Another Insurer to Stop Contingent Commission Payments

Connecticut Attorney General Richard Blumenthal this week announced that The St. Paul Travelers Companies, Inc. plans to stop paying contingent commissions to insurance agents and brokers by the start of 2008.

The announcement comes after action late last year in which Blumenthal – under settlements reached with Connecticut, Illinois and New York – informed some of the nation’s largest property and casualty insurers, including St. Paul, that they must stop paying contingent commissions to brokers and agents for certain types of insurance as of the first of this year.

In a letter to Blumenthal’s office, The St. Paul Travelers has acknowledged it will comply with the contingent commission ban for the insurance lines indicated under the settlement – and will also voluntarily stop paying contingent commissions in all lines of insurance by 2008, according to a press release posted on Blumenthal’s web site.

According to the release, St. Paul said in a December 29, 2006 letter that it will “go even further by providing a fixed commission option (no contingent commissions) for all agents on all lines and encouraging all of its appointed agents in all lines to accept a fixed commission in lieu of any contingent commissions in 2007.”The company said it “expects all of its agents will be on a purely fixed commission program by Jan. 1, 2008.”

Blumenthal said, “St. Paul Travelers is doing the right thing – voluntarily agreeing to stop paying contingent commissions. This decision upholds our longstanding position that insurance carriers do not need to pay contingent compensation to profitably compete in the insurance industry.

Other Shifts

The decision by St. Paul echoes one announced by Chubb Corporation late last year.Chubb had conducted an internal investigation of the practices, and while they did not conclude that the firm participated in a pattern or practice of illegal bid-rigging, the firm acknowledged that it “appears to have unknowingly benefited from the bid-rigging activities of others in the excess casualty market, which may have provided the firm with an advantage in retaining certain renewal business” (see Chubb to Discontinue Contingent Commissions).

On the last day of 2006, insurance brokerage Arthur J. Gallagher & Co. said on Friday it will pay $36.9 million to settle a class-action lawsuit accusing it of accepting improper “contingent commissions” for steering business to particular insurers.On the same day MetLife Inc., the largest US life insurer, said it agreed to pay $19 million to settle an investigation by New York State Attorney General Eliot Spitzer into fees paid to insurance brokers (see Insurers Settle Up at Year-End).