Len Brevik, executive vice president and chief executive officer of the National Association of Professional Insurance Agents, last week called the St. Paul Travelers agreement "an assault on a system of compensation that is legal, honest and a mainstay of the American free enterprise system."

Likewise, the Independent Insurance Agents & Brokers of America denounced the "continued assault on a legal compensation practice used in businesses all across America."

IIABA Chief Executive Officer Robert A. Rusbuldt said, "Like virtually all other businesses distributing products through a sales force, the insurance industry has developed effective compensation practices to reward sales excellence.

"Incentive compensation is one form of compensation used for this purpose, and companies doing business in a competitive, free-market economy should be able to continue to choose to use it as well as any other legal form of compensation."

One of the IIABA's chapters, the Independent Insurance Agents of Texas, also spoke out last week. "Honest agents who are following the law and producing profitable business for their companies should not be punished for the sins of the few," said Robert Hempkins, president-elect of the IIAT. "Yet, insurance companies continue to buckle under to the bullying tactics of a handful of ambitious politicians. It is time for agents to speak up and voice their objection to these attacks."

According to charges leveled by the attorneys general, including New York's Eliot Spitzer, contingent compensation paid by insurers have served as kickbacks to reward big brokers involved in a system that rigged bids and steered commercial accounts to cooperating insurers.

St. Paul Travelers apologized for its conduct, but did not admit to any violation of federal or state law as part of the settlement. The company also agreed to pay $40 million in fines and penalties and $37 million to reimburse policyholders harmed by bid-rigging activities.

Other settlement provisions, which mirror earlier deals entered into by American International Group, Zurich and ACE, call for St. Paul Travelers to:

o Discontinue paying contingent commissions on excess casualty coverage in the United States through 2008.

o Discontinue paying contingent commissions on any line of business if 65 percent of the U.S. market for that line does not do so or signs an agreement not to do so.

o Support legislation and regulations in the United States to abolish contingent compensation for insurance products or lines.

According to Mr. D'Arelli, "It is completely legal to pay contingent compensation...Unfortunately, that legitimate practice has been tainted."

Many small agencies and producers, he said, are working on very thin margins, and now, under the settlements, they "can't be incentivized for placing business on the books or for any measure of profitability."

Mr. D'Arelli noted that "while insurers sat on the sidelines" in recent years, agents and brokers fought legislative battles to preserve their right to earn compensation for placing and maintaining profitable business with insurers. "This hard work is in danger of being swallowed up as insurers cut these awful settlement deals, [and] agents and brokers are mad as hell about it," he said.

By issuing a condemnation, the official said that his Rancho Cordova, Calif.-based group "wanted to let carriers know how unacceptable some of the terms of these settlements are," adding that he hoped there would be "a chilling effect on carriers" and that they "would think twice before throwing producers under the bus."

IIABA's Mr. Rusbuldt said his group believes a "competitive insurance environment is crucial for consumers," adding that "competition is fostered by preserving the right of each insurance company to decide how it should compensate its sales force."

IIABA praised the actions of Boston-based Liberty Mutual, which has called the contingency fees appropriate and lawful. Liberty Mutual has resisted settling a suit brought by Mr. Spitzer that charges the carrier participated in a pervasive bid-rigging scheme with some of its top brokers.

Liberty Mutual said in May that settlement demands being made were "excessive and unreasonable--both in terms of magnitude and demands that would change legitimate business practices in states outside their legal jurisdictions."

Mr. Rusbuldt said Liberty "is standing up for free-market principles."

PIA's Mr. Brevik said, "Contingent compensation is not the problem; those who abuse the system are the problem." PIA, he continued, "condemns illegal actions such as bid-rigging whenever and wherever they occur. Those who violate the law must be punished."

Rather than concentrating on those who allegedly committed abuses, language in the settlement agreement lumps "tens of thousands of smaller brokers and independent agents" in with firms that have signed such settlements, he said.

"To cast suspicion by encouraging a perception of guilt by association is patently unfair to the overwhelming majority of Main Street insurance agents across the country who have never engaged in any wrongdoing," Mr. Brevik said.