St Paul Settlement

Another settlement counter-productive to insurance agents and brokers has been announced by St. Paul Travelers (see here, here and here).  The key provision:

The company agreed to discontinue paying contingent commissions on any line of business if 65 percent of the United States market for that line does not pay such commissions or has signed similar settlement agreements.

This is the result of outright dishonest behavior by a few (see here):

The investigation found that St. Paul Travelers … participated in a scheme to fix insurance prices in the excess casualty area…  An example [is an] e-mail from a broker at Marsh & McLennan Companies to a St. Paul underwriter seeking a phony bid for an insurance contract that was being steered to one of St. Paul 's competitors, Zurich.

The settlement is a back-door approach by the NY and CT AGs to drive contingent commissions out of the industry (see our prior post on the Zurich settlement).  Insurance agents are not happy to be paying the price for the unethical behavior of the large brokers.  Some of the insurance agents associations are not pleased (see here and here):

• Those insurers and producers who have engaged in illegal bid-rigging and anti-competitive behavior should be held accountable to the fullest extent of the law.
• Shame on insurers who enter into settlement agreements that punish the good deeds of many for the bad deeds of a few.

PIA’s position paper on agent and broker compensation is here, and IIABA’s press release on the subject earlier this year is here.

Comments

[ProLiabProf]

As I've written elsewhere (http://papers.ssrn.com/abstract=877488 ), I'm concerned that "regulation by settlement" will continue in the producer compensation area until the insurance community itself rallies around some measure of increased transparency. I've argued for what I call "status disclosure" (i.e., is the producer acting as an agent or a broker?), as being preferable to disclosure of the financial details of compensation, but the bottom line is that Eliot Spitzer and the other AGs are simply filling a void that will remain until our industry and its designated regulators come to terms with this issue.