Washington, D.C.-based CFA contends that the same potential conflict-of-interest payments the attorney general found that lead to his suit against Marsh & McLennan Companies that alleges its Marsh brokerage rigged bids and steered unknowing customers to insurers who made payoffs.

The CFA contends that there are two types of commissions used by insurers to entice business, steering commissions (commissions paid to attract business to their books), and profit-based commissions (contingents paid to agents for policies that experience low levels of claims). These payments are made in addition to regular commissions, CFA said.

"Both types of contingent payments in wide use entice agents to do the wrong thing," said J. Robert Hunter, CFA's director of insurance. "Most insurance agents are honest, but if the compensation system provides an incentive for bad behavior, it is likely to occur."

Wesley Bissett, senior vice president for government affairs with the Independent Insurance Agents & Brokers of America called the CFA report, "a reckless mischaracterization of the way agents are paid. It totally discounts the service and value that they provide."

Mr. Bissett faulted the report for offering no proof of the allegations that agents would fail to file consumer claims to benefit themselves. He said there is no basis to the assertion that there is not competition in the industry.

Competition, he said, is quite intense, and an agent would not risk losing a customer by steering the account to a more expensive product in exchange for the small percentage of contingent fee they receive.

"This reflects one organizations view," said Mr. Bissett. "It is misguided and uniformed. It does not mean a great deal, it's just unfortunate that they move forward without understanding the industry."

According to the CFA's report, based on figures compiled from A.M. Best, the top 20 underwriters' contingent commission fees range from zero to over two percent.

CFA, in its report asserts that the use of contingent commissions is a widespread practice for sellers of home and auto business. It warns that consumers should be wary of commissions that would cause agents to steer them to insurers who charge more than others for the product.

CFA offers a scenario where "an unscrupulous individual" would hold off filing a claim to improve the agents' loss ratio with the insurer. It says the proper way to encourage loss mitigation is through safety assessments of homes or driving safety courses.

Consumers, the report notes, can avoid this potential conflict by dealing with captive agents or direct writers who do not receive contingent commissions.

The full report can be found at www.consumerfed.org/contingent_commissions_study.PDF.