N.Y. Giving Big Brokers Green Light To Accept Service Fees From Insurers

Aon will soon become the third major insurance brokerage to amend a settlement agreement with New York regulators, in which it was forced to stop accepting certain contingency-based commissions, a state official confirmed.

Aon will have a new agreement “shortly,” according to John Rothblatt, assistant deputy superintendent and counsel for the New York Insurance Department.

He explained that the Aon change has taken longer because their settlement agreement involved the states of Illinois and Connecticut as well.

Brokers were forced to alter their commission arrangements after investigations by regulators turned up evidence that undisclosed contingency fees were serving as kickbacks to reward brokers for steering clients as part of a price-fixing scheme by insurers.

On Aug. 22, Willis arranged a change in its settlement with New York, and prior to that Marsh made such an arrangement, Mr. Rothblatt confirmed.

He explained that the changes do not allow brokers to accept contingent commissions based on volume of business placed with a particular carrier, but “they are now permitted to receive service fees for services they perform on behalf of the insurer.”

Before the latest change, all they could accept from insurers was a commission that was disclosed in advance for a specific percentage of premium, he explained.

Mr. Rothblatt noted the service fees must also be disclosed to customers in advance.

“It is important we reiterate our absolute commitment to our principles–namely, we will always be compensated in a manner that promotes the best interest of our clients,” Joe Plumeri, chairman and chief executive officer of Willis, said in a statement issued after the amendment was signed with the New York Insurance Department and New York Attorney General's Office.

He added that “complete transparency in a conflict-free environment is the minimum standard. So, in our role as broker, we are steadfast in refusing to accept contingents and supplemental compensation. Any enhanced regulatory flexibility that we may be granted will be applied against our unwavering principles.”

In NU's Aug. 13 edition, Mark Ruquet reported that Brian Storms, chairman and CEO of Marsh, revealed during an analyst conference call that his firm was in the process of obtaining an amendment to its agreement with New York State, which he said would allow the brokerage to charge insurers for specific services provided to clients. While he declined to go into details, he emphasized the fees would not be volume-related.