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San Diego-based insurance company to drop controversial commissions
By: North County Times wire services - | ∞
SAN DIEGO - San Diego-based Driver Alliant Insurance Services Inc. and its parent company announced Thursday they will be eliminating their "contingent income agreements" with insurance carriers.
Under contingent income agreements, an insurer pays a "contingent commission" on business placed by a broker with the insurer.
On Oct. 14, New York Attorney General Eliot Spitzer filed a lawsuit accusing a unit of Marsh & McLennan Cos. of steering unsuspecting commercial clients to insurers with whom it has "lucrative payoff agreements."
Last month, California Insurance Commissioner John Garamendi announced the filing of a lawsuit against four major insurers, accusing them of hiding millions of dollars in secret commissions.
Driver Alliant is the West Coast operation of Alliant Resources Group Inc., one of the country's largest insurance brokerage and financial services distribution companies.
"The interests of our clients come first, and the possible perception that contingent commission agreements create a conflict of interest must be eliminated," said John Addeo, president and chief executive officer of Alliant Resources.
Alliant said it has begun an internal review of marketing practices and compensation arrangements with insurance carriers, as well as internal placement procedures "to insure that the interests of our clients are paramount and that our practices reflect this commitment."
Thomas Corbett, chairman and CEO of Driver Alliant, said the decision to end contingent income agreements is a response "to the growing concern and confusion surrounding such arrangements."
Critics of contingent income agreements claim they create a conflict of interest for brokers since the broker is motivated to place business with insurers offering the best commission terms, but not necessarily the best terms for the buyer.
Contingent commissions traditionally were based on the underwriting profitability of the business.
In the 1990s, a new type of contingent compensation arrangement was introduced, known as the "placement service agreement" or "market service agreement."
PSAs give a broker more commission income, but the additional commissions typically are a function of the premium volume placed with an insurer rather than the profitability of the business.
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