PIA of New York Past President John W. Bailey, CIC, testified on July 23 at a joint public hearing on producer compensation and disclosure. The hearing was the second in a series of three this month held by the New York State Insurance Department and Attorney General’s office. Eight individuals testified at the hearing, held in Albany, representing producer and company groups from the property/casualty and life/disability sectors.

Bailey reiterated PIA’s long-standing position that contingent commissions are legal, effective compensation for producers that benefit New York state’s consumers and economy. He told the panel that, beyond their inherent ethical behavior, a competitive market ensures that agents act in the best interests of the consumer.

Bailey and several testifiers pointed out contingent commissions, paid by insurance companies to retail independent insurance agents, are not the same as “placement service accounts,” which certain mega-brokers used in bid-rigging schemes and which the attorney general investigated and settled in 2004.

PIA testified that voluntary disclosure exists in the market, and that mandating disclosure would mislead consumers, perhaps implying that producers’ compensation is negotiable between the customer and the agent. To the contrary, “our compensation is set by the companies and approved by the insurance department as part of the rate approval process,” Bailey explained.

The series of three hearings was quickly announced following a June 19, 2008 decision by the 1st Appellate Division of the New York Supreme Court which declared that contingent commission agreements are not illegal. The decision came in a case that stemmed from a May 2006 fraud and bid-rigging suit originally filed against Liberty Mutual by former New York Attorney General Eliot Spitzer.

While other insurers and mega-brokers faced investigations of similar allegations since 2004 and opted to settle with Spitzer and other state authorities, Liberty Mutual vowed to fight the allegations in court. Some of the settlements banned the payment of contingent commissions, while others mandated the use of a disclosure form that was legally flawed and would place agents at risk of errors and omissions claims.

New York State officials are now considering expanding restrictions on contingent commissions to all agents and brokers.

PIANY Testifies At Albany Hearing (PIANY 7/23/08)
 
PIA Hails Decision Declaring Contingent Commissions Are Not Illegal (7/1/08)

July 29, 2008