but sets rules for informing customers. Cogswell said she thinks that this public policy decision should be respected and not overridden by court settlements relating to wrongdoing by large insurance brokers.

“Unfortunately the rules keep changing and they are not changing because of decisions by regulators or legislators really in charge of public policy,” she noted. “The rules are being changed by a number of settlements with insurance companies that are inconsistent.”

Cogswell expressed concern that the agreements are “getting down to Main Street producers and they are looking to put the onus of disclosure on you.”

She maintained that she and the majority of commissioners are at odds with the direction being taken by an NAIC committee that is pursuing further changes to disclosure rules.

Cogswell also expressed skepticism over further regulation of producer disclosure, suggesting few customers would read disclosure notices and arguing that requiring them would be a “waste of time and money,” a line that won applause from the agents at the gathering.

“If somebody really wants to know what your compensation is, they have a right to ask. If you don’t want to tell them, then they can go somewhere else, frankly,” she told agents.

Agents’ lobbying

The insurer executives suggested that the agents’ own lobbying could win this day on this issue.

“The people in this room have the power to fight this,” Jackson reminded them.

Siclari appeared optimistic that the industry can prove its point. “We have to show it produces the right effect,” said the Patrons Mutual chief, adding that if the upshot is that the insurer has to file its incentive plans with regulators, “so be it.”

The issue of contingent commissions has heated up as agents fight settlements between insurers and various states that would require those insurers to stop paying contingencies to agents or disclose all compensation to insureds.

Four insurers — St. Paul, AIG, Zurich and ACE — have signed pacts in which they have agreed to discontinue paying all of their agents and brokers contingent commissions on excess casualty coverage. The settlements are a response to bid rigging and account steering by several large insurance brokers. That prohibition has now been extended to homeowners, personal automobile, boiler and machinery, and financial guaranty insurance beginning on Jan. 1, 2007.

The insurers have also agreed as part of these settlements not to oppose legislation and regulations to abolish contingent commissions.