New York regulator considers the next step in the contingent commissions saga
Anyone listening to statements presented to the New York insurance regulator last week would have been led to believe a new law banning contingent commissions in the state could be just around the corner.
After all, such a law would appear to have the backing of insurers, their customers and now several of the major brokers. One of them, Aon, said there was a need for an even playing field in commission disclosure “based on what is right for clients”, while Willis appeared to go a step further calling for an outright ban on kickbacks, which essentially turn brokers into an employee of the insurer rather than a champion of the insured.
As Willis’s North American CEO Don Bailey pointed out, the furore over contingent commissions caused a sea change in the way the largest brokers do business, while also creating inconsistency in the market as a whole.
“Former Attorney General Spitzer missed a great opportunity to do the right thing by banning all brokers from accepting contingents,” Bailey said at a public hearing convened by the New York State Department of Insurance and the New York Attorney General to decide on the content of new regulations governing compensation and disclosure. “For whatever reason, he left the job unfinished. The result is the largest brokers now work within new boundaries, but the rest of the industry does not work within the same boundaries,” he added.
The truth is, however, the New York supervisors and Attorney General found themselves then, as they do now, in a difficult position – much like the dilemma faced by brokers who are not keen on contingents but see their competitors benefitting from them. In a similar way, the New York Insurance Department could decide there is little advantage in acting unilaterally to ban contingent commissions in a global industry where competing jurisdictions offer less stringent codes of conduct.
A lesser set of laws that permit contingents would at least require “comprehensive transparency and consent standards” that are uniform to all participants, according to Aon’s representation at the New York hearing.
“A client deserves to know whether its producer is working for the client or as an agent of an insurer, what insurers the producer approaches, how much the client will pay and how much the producer will be compensated,” said Steve McGill chairman and CEO of Aon Risk Services.
“This will enable clients to make more informed choices, and will also reinforce the competitiveness of the marketplace,” he added.
The New York Insurance Department might decide it has sufficient international weight to precipitate a more sweeping change in the way international broker compensation is carried out and ban contingent commissions – especially if the European Commission is willing to consider similar measures. While insurance regulators and legal authorities in Illinois and Connecticut mirrored New York’s stance against big-broker commissions in 2004-2006, the New York Insurance Department would hope to ‘reach out’ to counterparts across the Atlantic as a priority.
In a global market, much rests on the shoulders of the international brokers and insurers and the pressure they can bring on regulators.
In response to the public hearings, a spokesman for the New York Insurance Department said: “We were presented with a variety of viewpoints and suggestions on this important issue and will carefully review all the testimony received.”