A regulator has convinced a large financial services company to change the way it pays producers and to give policyholders more information about producer compensation.

Prudential Insurance Company of America, a unit of Prudential Financial Inc., Newark, N.J., has agreed to resolve an investigation by New York Attorney General Eliot Spitzer by paying a $2.5 million penalty to New York and by paying $16.5 million into a compensation fund for group insurance policyholders affected by past contingent commission programs.

Prudential also has agreed to eliminate the payment of contingent commissions to brokers on group insurance products, including life, disability and long term care, and to provide full disclosure of broker compensation to employers that want to buy group insurance from it for employees, according to officials in Spitzer’s office.

Prudential negotiated a second settlement with California regulators that requires changes in business practices but no payments of fines or remediation, the company says.

“Prudential cooperated with the authorities throughout the process and voluntarily implemented procedures for the disclosure of contingent commissions retroactive to January 2004,” Prudential says in a statement about the settlement agreement.

“Under the terms of the settlement agreement, Prudential has also agreed to discontinue paying contingent commissions,” the company says. “The settlement resolves the investigation and is in the best interest of Prudential and its policyholders.”

Spitzer has issued a statement of his own welcoming the agreement.

The settlement “helps restore integrity to the insurance marketplace by mandating complete disclosure of payments to brokers,” Spitzer says.

Spitzer began looking into group insurance producer compensation at Prudential in 2004, while he was taking a broader look at the insurance market as a whole.

Prudential paid about $60 million in contingent to overrides from 1999 to 2005 on a total of about $18 billion in insurance premiums, officials report.

“Prudential also paid certain brokers case specific overrides or ‘single case overrides’ in order to, among other things, close a deal or encourage future business,” officials say.