Canadian Underwriter

U.S. broker group proposes principles for regulating broker commissions

November 10, 2004   by Canadian Underwriter

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In a letter to the National Association of Insurance Commissioners (NAIC), U.S. commercial brokers say a new system of regulating commission practices should include transparency, but also recognize the legitimacy of contingent commissions.
The letter, sent to NAIC president Diane Koken by Ken Crerar, president of the Council of Insurance Agents & Brokers (CIAB), stresses that while fraud should be dealt with, and the CIAB is supportive of attempts to responded to quickly to the issue of contingent commissions, there is a distinction between improper acts and the long-standing practices of contingency commissions.
“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,” writes Crerar. “With proper disclosure of compensation practices, and absent illegal and unethical practices such as bid rigging, we believe this legitimate method of compensation should not be further restricted.” He adds that any system of compensation should require complete transparency and disclosure.
Crerar says there needs to be a coordinated approach to the investigation of industry practices, and a uniform response amongst states. “Commercial insurance is a national and global business. Given the headlines of recent weeks, it would be profoundly harmful for 30 or 40 different sets of potentially conflicting regulations to emerge.”
The NAIC has established a task force to look into the issue of broker commissions.

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