U.S. regulators amend agreement with Aon over contingency fees

U.S. insurance industry regulators have reached an agreement with Aon Corporation (NYSE: AOC), permitting companies acquired by Aon to continue to accept contingent commissions for three years following their acquisition.
Such use of contingent commissions would be phased out after three years, according to an Aon press release.
“This amendment advances the goals of transparency and compensation reform in the insurance industry, goals that Aon strongly supports,” said David Prosperi, vice president of global public relations with Aon Corporation.
“For the last three years, brokers that have not introduced such reforms have had an unfair advantage in bidding to acquire other brokers, because they could assume a continued stream of contingent commissions from the acquired company, whereas Aon could not.
“This had the perverse result of favoring brokers which still accept contingents and are not transparent to their clients.
“The amendment agreed to today will permit Aon to compete on a more level playing field when seeking to acquire smaller brokers.”
The industry’s use of contingent commissions was the subject of investigations by New York state regulators and the U.S. Securities Exchange Commission in 2004-05 after some former Marsh executives were accused (and later convicted in 2008) on charges of fraud and bid-rigging.
Under the terms of its 2005 settlement with insurance industry regulators, Aon agreed to commit to new business practices that include heightened disclosure of remuneration and the elimination of practices that may have posed conflicts of interest related to contingent commissions.
Aon had previously announced it would eliminate contingent commissions effective after Oct. 1, 2004. The elimination of contingent commissions was an element of the settlement agreement.
Also as part of its 2005 settlement, Aon admitted no wrongdoing or liability with respect to government allegations of bid-rigging, which prompted securities regulators to investigate the industry’s use of contingent commissions.