Conn. Agents Told to Brace for Bill to Ban Contingent Pay

Connecticut Insurance Commissioner Susan Cogswell has warned independent agents in her state that they should expect to see legislation to restrict or wipe out their contingent commissions.

She said that legislation should be expected in Connecticut because the state’s attorney general is among those behind settlements with several insurers to prohibit contingency pay and dictate how agents and brokers should disclose their pay.

When the anti-contingent commission legislation surfaces, agents will not have the support of some of their own insurance company partners because these insurers have pledged to several states that they would back elimination of contingent commissions, Cogswell added in remarks before the Independent Insurance Agents of Conn.

“I believe there will be legislation that will eliminate contingent compensation…. I can guarantee you that you are going to see that in this legislature,” she told agents, adding, “That’s a heads-up.”

Cogswell did not identify any specific sponsor or advocate for such a bill in her state but she suggested it would come because of recent settlements between a number of large insurers and officials from New York, Illinois and Connecticut, including Conn. Attorney General Richard Blumenthal.

St. Paul, AIG, Zurich and ACE are among the insurers that have signed pacts in which they have agreed to discontinue paying agents and brokers contingent commissions on excess casualty coverage and agreed to stop paying them on any line of business if 65 percent of the U.S. market pays no commissions or signs an agreement not to do so. They have agreed to enforce this policy for all of their agents- not just those in the states signing the settlements. The settlements are a response to bid rigging and account steering by several large insurance brokers.

Further, the insurers have agreed as part of these settlements not to oppose legislation and regulations to abolish contingent commissions.

Warren Ruppar, executive vice president and lobbyist for IIAC, told Insurance Journal he was unaware of any specific sponsor or bill but acknowledged that such legislation is possible given that AG Blumenthal has an alliance with companies that have signed the settlements.

Cogswell criticized the settlements for infringing upon her state’s public policy and for making Main Street agents pay for the sins of large insurance brokers.

The Connecticut Legislature has adopted an amended version of the National Association of Insurance Commissioners (NAIC) model rules governing producer disclosure. Cogswell said she thinks that this public policy decision should be respected and not overridden by court settlements relating to wrongdoing by large insurance brokers.

“Unfortunately the rules keep changing and they are not changing because of decisions by regulators or legislators really in charge of public policy,” she noted. “The rules are being changed by a number of settlements with insurance companies that are inconsistent.”

She expressed concern that the agreements are “getting down to Main Street producers and they are looking to put the onus of disclosure on you.”

She maintained that she and the majority of commissioners are at odds with the direction being taken by an NAIC committee that is pursuing further changes to disclosure rules.

Cogswell expressed skepticism over further regulation of producer disclosure, suggesting few customers would read disclosure notices and arguing that requiring them would be a “waste of time and money,” a line that received applause forom the agents at the gathering.

“If somebody really wants to know what your compensation is, they have a right to ask. If you don’t want to tell them, then they can go somewhere else, frankly,” she told agents.