A chief executive for a major insurance brokerage firm has called on New York state regulators to end all contingent commission agreements by 2010.

Don Bailey, chief executive officer of Willis North America, speaking at a hearing in Buffalo, N.Y., called on the New York State Insurance Department "to end the practice of accepting contingent payments."

His remarks drew criticism from officials of trade groups that represent smaller brokerages.

The hearing is one of three fact-finding meetings to be held by the department and the state's attorney general to examine producer compensation. The two remaining hearings will be held in Albany, N.Y., on July 23 and Manhattan on July 25.

In prepared remarks, Mr. Bailey said "there should be a level playing field in our industry. That doesn't exist on the brokerage industry landscape today."

Because all but the major brokers accept contingents, the larger firms are "operating at a competitive disadvantage," he said.

The large brokerage firms were forced to drop the contingent commissions after the New York Attorney General's Office found evidence they served as a channel for kickbacks to reward brokers that helped insurers fix prices.

Mr. Bailey said, "We are constrained in our ability to compete on price with those who still accept contingents. It's a simple fact that brokers who accept contingent commissions are essentially getting a subsidy from insurers on the prices they offer clients."

While his criticism of contingent commissions appeared to be focused exclusively on brokers, he said brokers and agents should practice full transparency.

"We believe mandating full pricing transparency for members of the industry--agents as well as brokers--would enhance confidence in our entire industry."

In addition to Mr. Bailey, the only other executive scheduled to speak at today's hearing was David Gelia, executive vice president, United Insurance Agency Inc., in Amherst, N.Y.

He said in a statement that competition and commitment to find the best combination of terms, conditions and price for each customer makes it "not logical to assume that incentive compensation leads to a conflict of interest for producers."

He went on to add that his agency has open communication with customers and for that reason disclosure should be voluntary and not mandated by regulation.

Reacting to Mr. Bailey's comments, Matthew Guilbault, government affairs counsel for the Glenmont, N.Y.-based Professional Insurance Agents Associations representing New York independent agents, said he was not sure Mr. Bailey "made a legitimate point" or if his remarks were in the best interests of policyholders or small independent agents.

He stressed that there is a major difference between the mega-brokers and Main Street America agents and negativity of Mr. Bailey's remarks underscored that difference.

Mr. Guilbault said Henry J. Kaye, a former president of the PIA New York, made an appearance at the hearing and voiced similar comments.

"He doesn't understand the difference between mega-brokers and the smaller agents and brokers who are our members," said Richard A. Poppa, president and CEO for the Independent Insurance Agents and Brokers of New York. "We are not surprised and are very disappointed with his testimony," adding that calls to end the arrangements "are a solution looking for a problem."

Both associations have supported the current contingent commission agreements, noting court opinions have validated those compensation arrangements. They have also support voluntary disclosure of compensation arrangements to policyholders who ask about them.

"The general public is not clamoring for this," Mr. Poppa said.

Special Reports /

Willis Calls On N.Y. Officials To End Contingent Commissions

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