While the controversy over transparency for broker compensation appears to be settled, New York Insurance Superintendent Eric Dinallo still has questions about whether producers are free of conflicts of interest created by supplemental and contingent commissions–especially since not all firms gave up incentive bonuses in settlements with state attorneys general and insurance regulators.
Brokers who represent insureds should remain independent, Mr. Dinallo emphasized, and should not have hidden incentives to place business with certain carriers.
Mr. Dinallo said that to the best of his knowledge, the investigation of the insurance brokerage industry is over, but issues involving compliance with various settlements speaking to how participating brokers operate in terms of compensation, disclosure and placement of risk remain.
Another problem is that settlements with the top brokerages have created two markets, he said–brokers who take contingents and those who do not–adding that a closer look needs to be taken at how that is affecting the market.
The problem in part stems from the reality of the insurance market's state regulatory structure, he said, noting that unlike the investment banking and mutual fund industries, there is no federal regulator to step in and standardize compensation nationwide for insurance producers.
The brokers who are not taking contingent commissions–including giants Marsh, Aon, Willis and Arthur J. Gallagher–may be successfully using that fact as an effective selling point, he said, but further study is needed to understand the ramifications.
He also suggested that another big issue to tackle in industry-buyer relations is the lack of contract certainty for the risks insurers take on.
"The lack of contract certainty only favors litigators," he observed, noting that the absence of completed policies for World Trade Center coverage on 9/11 was one factor prompting years of litigation over claims.
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