NU Online News Service, Nov. 3, 2004, 5:34 p.m. EST

The Council of Insurance Agents & Brokers, Washington, is suggesting that states ought to take a national approach to addressing the contingency commission issue.[@@]

The National Association of Insurance Commissioners, Kansas City, Mo., recently formed a task force to review allegations by New York Attorney General Eliot Spitzer that some of contingency commission arrangements might be misleading customers.

Insurers have been paying contingency commissions to brokers who bring them large amounts of commercial business for year, but Congress and several state regulators have followed up on Spitzer’s investigation with reviews of their own.

Critics of contingency commissions say commercial insurance customers who are paying commissions directly to brokers may not realize that the brokers also are receiving commissions from the insurers.

“Creating a task force of high-ranking officials to look into these serious allegations is a cautious and reasoned response,” CIAB President Ken Crerar writes in a letter to NAIC President Diane Koken. “We hope this initiative will have a calming effect on individual states that might be considering acting on their own. It would be profoundly harmful for 30 or 40 different sets of potentially conflicting regulations to emerge.”

Crerar notes that some of Spitzer’s allegations have to do with bid-rigging and fraud.

“Fraud and bid-rigging have no place in an industry that is based on trust, and if those allegations are proven, we would expect that those guilty of wrongdoing would feel the full force of the law,” Crerar writes in his letter to Koken, who is Pennsylvania’s insurance commissioner.

“But it is equally important to remember that for many years, contingency commissions have been a legal and proper method of compensation for extra services provided by the broker to the insurance carrier on behalf of the commercial client,” Crerar writes.

The CIAB has been calling for full disclosure of broker payment arrangements since 1998, and it continues to believe that disclosure is the best way to guard against conflict or the appearance of conflict in business arrangements, Crerar writes.