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Bob Graham is executive editor at Insurance & Financial Advisor and IFAwebnews.com.

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One thing is certain when New York insurance regulators enact their new broker compensation and disclosure rules: Chaos will follow because a number of situations are closely tied to their implementation.

First, several of the big players in the insurance brokerage business – Aon, Marsh & McLennan Cos. and Willis – have gotten regulators in Connecticut, Illinois and New York to stop their ban on contingent commissions because they have agreed to follow New York’s new rules in all states. The New York rules, slated for enactment this year, with enforcement starting Jan. 1, 2011, mandate disclosure if a client asks for it. That approach could become the model by which other states enforce the standard, if that standard is actually able to be enforced in New York.

The amended settlement with Aon, Marsh and Willis, as reported by IFAwebnews.com, seems weird. Given the new freedom to offer contingent commissions, Willis says it won’t implement them again, Aon says it supports “clear and consistent disclosure” and Marsh says it “is committed to integrity and transparency and serving our clients’ best interests,” according to a report on IFAwebnews.com. On the sidelines is Arthur G. Gallagher & Co., which freed itself from the contingent commission ban imposed against it by Illinois officials several months ago.

In a truly competitive market, one of them is going to go back to contingent commissions and the others will soon follow.

Of course, that assumes the rules take effect. The Independent Insurance Agents and Brokers of New York intends to sue New York insurance regulators over the new disclosure rules, saying there’s no need and – here’s the big one – that the regulators have no authority with which to impose the requirements. The technical argument of IIABNY, which no doubt will be joined in a suit by several other agents’ groups and others who feel the rules are unjust, could take courts years to unravel. The filing of a suit would almost certainly delay implementation date for the rules in New York.

While that case winds its way through the court system, what rules are Aon, Marsh and Willis supposed to be following?

Could it be that the insurance brokerages are hedging their bets, hoping that the IIABNY wins its case and the rules are thrown out? If that happened – and it probably would take years – what becomes of the settlement they just agreed to?

Regulatory concern over contingent commissions has been going on since 2004 and it appears likely it will continue for several more years. That’s all but guaranteed given the chaos coming.