N.Y. Regulator Balked at Spitzer Deal Ending AIG Contingent Pay

By | February 15, 2006

Producers should no longer expect contingent commissions from American International Group, according to the recent settlement with New York Attorney General Spitzer and what the company says is its own global policy now.

Spitzer’s announcement stated that “AIG has agreed to stop paying
such commissions in any line of insurance where companies with
65 percent of gross written premiums do not do so.”

The provision against contingent commissions was one of those contained in the settlement with Spitzer, which was announced along with agreements with the Securities and Exchange Commission, the Department of Justice and the New York State Insurance Department.

However, the New York State Insurance Department is not a party to the contingent commission restrictions because its chief disagrees with the approach taken. Insurance Superintendent Howard Mills “believes that the issue of contingent commissions should be addressed by legislation,” and for that reason the department did not address contingencies in its own agreement with AIG, NYSID
spokesman, Michael Barry told Insurance Journal.

AIG CEO Martin Sullivan made his firm’s policy on contingent compensation clear in a conference call Feb. 9, the day the settlements were made public. “Well, let me say straightaway that currently, we are not paying contingent commissions to brokers and we won’t be paying them and we have no plans to pay them,” Sullivan said.

Sullivan acknowledged that the way the agreement with Spitzer is written AIG could resume payment of contingencies if market conditions changed, but vowed the company has no intenton of doing so.

The Spitzer provision applies to U.S. business only but AIG said its own policy against paying contingencies applies globally.

Also as part of the agreement with Spitzer, AIG has promised to “support” legislation and regulations that seek to abolish contingent commissions and require greater compensation disclosure. The AG’s office specifically declined to comment and AIG did not respond to a request for clarification of what is meant by “support.”

Under other agreement terms, AIG policyholders should within six months be able to visit a web site or call a toll free number to obtain details on the “nature and range” of its compensation to producers.

AIG’s compensation for producers is to be limited to a specific dollar amount or percentage commission set at the time of purchase or renewal. Compensation is defined to include credits, loans, vacations, prizes, or the payment of employee salaries.

The agreement defines contingent compensation as any compensation that is tied to any producer placing a particular number of policies or premium volume with AIG; achieving a particular level of growth; meeting a particular rate of retention or renewal; achieving a particular loss ratio; providing first looks, last looks or rights of refusal to AIG.

Large insurance brokers that no longer accept contingent fees would be unaffected if AIG no longer pays them. Main Street independent insurance agents might be affected, especially if other carriers follow AIG’s example.

However, Debra Perkins, general counsel for the Independent Insurance Agents & Brokers of America, doesn’t expect that to happen. “Companies have been watching this closely for awhile and made their decisions whether they think there is value in these arrangements,” Perkins told Insurance Journal. “Other companies will not necessarily be influenced by this. They have a variety of ways of doing business and they will continue to.”

Topics Agencies Legislation New York AIG

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