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Insurance industry

Contingent Commissions Prohibited for Major US Insurers

Strategic Insights

— 1 min read

Four of the largest property and casualty insurers in the United States, ACE Ltd., American International Group Inc., St. Paul Travelers Cos., and Zurich Holding Company of America, have been ordered by three state attorneys general to cease paying contingent commissions to brokers and agents for several lines of insurance beginning January 1. This move is a result of settlements reached with the states of Connecticut, Illinois, and New York, which collectively represent more than 65% of national gross written premiums for certain insurance lines.

Key Takeaways:

  • The attorneys general of Connecticut, Illinois, and New York have notified the four insurers that they must stop paying contingent commissions on homeowners multiperil, private-passenger automobile physical damage, private-passenger auto no-fault, other private-passenger auto liability, boiler and machinery, and financial guaranty lines.
  • The insurers have already agreed to stop paying commissions on excess casualty lines until 2008.
  • The settlement prohibits contingent compensation after the insurers collectively represent more than 65% of national gross written premiums for particular insurance lines.
  • The decision marks a "historic milestone" in the pursuit to eliminate a culture of pay-to-play in the insurance industry, according to Connecticut Attorney General Richard Blumenthal.
  • The investigation into the insurance industry is continuing, and Blumenthal has promised to closely scrutinize the companies prohibited from paying contingent compensation to ensure they honor the terms and spirit of the agreement.
  • Departing New York state Attorney General Eliot Spitzer, along with Blumenthal and Illinois Attorney General Lisa Madigan, announced the decision.

Statistics:

  • 65%: The share of national gross written premiums for particular insurance lines represented by the four insurers.
  • $850 million: The amount Marsh & McLennan Cos. agreed to pay to bring an end to Spitzer's bid-rigging charges in January, 2006.
  • 8: The number of former Marsh & McLennan executives charged in September, 2006, with colluding with brokers and insurance company executives to arrange noncompetitive bids for their customers.
  • 1998-2004: The time period during which the bid-rigging allegations claim took place.
  • 4: The number of states that have reached settlements with the insurance industry to prohibit contingent compensation (Connecticut, Illinois, New York, and New Jersey).

Sources:

  • BestWire, March 4, 2005
  • BestWire, January 21, 2005
  • A. M. Best Company, Inc., 2006
  • BestWire, September 15, 2006
  • BestWire, June 21, 2006

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