Brokers Get Advice About Fee Probe

By Mark E. Ruquet

NU Online News Service, Nov. 5, 10:33 a.m. EST, NewYork?Brokers concerned that they could become a subject ofthe New York Attorney General's broker fees investigation havenothing to fear as long as they put their clients' interests first,a regulatory executive told an industry gathering here yesterday.[@@]

That advice was delivered by Daniel F. Maher, executive directorof the Excess Lines Association of New York, speaking at the annualconference of the Professional Insurance Wholesalers Association ofNew York state, meeting in Brooklyn, N.Y.

Mr. Maher heads one of 15 ELANY Stamping Offices in the country.The offices are a quasi-regulatory operation the state's havepermitted surplus lines associations to set up to review excess andsurplus lines placements, and to collect taxes and other fees.

"You have to ask, have you put your own pecuniary interest aheadof your clients?" said Mr. Maher, addressing producers during amorning education session to update brokers on New York statelegislation and regulations.

If the producers' files show that they have acted in theclient's best interest, there are no concerns, he continued. Butmaking sure that the data accurately reflects this is what brokersneed to focus on, he said.

The major question for the producers, coming out of the suitfiled by New York's Attorney General Eliot Spitzer against Marsh& McLennan Companies, is did the producer steer contracts tocarriers to maximize their commissions, he said.

Mr. Spitzer's action alleged that MMC's Marsh Inc. brokerageoperation rigged bids and inflated prices with insurers whorewarded the firm with kickbacks disguised as fees and commissionagreements?in exchange for having unwitting clients sent theirway.

Mr. Maher said brokers need to make sure they keep documentationin place to demonstrate the insurance placement was made because itwas in the best interest of the client, either for reasons ofprice, terms and conditions or the carrier's financialstrength.

For the group of brokers present, he noted, one thing thatshould not concern them is allegations of leveraging. Mr. Mahersaid the smaller wholesalers, who deal with small and middle marketcommercial clients, lack the clout to leverage placements that thelarge brokers, allegedly Marsh, were able to demand.

A major problem, he said, in Mr. Spitzer's investigation, isthat he and those outside of the insurance industry, are notdistinguishing between profit sharing contingency fees and thePlacement Service Agreements and Market Services Agreements Marshis accused of manipulating to the detriment of its clients.

He said Mr. Spitzer and other investigators do not understandthe "nuance" of the commission fee arrangements, "painting broadstrokes in the suit," by lumping PSA and MSA agreements with profitsharing contingency fees.

"They have not been differentiated and they should be," hesaid.

However, he noted, "It will be difficult for the agent andbroker community to defend itself until the dust settles."

Changes will come to the industry, he said, but what form thechanges will take are only conjecture at this point. He said theinsurance community does need to look carefully at proposals andget ahead of the wave of change by making its own recommendationsto find "workable solutions."

It is time for a "reality check" for the producer community, heobserved, saying that wholesaler brokers need to remember thattheir regulatory duty is not to the carrier or the retail agent,but the insured in the placement of insurance.

He also advised producers to publish operational guidelines forretail producers to read or to be posted on their Web sites.

Robert Pastel, PIWA legislative representative and an attorneywith Pastel & Rosen, LLP, in Albany, N.Y., who also spoke, saidone piece of legislation wholesale producers may expect to see isdual licensing disclosure.

Wholesalers, who generally do not think twice about this now,will have to advise retail agents of when they are acting in theinterest of the carrier, as a managing general agent, and when theyare acting as a broker working for an agent. Mr. Pastel and Mr.Maher noted that wholesalers switch hats as they seek to fill theagent's request.