NU Online News Service, Oct. 20, 3:52 p.m.EDT

Although contingent commissions could represent a conflict inthe relationship between producers and consumers, it is a conflictthat can be managed and should not necessarily result in theprohibition of the practice, former New York InsuranceSuperintendent Eric Dinallo said.

Broker compensation that has received attention since a seriesof settlements in 2005, in which major brokers agreed to foregocontingent commissions after investigations in New York turned upevidence that commercial insurance brokers were not disclosingcompensation arrangements and steering clients to insurers involvedin a bid rigging scheme.

Seeking to clarify his position on broker compensation, Mr.Dinallo told NU Online that contingent commissions are"not unlike a lot of conflicts in financial services that we ofteneither manage or disclose."

He stressed that the conflicts surrounding contingentcommissions are "not irreconcilable," and that these conflicts mustsimply be managed.

The current situation, where some brokers are prohibited fromtaking contingent commissions, others are voluntarily not takingthem, and many others are taking them, has led to segmented marketsthat are not beneficial to anyone, Mr. Dinallo said.

As far as disclosure to clients, Mr. Dinallo said he could seewhere there might be differences in requirements depending onwhether the producer in question is a captive agent, an independentagent, or an independent broker.

For captive agents, Mr. Dinallo said, there could arguably belittle or no disclosure regarding where compensation is comingfrom, as it is understood that captive agents work for onecompany.

For independent agents, Mr. Dinallo said the disclosure shouldprobably be more robust than for captive agents.

Independent agents, he noted, generally have severalunderwriters with whom they have trusted relationships. They shouldmake clear to consumers that they are still compensated by thoseunderwriters, Mr. Dinallo said, and they should be willing todisclose their relationships with the carriers.

Independent brokers, Mr. Dinallo said, are "arguably employed bythe client, so their disclosures have to be really robust and theyhave to manage conflicts carefully."

He said it currently appears that there is not a tremendousclient demand around banning contingent commissions, and that thereis not political or regulatory consensus to ban them either. "Butwe deal with that through disclosure and management of conflict,"he said.

Regarding public reaction, he noted that investigations intobroker compensation practices initiated earlier in the decade byformer New York Attorney General Eliot Spitzer revealed victimsthat were institutional clients, rather than Main Street clients,and so there was not a wave of consensus among the public that ithad been taken advantage of. With institutional clients, Mr.Dinallo said, many people feel the marketplace should determine theoutcome.

He said it will be interesting to see if risk managers for theseinstitutional clients choose in the future to do business withbrokers who do not accept contingent commissions.

Speaking to the lack of regulatory consensus, Mr. Dinallo notedthat with investigations into Wall Street that preceded thebid-rigging investigations into the insurance industry, there wasone regulator, the Securities and Exchange Commission, that couldchoose to ban a practice.

With contingent commissions, there are insurance regulators ineach state, and some of them are accepting of contingentcommissions while others are not. All of the state regulators,though, acknowledge that there is some conflict that needs to belooked at, Mr. Dinallo said.