The Risk and Insurance Management Society hailed the recentdeclaration by Marsh that it will not accept controversialcontingent commissions in its U.S. core insurance broking segment,while the battle over producer compensation disclosure continued torage in New York.

“RIMS is pleased that Marsh has joined other large brokers inagreeing not to accept contingent commissions. We call on allbrokers to make the same commitment to their customers,” said RIMSPresident Terry Fleming.

“Further, we call on the insurance industry to developalternative forms of compensation that do not place the broker inthe position of a conflict of interest in the insurance purchasetransaction,” added Mr. Fleming, who is also director of thedivision of risk management for Montgomery County, Md.

RIMS, which maintains that contingent commissions should beuniversally banned, said it views Marsh's intentions as a positivestep forward with regard to its U.S. clients served by its corebroking operations.

RIMS believes contingent commissions impose an inherent conflictof interest upon the insurance buying transaction, regardless ofthe nature of the client or the intermediary.

Contingent commissions also impact pricing, according to RIMS,as the bonsus fees are passed along to the consumer. RIMS notedthat it urges Marsh to adopt a global ban on such commissions.

RIMS also said it recognizes that many of its members regardenhanced commissions and contingent commissions as one and thesame.

To that end, RIMS said it acknowledges Marsh's efforts tocollect enhanced commissions on a flat fee, rather than a volumebasis, and encourages Marsh, its carrier partners and its clientsto continue having open and frank discourse over the nature of suchcompensation, how it is collected and disclosed.

RIMS said it will continue to work closely with all parties onthe issues of producer compensation and disclosure.

Marsh said it would refuse contingent commissions on anyplacements for any U.S. core broking operation clients and willcontinue to provide detailed disclosure information ontransactions. This includes all quotes received and compensationinformation.

However, Marsh & McLennan Agency LLC and Marsh Consumer'saffinity sponsored program and personal lines businesses willaccept contingent commissions. For these segments, the firm said itwill provide plain language disclosure that meets or exceeds theNew York Insurance Department's disclosure Regulation No. 194, aswell as all other applicable legal and regulatory requirements.

The New York Department's rule, effective next year, followed a2004 investigation revealing that large brokers had been takinghidden fees to steer commercial clients to a group of insurersinvolved in a bid-rigging scheme.

Marsh was among the brokers involved, and as part of the 2005settlement agreements, said they would not accept contingentcommissions.

In February, it was announced that Marsh–as well as Aon Corp.and Willis Group Holdings plc–had reached an agreement with NewYork, Illinois and Connecticut officials that would permit them toresume taking the commissions, providing they would abide by NewYork's new disclosure regulations. Willis, which abolishedcontingent commissions in 2004, said it would not resume takingthem.

The New York disclosure rule, which Marsh agreed to adhere to,requires agents and brokers to describe their role in insurancetransactions and how they are paid. More detailed information willhave to be provided at the client's request.

AGENT CHALLENGE

The Independent Insurance Agents and Brokers of New York hassaid it will sue to block the new regulation, arguing that it istoo burdensome and questioning whether the department has theauthority to promulgate the rule.

The group first threatened to challenge the regulation inDecember 2009, and reiterated its intention to bring an Article 78action in February when the department officially released its newrules.

However, the Professional Insurance Agents of New York said itwill not join such a lawsuit.

PIANY President Kevin M. Ryan, in a letter to the association'sagent members, said PIANY and other trade groups were invited toparticipate in the IIABNY lawsuit.

“Certainly, since this option appears quite popular among someof our members, it would have been 'safe' for us to simply join thesuit,” he wrote. However, he added that the association will notjoin, choosing instead to represent agent/broker interests infurther discussions with the department.

Mr. Ryan said the department has “made it absolutely clear thatany group or individuals who participate in an Article 78 in regardto this regulation will not be engaged in any discussions regardingthe development of compliance guidelines and the Circular Letterdetails, which will be critical if the legal action fails.”

He added that he sees the value in IIABNY filing the suit, andthat he views the divergent paths of the two agent groups asessentially a two-pronged approach with the same goal–one grouppursuing action through the courts and the other pursuing changesthrough discussions with the department.

“It is in the best interest of our member agents and brokers toretain our seat at that table lest nobody represent producerinterests in what may well be an extremely important conclusion toyears of work,” said Mr. Ryan.

Stating that PIANY joining the suit would not improve itschances of success, Mr. Ryan said the court “will rule on thesoundness of the argument, not the number of groups making theargument.”

He further stated that PIANY consulted four attorneys who haveexperience with Article 78 actions, and with the InsuranceDepartment, and Mr. Ryan said that “none of those with whom weconsulted were overly optimistic that the suit will prevail.”

IIABNY President and Chief Executive Officer Dick Poppa saidIIABNY still plans to move forward with the lawsuit and dismissedthe notion that the action may not succeed.

“When our board made its decision to move forward, it wascertainly aware of the odds of prevailing,” he said. “But withthat, our board felt like it was the right thing to do.”

He also said he does not believe that the lawsuit will precludeIIABNY from continuing discussions with the department. “We don'taccept the premise that we won't be at the table,” he said.

For its part, the department said it would be “very difficult”to have open discussions about the regulation with an entity thatis party to a lawsuit against it.

“It is unfortunate that some have chosen to take this route,”said a department representative, Andy Mais.

(Additional reporting by Phil Gusman and DanielHays.)