New York Attorney General Eliot Spitzer's office has notified four major insurers they can no longer pay contingent commissions to agents and brokers that sell auto, homeowners, boiler and machinery, and financial guaranty insurance as a result of settlement agreements the carriers made earlier with New York, Connecticut and Illinois to resolve bid-rigging charges.

Mr. Spitzer's action was denounced by agent groups as a “backdoor” move that circumvented legislative due process and unfairly penalized small producers.

Insurers affected are ACE Ltd., American International Group, St. Paul Travelers Companies and Zurich American Insurance Company.

Under the settlement agreements, the insurers must change their compensation structure in any line where over 65 percent of coverage is sold by companies that do not pay contingent commissions. The insurers also agreed to support legislative efforts to ban contingent commissions.

Mr. Spitzer's office mailed the companies formal notice that since this 65 percent “tipping point” had been reached for the four lines cited, beginning Jan. 1, 2007, the carriers must stop paying contingencies for these products. They have already given them up for excess casualty insurance.

Connecticut Attorney General Richard Blumenthal and Illinois Attorney General Lisa Madigan also joined in the notices to the four insurers.

Wes Bissett, senior vice president for government affairs at the Independent Insurance Agents and Brokers of America, said the ban is “policymaking by settlement–legislating through the backdoor. There's not a single legislature that has banned contingent commissions or even seriously discussed the idea. This is an effective violation of due process rights of agents.”

Michael D'Arelli, vice president of legislative and regulatory affairs for the Western Insurance Agents Association in Rancho Cordova, Calif., called the settlements “a shakedown–an abuse of power by attorney generals.” He said he has heard from some agent members that they will stop doing business for carriers that drop the commissions.

Hitting the 65 percent level was not unexpected, he said, since many large carriers with captive agents were not paying contingent commissions.

Special Reports /

Spitzer Orders Four Carriers To Stop Bonus Payments On Four Lines

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