Insurance industry representatives were divided on the level ofdisclosure needed on broker compensation in appearances at ahearing by New York State officials.

Their views were delivered at a joint New York State InsuranceDepartment/Office of Attorney General proceeding examining agentand broker fee and commission disclosures.

This hearing, held in Albany yesterday, was the second of threehearings on the issue.

New York's two independent insurance agent trade groups openedup the testimony by defending profit sharing and contingentcommission arrangements.

Neal Sullivan, chair of the Independent Insurance Agents andBrokers of New York (IIABNY), drew a distinction in his testimonybetween law abiding brokers and what he called "mega brokers" whowere forced in settlements with regulators to abandon contingentcommissions after they were linked to price-fixing activity.

He said it would be unfair to paint all brokers and agents withthe same brush due to the illegal activities of some.

It is "difficult to have any sympathy" for some of the megabrokers who now claim that producers who accept contingentcommissions have an unfair competitive advantage over those whocannot accept such compensation because of settlement agreements,"said Mr. Sullivan.

John Bailey, past president of the Professional Insurance Agentsof New York (PIANY), pointed out the difference between traditionalprofit-sharing arrangements in which most agents are engaged andplacement service agreements, which he said were used in the pastto illegally manipulate prices.

Ellen Melchionni, president of the New York InsuranceAssociation, described contingent commissions as "nothing more thana form of incentive-based compensation that is used in many NewYork State industries" such as retail and car dealerships. Sheadded that this type of compensation has existed in insurance fordecades and is not new.

Current laws, she said, provide enough protection for insuranceconsumers and are adequate to curb improper actions byproducers.

David Rahill, testifying for Mercer Health & Benefits, LLP,argued that the current arrangement with respect to contingentcommissions is unfair.

He said that producers currently operate under a two-tieredmarket consisting of those who are allowed to receive contingentcommissions and those who are not because of settlements.

He added that the "partial regulation through settlements" hascreated new problems for the market without solving all of the oldproblems.

All brokers, Mr. Rahill said, should be held to the samestandard. He added that he is agnostic regarding the ultimatedecision that the department makes with respect to contingentcommissions; he just wants that decision to be consistent for allproducers.

Ms. Melchionni acknowledged the possible competitivedisadvantage for companies that signed agreements regarding alifetime ban on accepting contingent commissions. She said that it"might be best" to lift these restrictions and "focus on universaldisclosure."

There was disagreement regarding the extent of disclosure, aswell. Mr. Bailey and Mr. Sullivan favored voluntary disclosure.They said mandatory disclosure might confuse consumers, and wouldbe burdensome and time consuming for both consumers and agents.

Ms. Melchionni said consumers are more concerned with gettingproper coverages at the right price than how the producer iscompensated.

Several who testified noted that consumers have never inquiredabout how their agents or brokers are compensated.

Mr. Rahill said mandatory disclosure measures have beenpositive, though he said the department could ease some of itsrequirements under settlement agreements.

In general though, he said clients like disclosure andtransparency, and that it is good for business. He noted that manyother industries have such disclosure requirements, and theinsurance industry must now make up its mind whether or not it willfollow these other industries.

George A. Steadman, speaking on behalf of the Council ofInsurance Agents and Brokers (CIAB), said that his association hassupported disclosure efforts for 10 years, and continues to doso.

But he said existing laws prohibit any negotiation betweenclients and producers with respect to the level of compensation.Clients, he said, either have to accept the level of commission, orfind a new broker. Easing these constraints, Mr. Steadman said,will allow for negotiation and strengthen the producer/clientrelationship.

In submitted testimony, Paul Magaril, regional manager andcounsel for the Property Casualty Insurers Association of America(PCI), said, "Transparency and disclosure are important componentsof open, fair, competitive and reasonably regulated markets, and webelieve that such efforts bear careful consideration."

PCI said it opposes "overreaching or burdensome proposals thatfail to deliver any real value to consumers. Public policy makersshould not attempt to impose blanket prohibitions on incentivecompensation programs. The terms and conditions of such agreementsare best left to the private parties engaged in the contracts."

The third and final department hearing on producer compensationwill be held tomorrow in New York.