Regulators in three states have lifted a five-year-old prohibition on contingent commissions for some of the nation’s largest brokerages in return for greater transparency on agent and broker compensation.

The attorneys general of New York, Illinois and Connecticut and the insurance departments of Illinois and New York agreed to amend the terms of settlement agreements entered into by Aon Corp., Marsh & McLennan and Willis Group Holdings that were put in place Jan. 1, 2005. The three firms, as well as Arthur Gallagher & Co., settled the cases involving bid-rigging in which agents were alleged to have steered business to the brokerages to receive additional compensation.

Late last year, Gallagher reached a deal with Illinois officials to lift the ban, leading to speculation that the other agreements, negotiated by former New York Attorney General Eliot Spitzer, would soon be abolished.

Gregory Case

The new deal requires the three firms to provide, in all 50 states, compensation disclosure to purchasers that complies at a minimum with a proposed commission disclosure rule in New York, effective immediately, as well in compliance with rules in any of the other states, according to officials. The New York rule does not go into effect for other firms until next year.

Earlier this week, Joseph Plumeri, chairman and chief executive officer of Willis Group Holdings, said his firm would not go back to the practice of contingent commissions and in a statement, Aon’s top executive, Greg Case, was not as direct, simply saying the firm supports “clear and consistent disclosure” of compensation.

In a statement to IFAwebnews.com, a spokesperson for Marsh said the firm, “is committed to integrity and transparency and serving our clients’ best interests.”

Deal details

The amended terms of the settlement reopen the way for contingent commissions, but also provide regulators and the firms’ clients with additional transparency “to ensure the fair and equitable treatment of clients and prevent a recurrence of the abuses addressed in the original settlement agreement,” according to the New York State Insurance Department.

New York insurance regulators said the decision to lift the ban came after a thorough review of the companies’ compliance with the current settlement agreements and a desire to help consumers by “providing a level playing field for insurance intermediaries on which they can easily be compared.”

Over the last five years, according to the statement, Aon, Willis, Gallagher and Marsh “had been operating under difficult rules from the majority of brokers nationwide, making it difficult for consumers to easily and accurately compare compensation and incentives, thus distorting the market.”

Under the amended deal, Aon, Marsh and Willis agree to comply with New York’s new producer compensation disclosure rule, which requires written statements of where an agent or broker gets their compensation, if requested by the client. The proposed rule, which is scheduled to go into effect Jan. 1, 2011, faces a possible legal challenge from the Independent Insurance Agents and Brokers of New York, which plans to seek to stop it from becoming law and intends to question the regulator’s authority to impose such rules.

New York regulators say by following the state’s commission disclosure rules, “one clear standard” is created throughout the state “and nationally for all customers of these brokers.”

Mixed reaction by firms

Reiterating Plumeri’s statement made before a recent meeting in London, Willis said it voluntarily agreed to end contingent commissions prior to the multi-state agreement in 2005 and will continue that strategy, despite what the other firms decide.

“Willis will continue to disclose to our retail clients the compensation we receive from insurance carriers,” the firm said in a statement. “Willis also will continue to refuse to accept contingent commissions from carriers in our retail brokerage business. Willis is proud of the position we have taken with regard to contingent commissions that we believe is squarely in the best interests of our retail clients.”

The company applauded the amended agreement as relieving it of “a number of technical compliance obligations that have imposed significant administrative and financial burdens on our operations that we do not believe benefit our clients.”

Chicago-based Aon said it “very much appreciates” to move toward consistent business practices for all brokers.

“However, our overriding consideration is to act in the best interests of our clients at all times,” said Case, Aon’s president and chief executive officer, in a statement. “Aon will continue to lead the industry in terms of delivering value to our clients, including helping our clients fully understand what we do, how we do it and how we get compensated.”

Case added that Aon “strongly” believes “it is in the best interests of clients that state regulators use their authority to require clear and consistent disclosure of the compensation of brokers and agents, and Aon will continue to take the lead on this important issue.”

Marsh’s statement said the amended agreement has “helped to restore a level playing field for MMC and other insurance intermediaries” and that regulators have applied “consistent, mandatory compensation disclosure standards across our industry.”

A spokesperson said the company would have no further on the matter, specifically whether the firm would reinstitute contingent commissions.