Agents and Bonuses — Conflict and Travelers Involved
July 22, 2007
For me the question becomes that if you accept the premise that La Bayadere was an opium dream do you costume differently AND is a 21st century opium dream fundamentally different from an 18th century opium dream?
INTERVIEW-Insurers’ payments to brokers a ‘conflict’
By Ed Leefeldt
11 June 2007
NEW YORK, June 11 (Reuters) – U.S. insurers who pay brokers to send them business – and brokers who take the money – still have a “potential conflict of interest,” regardless of whether the sums are disclosed, New York state’s top insurance regulator said on Monday.
New York Insurance Commissioner Eric Dinallo said in an interview that recent efforts by some insurers to disclose how much they paid brokers made the payments more obvious, but “may still create an incentive for steering.”
Insurance brokers are supposed to help business clients obtain the best insurance at the lowest price. For years insurance companies paid “contingent commissions” to brokers who steered business their way.
Former New York State Attorney General Eliot Spitzer — now the state’s Governor — forced the three largest insurance brokers to stop taking contingent commissions and many big insurers from offering them.
But this year property insurers Chubb Corp. and Travelers Companies Inc. introduced “supplemental commissions,” which reward brokers for the volume of business they bring.
The commissions would be based on past rather than current performance. Insurers say this is legal because the business client is now aware of the payments.
But Dinallo, who worked as a prosecutor under Spitzer, said, “This solves the problem of transparency, but not the other core problem, which is the conflict of interest. There is still a potentially strong incentive to steer business to insurers who pay commissions.”
To date, Willis Group Limited , the third-largest broker, is the only major broker that has said it will not take the money. Marsh & McLennan Cos. and Aon Corp. , the world’s biggest brokers, said they are considering new plans.
Dinallo said his department is still studying the issue. Since New York state serves as headquarters for many of the world’s largest insurers and brokers, including American International Group Inc. , any regulation by his department would have national implications.
Spitzer named Dinallo to head a panel of prominent financial and insurance industry figures in May that will overhaul the state’s financial regulations by June 30, 2008.
Contingent commissions were one reason the three brokers settled Spitzer’s charges in 2005, each paying a hefty fine.
Marsh paid $850 million to settle with Spitzer, who said employees of the largest broker by market capitalization had conspired with insurers to rig bids to make sure certain insurers won big contracts.
Dinallo is not alone in questioning the supplemental commissions.
“We think this new model is the same as the previous model,” said Terry Fleming, representing the 10,000 members of the Risk And Insurance Management Society, who place insurance for most of the Fortune 500 companies.
“We are disappointed to learn that some brokers are apparently reconsidering their pledge to refuse to accept these fees.”
