Greenberg Criticizes AGs over Contingent Commissions

May 24, 2007

The controversy over contingent commissions paid to insurance brokers has been mishandled and that has caused unfortunate disruption in the industry, according to C.V. Starr & Co. Chairman Maurice “Hank” Greenberg.

At the same time, replacement commission plans that are prospective in design appear to be no different than the retrospective payments that have come under fire, the insurance executive believes.

In an interview with Insurance Journal at the recent Target Markets Meeting in Atlanta, Greenberg questions the actions taken by state attorneys general against contingent commissions.

“I think the whole contingent commission business was handled badly by the regulators. First of all, it should have been handled by the insurance commissioners, not by attorneys general. That’s the first thing.

“Second, contingent commissions were in existence long before I got into the insurance business. It was a market tradition.”

According to Greenberg, those who wanted to change the payment structure should have approached it differently.

“Now if you want to change something that’s has been in the industry for many, many years, the logical thing to have done was call the industry leaders together, make your case and have them agree or disagree. If they disagreed, they could appeal that disagreement. We are a democracy. They could have taken it either to court or go to the legislature and get a bill passed into law,” he said.

“Every state may have acted differently. I don’t know. But you would have had some legal basis for it, not the way it was done with a gun to your head, saying either give up contingent commissions or else.”

He said he believes that if a broker is receiving a contingent commission, the broker should disclose that to his insured and many brokers did just that.

Greenberg questions whether the payment plans taking the place of traditional contingent plans are worth the trouble brokers and the industry have experienced.

“So what they have done now is punished many companies and got big settlements. And now they have said it’s OK to do it prospectively. Now what is the difference between a prospect of commission that is contingent and a retrospective commission? Their argument was that brokers would steer business to the company where he got the highest commission. Well if you are going to do it prospectively or retrospectively, what difference does it make? You’re going to steer business where you get the highest commission, in their belief,” he said.

“I don’t believe that’s true. I believe brokers do act on behalf of their clients in place business where they think is best for the client. So now you have a two-tier market. Some brokers except commissions as contingents and some don’t. But it caused a lot of unnecessary turmoil in the industry.”

Greenberg commended Liberty Mutual, which has fought the efforts by atorneys general to halt its contingent payments, for defending itself in court.

Watch Greenberg’s comments on contingent commissions.

Watch the complete 37-minute video interview with Insurance Journal at the recent Target Markets Meeting in Atlanta.

An edited print version of the interview may also be found in the May 21 issue of Insurance Journal magazine.

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