New York: Broker Contingent Commissions Likely In Early 2010
December 09 2009 - 11:24AM
Dow Jones News
The New York Insurance Department has taken a major step toward
lifting a ban on some insurer-paid commissions for the three
biggest insurance brokers, which could boost their earnings.
The insurance department's so-called Producer Compensation
Transparency regulation would allow brokers to take insurer-paid
commissions that are based on profitability or volume, if they
follow procedures for disclosing the payments to their policyholder
customers.
As a last step toward making the proposed rule part of New
York's regulation, the insurance department published the
regulation Dec. 2, which means it will likely go into effect 45
days later, in mid-January. State attorney generals are considered
likely to follow the regulation to allow brokers to take the
commissions.
Matthew Gaul, special counsel at the insurance department, said
the office has gone through an extensive comment and revision
process for nearly 18 months and that the required 45-day period
for public comment is likely the last step before the regulation is
adopted, perhaps with some minor changes.
"We plan to move quickly once we have the authority," he said
Wednesday. He said that some broker groups have voiced opposition
to the regulation, on the grounds that it will be difficult to
implement, but other broker groups have come to accept it, though
are requesting some minor changes.
Keith F. Walsh, an analyst with Citigroup, called the likely
change a "reversing of Spitzer's regulatory regime," referring to
former New York Attorney General Eliot Spitzer, whose investigation
into insurer-paid commissions led to the ban, which applied only to
the largest commercial insurance brokers.
Walsh estimated that a return of the commissions could boost
earnings per share by as much as 10% for Aon Corp. (AON), Marsh
& McLennan Cos. (MMC) and Willis Group Holdings Ltd. (WSH).
Willis Group Chief Executive Joseph Plumeri has said the broker
will not accept the so-called contingent commissions, which are
based on the amount of business a broker brings in or the
profitability of the business. Plumeri has said the commissions set
up a conflict of interest for brokers, who serve as advocates for
their policyholder customers.
Shares of Aon recently traded down 0.4% to $37.74, Marsh traded
up 0.1% to $21.56, and Willis traded down 0.2% to $26.76.
-By Lavonne Kuykendall, Dow Jones Newswires; (312) 750 4141;
lavonne.kuykendall@dowjones.com
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