AAMGA Looks For Disclosure Exemption

The NAIC meeting this week in New Orleans is considering proposed model rule language aimed at regulating contingency compensation in the wake of revelations concerning alleged price-fixing and bid-rigging.

In October, New York Attorney General Eliot Spitzer sued Marsh & McLennan Companies, the parent company of insurance broker Marsh, charging the firm steered clients to insurers that played ball with the broker's scheme to fix prices in exchange for payoffs disguised as volume-driven contingency commissions and fees.

AAMGA argues that it should be exempt from making such disclosures because it operates as an extension of an insurance company office and not as a representative of the insured, who the compensation model law is directed to protect.

"The profit-sharing commissions are not a guarantee, as they are lost or reduced when the targets have not been met or when the underwriting year has been unprofitable," said the AAMGA in a statement. "There is nothing illegal or unethical about this form of fair compensation and equitable risk sharing."

AAMGA added that it is deeply troubled by the allegations of bid-rigging and other abuses, and denounces such practices.

The association said it has created a task force on professional business practices to monitor actions taken by regulators in light of the ongoing controversy.

Bernard G. Heinze, executive director of the AAMGA, said the main purpose behind the association's comments was to make certain regulators are advised of the difference between wholesale and retail agents. He said the obligations to the policyholder are not the same and those differences need to be taken into consideration as the NAIC develops its model law.

Unlike retail agents, he noted, the contingent commissions wholesale agents receive are based upon their investment in the performance of the insurer, and wholesalers could suffer if the carrier does not produce profitable business.

He said if the NAIC does not agree with the need for an exemption, the association hopes that there is language expressed that does recognize the unique relationship wholesale and MGAs have in the industry.

"The important thing is that we are engaged in the discussion, our position is recognized by the NAIC, and we are a part of forming the solution," Mr. Heinze said.