N.Y. Action On Broker Contingent Fees Called Double Hit For Buyers

RIMS said it applauds Willis for its policy of not accepting such commissions and called A.J. Gallagher as the "gold standard" in transparent reporting of such fees.

The decision to permit the fees follows the New York Insurance Department's release of a regulation setting rules for agent and broker disclosure of compensation that RIMS said does not afford consumers appropriate protections.

RIMS noted that the investigations, admissions, and fines that led to the 2005 agreements banning such commissions prove that these practices can be, and were, manipulated at the expense of the insurance consumer.

A probe in 2004 by the New York Attorney General's Office that included the Insurance Department, found evidence brokers took hidden payments to steer commercial clients to insurers involved in a bid rigging scheme.

Without strong consumer protections in place, RIMS said it has reservations about a policy that again permits contingent commissions. The organization said this development illustrates why RIMS has so vigorously fought for a stronger rule.

"When Arthur J. Gallagher and Company was released from its agreement in Illinois in 2009, RIMS expected that New York would shortly follow suit," Mr. Scott said in a statement. The AJG agreement allows customers to object to contingent arrangements with insurers.

Mr. Clark told National Underwriter the New York actions were dismaying to RIMS. Less than two weeks ago, he said, he spoke to Matthew Gaul, deputy superintendent with the New York Insurance Department, explaining RIMS' concern about certain aspects of the disclosure regulation. Subsequently, he said, "We were surprised to read in the press that Superintendent [James J.] Wrynn had decided the regulations were going to be changed and finalized it."

Currently, he said RIMS' number one priority is to inform and educate members on the topic and that it will "keep a firm position expressing displeasure in the decision."

On the new disclosure rule, he said RIMS will continue to press to have the department extend the comment period on the regulation for 30 days. The department has said there will be no extension to take comment on the rule, which is to take effect in January of. 2011.

Mr. Clark added that RIMS will keep an eye on developments involving the Independent Insurance Agents and Brokers of New York (IIABNY), which has said it is going to court to block the new regulation.

While RIMS feels the new regulation is not comprehensive enough, IIABNY has argued it is too burdensome and confusing.

When the IIABNY brings its action, he said RIMS would be looking to see what remedy the IIABNY proposes. "One of the things we don't want to have happen is to have no regulations at all, based on what they have right now," Mr. Clark said.

With regard to the contingent issue, he said RIMS is voicing displeasure, similar to when the Illinois Dept. of Insurance took the same position in November 2009.

"We'll continue to work with our membership to make sure that our members voice their displeasure with their brokers about the fact that if this is going to happen–and if in fact the New York insurance department has allowed it to happen–we believe the brokers now have to live up to the full disclosure and transparency."

He said RIMS acknowledges Willis for taking a public stand against taking insurers' commissions. "Even though by law they're going to be given the opportunity to accept contingent commissions, we applaud them for taking the stand that they're not going to do that. We think they send a good example."

He also noted that at this time, "what we can really focus in on is a model that voluntarily Gallagher has employed and that is that while they have been given the green light in Illinois to accept contingent commissions, they voluntarily, through disclosure," give their clients a choice of whether to accept their broker receiving contingent payments. If the client says no, he said, "then they will not accept contingency commissions on behalf of their client. We think that's the gold standard."

RIMS said it encourages other states to go further with their regulation and make a strong effort to enact full mandatory disclosure requirements that will protect the insurance consumer. RIMS added it will continue to work closely with all parties on the issues of producer compensation and disclosure.