Editor’s Note: The Debate Continues

If there are to be rules, let them apply to everyone equally.

Agents, brokers and carriers across the nation are following the debate over whether contingent commissions should be permitted and how much compensation information should be disclosed to clients. It’s a debate that has been taking place for several years but is being formally revisited during three public hearings across New York State this month.

The hearings were called by the New York insurance department and attorney general’s office – two of the founders of the multi-state settlements over contingent commissions and disclosure reached four years ago with mega-brokers including Marsh, Willis and Aon, and mega-carriers like American International Group.

Those settlements banning contingent commissions applied only to a handful of brokers and insurers and did not end the practice of contingent commissions. The terms of the settlements are still in effect although they have been relaxed since their origination. Now four years later, the state is asking if the settlements should be continued as is, further modified, or even extended to become a model rule for all insurers and brokers doing business in the Empire State.

The courts have introduced a timely twist into the debate. Last month, a New York court ruled it was legal for Liberty Mutual to pay contingent commissions to brokers, a ruling cheered by producers because it defended traditional compensation practices and called into question the decisions by those who gave them up without a fight.

Despite its dependence on contingent commissions, the brokerage community itself is not unanimous in calling for their reinstatement. The large – and getting larger – broker Willis is at one end of the spectrum, arguing against contingent payments. Willis was the first major broker to voluntary stop taking them in October 2004. It says it remains committed to that goal and will even seek to end the practice at Hilb Rogal & Hobbs Co., which it bought last month for $2.1 billion. Under one of the several modifications to the original settlements, Willis is being given three years to phase out contingent commissions at HRH.

Other independent agents and brokers have generally lined up on the other side. David M. Gelia, of United Insurance Agency Inc. in Amherst, N.Y. and a past president of the Independent Insurance Agents and Brokers of Western New York, believes that agents can be open about their compensation without relinquishing a legitimate revenue stream like contingent payments. “Our agency also strives for an environment of open communication with our customers. If requested by the customer, we will voluntarily disclose the nature and form of our compensation. It has been our experience to date that very few customers are interested in this information,” Gelia testified at the first hearing July 14 in Buffalo. The remaining hearings are scheduled for July 23 in Albany and July 25 in Manhattan.

Much of the New York debate has to do with fairness – if there are to be rules, at least let them apply to everyone and not just to some.

If New York regulators decide contingent commissions are allowed, it will be difficult for Willis and others to travel their opposition path but they will be free to try.

If, on the other hand, New York officials extend the ban on contingent commissions, agents and brokers everywhere could be affected.

As New York goes, so goes the nation?

Topics Agencies New York