NAPSLO views contingency arrangements as acceptable & legal in some wholesale transactions

February 16, 2005 - Following the recent settlement by Marsh and McLennan Companies, Inc. with New York Attorney General Eliot Spitzer and Acting Insurance Superintendent Howard Mills, NAPSLO President Richard Polizzi outlined the Association's position on contingent compensation arrangements within the Wholesale community.

 "In a wholesale insurance transaction, the wholesaler is simply responding to a request from a retail producer to find and present an offer of coverage acceptable to the retail producer's customer,” Mr. Polizzi said. “That decision to purchase the offered coverage is not related to, and is independent of, the existence of any contingency arrangement the wholesaler may have with a carrier. Simply stated, the wholesaler is not party to the decision to purchase coverage offered by the retail producer. That is solely between the retail producer and the insured."

Although Marsh agreed not to accept any contingent commissions from any insurer as part of the settlement, the agreement does not mean that a contingency arrangement is no longer a legally acceptable method of compensating any licensed insurance producer in any circumstance. New York Attorney General Eliot Spitzer, himself, in a recent appearance before the National Press Club in Washington, D.C., while acknowledging that there are "many spectacular" people in the insurance industry, stated that he recognized that there are “contexts in other parts of the insurance sector where those contingencies are appropriate, where they did not subvert decision making.”

NAPSLO agrees with this conclusion, and believes that in a wholesale insurance transaction where the contingent agreement between the wholesaler and the insurer does not compromise the independent decision of the retail producer's ability to act in the best interest of the customer, contingency agreements are a proper and legal method of compensating wholesalers.