The decision by St. Paul Travelers to end payment of contingent commissions is only the beginning of a movement that will eventually see the end of the practice throughout the industry, Connecticut's attorney general said.
The comment from Richard Blumenthal came in a statement noting that St. Paul Travelers plans to cease paying contingent commissions for all lines of business by 2008.
In an agreement made last year between the company with then New York Attorney General Eliot Spitzer, Mr. Blumenthal, and Illinois Attorney General Lisa Madigan, St. Paul Travelers agreed to end paying contingent commissions on business where 65 percent of the industry did not pay them.
In December, Mr. Spitzer (who took office Jan. 1 as New York governor) ordered four carriers, St. Paul Travelers, Zurich, ACE, and American International Group, to stop paying contingents on four lines of business.
Mr. Blumenthal said he received a letter dated Dec. 29, telling him that St. Paul Travelers would cease the payments on those four lines and stop contingent payments on all lines of business by Jan. 1, 2008. The company said it would go to a fixed commission on all lines at that time.
National Underwriter reported St. Paul Travelers' was advising its agents on plans to go to a fixed commission in an article on the future of contingents (See, National Underwriter Jan. 1, page 6, "Contingency Probe Fallout Hurts Many Innocent Bystanders, Producer Groups Say").
The move, by both St. Paul Travelers and Chubb (Chubb said in December it is going to a fixed compensation program), "are setting the stage for an historic change in how the insurance world does business," said Mr. Blumenthal. "I expect contingent compensation bans will be contagious in the industry–eventually ending the pay-to-play culture altogether, and restoring consumer trust."
"Ending contingent commissions, and replacing them with fully disclosed fixed commissions, would be good for both insurers and consumers," he said. "Less money spent by insurers to market their insurance through contingent commissions will mean lower insurance rates for consumers."
While admitting no guilt, both Chubb and St. Paul Travelers have paid more than $88 million to settle allegations of bid-rigging in exchange for undisclosed contingent commissions.
St. Paul Travelers did not return a request for comment.
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