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By DAN REYNOLDS, managing editor of Risk & Insurance®

The Risk and Insurance Management Society Inc. praised the upholding of a New York state broker compensation regulation in court this week but a state association of independent insurance brokers denounced the regulation as onerous and said it was considering an appeal.

The beauty of the regulation, according to Dan Kugler, an external affairs committee board liaison for RIMS, is that it makes no distinction between fees, commissions or contingent commissions -- those commissions paid to brokers by insurance carriers for bringing them a certain volume of business.

"That is why I think we have come to the term broker compensation, that just gives us a broader perspective and you lump everything in," Kugler said.

But a spokesman for the Independent Agents & Brokers of New York Inc. said there are provisions in the regulation that pose an undue burden on brokers.

Tim Dodge, a spokesman for the association, said a provision that requires the broker to disclose and maintain records for every variation in compensation on any number of proposed insurance policies creates too much paperwork.

In his example, should a broker be taking quotes from four carriers for a given line of coverage would have to disclose all variations in possible compensation, corresponding to the different endorsements and exclusions each carrier might offer.

"You have got to keep that information on hand, just in case somebody asks for it, "he said.

Far better, Dodge offered, for the free market to do its work. If a client doesn't like the price quoted for a given line of business they should feel free to take their business elsewhere.

"I don't want to tell somebody who is buying insurance what should be important to them, but really, when they have a loss the big question in their mind is am I covered and if I am covered for how much?" Dodge said.

Kugler, however, said the regulation is needed because although the big four brokers are doing a good job in the area of transparency there are many other brokerages out there that are not.

"On disclosure, it is the full spectrum, from wonderful to not so good," said Kugler.

It was in New York, under former Attorney General Eliot Spitzer, that the issue of commissions paid by carriers to brokers came under criminal investigation in 2004, with Spitzer alleging that contingent commission arrangements led to bid-rigging and client steering arrangements.

"RIMS has always said we want to eliminate conflict of interest or the appearance of conflict of interest," said Kugler, "and we have pretty much stood by that position."

March 20, 2012

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