Spitzer, Mills Okay MGA Contingent Commissions

Marsh's insurance brokerage unit will be allowed to accept contingent commissions for its managing general agency business under an agreement reached with New York's attorney general and superintendent of insurance.

In a Securities and Exchange Commission filing yesterday, Marsh & McLennan, Marsh's New York-based parent company, said it reached an agreement with Attorney General Eliot Spitzer and Superintendent of Insurance Howard Mills to amend its agreement barring the broker from accepting all contingent commissions.

Marsh agreed to forgo brokerage commissions after New York authorities charged that the contingent payments served as kickbacks by insurers to reward the firm for steering customers and rigging bids.

According to the filing, where Marsh acts as an MGA or underwriting manger, it will be allowed to accept contingent commissions. In acting as an MGA, it will not be necessary for the broker to seek permission from the retail customer and disclose commissions or other financial arrangements.

However, the agreement does not alter the firm's position when acting as the retail broker for the client. It is still barred from accepting contingent commissions and must still disclose all forms of compensation.

The amendment agreement states that in order for these parts of the agreement to apply, Marsh must receive compensation only from the insurer as an agent placing the carrier's business and only communicate with the policyholder through a retail broker.

MGAs have long fought attempts to ban contingent commissions from their book, along with additional reporting requirements. They have argued that since they are not dealing with the policyholder or collecting fees from the policyholder, they should not be subject to the same reporting requirements and limitations as a broker dealing with the consumer.