At the last of three hearings, insurance industry representatives continued to present sharply divergent views on a proposal for mandatory disclosure of contingent commissions.

They also disagreed on whether or not such commissions should be allowed at all.

The proceedings have been held jointly by the New York State Insurance Department and the New York Attorney General's Office. The first was held on July 14 in Buffalo, the second on July 23 in Albany, and the final hearing was held today in New York.

Major brokerages in settlements with authorities agreed to drop the use of contingent commissions after evidence they served as kickbacks to brokers who cooperated with insurers in commercial insurance price-fixing schemes.

Dan Glaser, chairman and chief executive officer of Marsh Inc. brokerage, reiterated comments made in the previous hearings that the current regulatory structure, due to the settlements with the department and the attorney general, has resulted in a two-tiered market.

"A few firms, including MMC, have been required to eliminate contingent compensation, provide detailed compensation disclosure to clients, obtain written client consent prior to binding coverage, and implement substantial procedures to monitor compliance," he said.

"The rest of the state's insurance producers, in contrast, can and do accept contingent compensation without any disclosure or compliance requirements. There is, in short, an unlevel playing field, with one set of rules applying to a few firms, and another set of rules for everyone else," he said.

The current approach, Mr. Glaser added, did not present an industrywide solution, and if there is an inherent problem with contingent commissions, the settlements did not solve it.

Steve McGill, chairman and chief executive officer of Aon Risk Services, agreed with the need to create a level playing field, and he also spoke to Aon's support of full mandatory disclosure.

"We strongly believe that it is in the best interests of all clients that the department uses its authority to require mandatory, clear and consistent disclosure of producer compensation and to apply the same rules to all producers," he said.

"In such an environment," Mr. McGill said, "producers that add value to their clients will flourish, and producers that do not add value will not. And this competitive environment will ultimately work to the benefit of clients."

Regarding disclosure, Mr. McGill said that informed decisions avoid conflicts of interest. "Sunlight is the best disinfectant," he said.

Speaking to contingent commissions in general, he said that he does not believe this form of compensation provides an "irreconcilable conflict of interest, nor do we believe that they unavoidably lead to steering." More disclosure, he added, would reduce the risk of conflicts of interest.

Don Bailey, CEO of Willis North America, testified that contingent commissions represent a "clear and obvious conflict of interest," and he added that transparency will not solve the problem.

Disclosure will let clients know that the conflict exists but will not solve the problem, he said. "The practice of contingent commission payments is fundamentally at odds with the best interest of clients," said Mr. Bailey.

"Using a term like 'profit sharing' to describe contingent payments provides a clear picture of where true loyalties lie and illustrates that at least some brokers consider the insurer to be their de facto employer," Mr. Bailey continued.

"But this is not the broker's role," he said, "and I would submit to the panel that this is why former Attorney General [Eliot] Spitzer first became interested in the issue of contingent compensation. Insurance companies are important business partners for brokers; however, we are not their employees.

"We are in business to help our clients get the right coverage for the best possible price. Clients need to be absolutely certain that their brokers keep their interests paramount."

Janice Ochenkowski, president of RIMS, also spoke out against contingent commissions. "RIMS has for some time maintained that the relationship between brokers and insurance consumers should be governed by the principle of complete transparency," she said.

"We believe that a contingent fee system creates an inherent conflict of interest. The best way to level the playing field is to eliminate such compensation arrangements," said Ms. Ochenkowski.

She added that in the absence of a ban on contingent commissions, full disclosure should be required.

"Complete disclosure of all compensation arrangements is not the perfect solution, but it will go a long way to promoting transparency, re-establishing the trust between the broker and the customer, and providing customers with sufficient information to evaluate any potential conflicts of interest in the placement of insurance policies," Ms. Ochenkowski said.

Sharon Emek, managing director of CBS Coverage Group Inc. in New York, meanwhile, said that no conflict of interest exists with respect to contingent commissions, and she drew a distinction between the mega brokers that settled with the department and attorney general, and agencies such as hers.

"Let's look at the potential for an agency such as mine to steer business to a particular carrier because of profit-sharing," Ms. Emek said. "...I have 17 producers who are compensated strictly on commission and, therefore, have no interest in knowing which carriers even provide us with profit-sharing.

"They simply want to acquire new accounts and retain all their current accounts. The only thing that motivates them is getting the best price for the best coverage to keep the client so that they can earn a living. How can there be a conflict of interest?"

She added that most agencies, unlike the mega brokers, do not have the market clout to negotiate large front-end signing bonuses.

Wesley Bissett, speaking on behalf of the Independent Insurance Agents and Brokers of America (IIABA), said that no problem with respect to broker compensation has yet been clearly articulated, and that no government solution should be pushed on the industry until the problem is clearly stated.

He added that there are already statutes and regulations in place regarding the illegal actions of some brokers in the past.

Mr. Bissett also disputed allegations of a two-tiered market and called those claims the "misery loves company" argument. He said that some brokers agreed to settle unilaterally "with great fanfare and publicity, and they're trying to import requirements that they're currently obligated to comply with across the entire marketplace."

Kermitt Brooks, first deputy superintendent of the department, who chaired the hearing, questioned Mr. Bissett's claim that there is no problem in the market.

"You come in here and say basically that there is no problem," he said, and added that the department has seen firsthand incidents of steering, and others had testified that there is a problem in the marketplace.

Mr. Bissett responded that there may be a problem, but it has not been clearly defined, and should be before any solution is implemented.

"When the government puts its hand on the marketplace balancing scale, there could be unintended consequences," he said.