Conn. Attorney General Expects Contingency Fee Bans To Be 'Contagious'

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 Attorney General Richard Blumenthal predicted last week.

The comment came in a statement noting that St. Paul Travelers plans to stop paying contingent commissions for all lines by 2008.

In an agreement made last year between the company and then-New York Attorney General Eliot Spitzer, Mr. Blumenthal and Illinois Attorney General Lisa Madigan, St. Paul Travelers agreed to end the payment of contingency fees on business where 65 percent of the industry did not pay them.

In December, Mr. Spitzer (who took office Jan. 1 as New York's governor) ordered four carriers–ACE, American International Group, St. Paul Travelers and Zurich–to stop paying contingents on four lines in which the trigger had been hit.

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 last week that St. Paul Travelers was advising its agents on plans to go to a fixed commission in an article on the future of contingency fees (see NU, Jan. 1, page 6, “Contingency Probe Fallout Hurts Many Innocent Bystanders, Producer Groups Say”).

The move by both St. Paul Travelers and Chubb (which said in December it is going to a fixed compensation program as well), “are setting the stage for an historic change in how the insurance world does business,” according to 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,” he said.

“Ending contingent commissions, and replacing them with fully disclosed fixed commissions, would be good for both insurers and consumers,” he added. “Less money spent by insurers to market their insurance through contingent commissions will mean lower insurance rates for consumers.”

While admitting no guilt, Chubb and St. Paul Travelers have together paid more than $88 million to settle allegations of bid-rigging in exchange for undisclosed contingent commissions. (For more on the Chubb deal, see NU, Jan. 1, page 21.)

St. Paul Travelers did not return a request for comment on this story at presstime.