On July 14th, industry representatives presented their viewpoints on the need to reform the current New York regulations regarding producer compensation standards and disclosure to a panel consisting of officials from the New York Insurance Department and the Office of the Attorney General. Speakers suggested various ways to revamp the current set of requirements put into place earlier this decade following several investigations involving alleged improper compensation and steering arrangements between brokers and insurers. The results of those investigations led the world’s three largest insurance brokers to stop accepting contingent commissions from insurers, as well as to disclose their compensation practices to clients. However, these settlements never resulted in an industry wide bans on these practices, and therefore, according to Don Bailey, Chief Executive Officer of Willis North America Inc., represented a missed opportunity to provide true reform.
Mr. Bailey called for a phased ending to contingent compensation agreements for all agents and brokers and requested that the panel consider the promulgation of regulations that provide full transparency for all insurance producer compensation arrangements, thereby leveling the playing field. According to Mr. Bailey, if contingent commissions are not in the best interest of clients of the three largest brokers because they present a conflict of interest, then logically those same contingent commissions are also not in the best interests of clients of all other brokers as well.
Proponents of the current system, such as David Gelia, Executive Vice President of the United Insurance Agency, Inc., a Buffalo-based agency, and Secretary Treasurer of the Independent Insurance Agents and Brokers of New York, told the panel that disclosure should be voluntary and that contingents do not represent conflicts of interest, lead to business steering, and should not be restricted. Mr. Gelia told the panel that competition amongst insurance producers will provide the lowest rates and best service to customers, not contingent commissions. When asked by the panel whether contingent commissions influence how a producer handles a claim, since claims payments reduce insurer profitability and thus decrease contingent payments, Mr. Gelia responded that they would not, as an insurance producer’s job is to get claims paid.
Two more hearings are schedule for later this month on July 23rd in Buffalo and July 25th in Manhattan. We will continue to monitor the outcomes of these hearings and provide updates at InsureReinsure.com.