As if any additional evidence were needed that contingent compensation in the insurance industry has come under a coordinated attack by several state Attorneys General, one AG has confirmed that as his goal. Commenting in the wake of news that several carriers would be required to eliminate contingent commissions under terms of settlement agreements they had previously signed, Blumenthal declared that it “upholds our longstanding position that insurance carriers do not need to pay contingent compensation to profitably compete in the insurance industry.”

Blumenthal said he believes the contingent fees will eventually disappear, a development he says he will vigorously pursue. He said the carriers that have signed settlements “are setting the stage for an historic change in how the insurance world does business. I expect contingent compensation bans will be contagious in the industry — eventually ending a pay-to-play culture altogether, and restoring consumer trust. As my investigation of the insurance industry continues, I will vigorously pursue that goal.”

Blumenthal is one of the attorneys general for three states — Connecticut, Illinois and New York — who conducted investigations into alleged bid-rigging that led to settlement agreements with four carriers that require them to end the special commissions to agents and brokers. ACE Group Holdings Inc. of Bermuda, American International Group Inc. of New York, Zurich American Insurance Co. Inc. and St. Paul Travelers had agreed to end contingent commissions when companies that don’t pay the commissions sell 65 percent of an insurance line. In November, the companies were told that the 65 percent “tipping point” was reached in homeowners, personal automobile, boiler and machinery, and financial guaranty insurance. As a result, the four companies must stop paying contingent commissions for these insurance products beginning on January 1, 2007. They have already given them up for excess casualty insurance.

Main Street independent agents have defended contingent pay plans and called the orders banning them unfair when they were sent out in November. “It is grossly unfair to impose contrived restrictions on the ability to compensate producers in a legal and honest manner,” said PIA National Executive Vice President and CEO Len Brevik following the November order that the 65 percent “tipping point” had been reached and the insurers must stop paying contingencies. Brevik said the attorneys general should be prohibited from using their settlement powers to bring about a ban on all contingent compensation.

“This is an example of settlement powers run amok. Our job is to make sure that this judicial madness does not become a model imposed on the entire insurance industry,” Brevik said.

January 9, 2007