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Agents Groups Raise Concerns About Zurich Contingent Commission Settlement

September 25, 2006
Agents Groups Raise Concerns About Zurich Contingent Commission Settlement. Check it out:
(BestWire Services Via Thomson Dialog NewsEdge)
A proposed class settlement covering the incentive compensation practices of Zurich Financial Services Group's U.S. subsidiaries would have significant and undeserved adverse impacts on insurance producers, according to "friend of the court" briefs submitted by a pair of national agent groups.



In separate briefs filed in U.S. District Court for the District of New Jersey, both the National Association of Professional Insurance Agents and the Independent Insurance Agents & Brokers of America take issue with elements of the proposal they contend would impose burdensome new legal and administrative duties on agents and brokers.

The proposed class settlement looks to consolidate and resolve in federal court a spate of actions brought against Zurich by state attorneys general, most concerning the company's alleged participation in schemes to "fix" insurance prices in the excess casualty sector through fraudulent bidding practices.

In March, Zurich agreed to pay $171 million to settle bid-rigging charges brought in Florida, Texas, California, Pennsylvania, Massachusetts, Hawaii, Maryland, Oregon and West Virginia (BestWire, March 20). That same month, the company separately agreed to a $153 million settlement with New York, Connecticut and Illinois that included $88 million in refunds to policyholders, and that also covered charges the insurer used certain "finite reinsurance" transactions to bolster both its own financial results and those of its clients.

Although the settlements didn't call on Zurich to either confirm or deny wrongdoing, the company agreed to implement new disclosure and compliance measures that Zurich's chief executive officer, James J. Schiro, said would "bring greater clarity to how Zurich will move forward to serve producers and customers in this new era of transparency." (BestWire, March 27, 2006)

But according to the agents groups, many of the costs and duties associated with those disclosures would be passed on to agents and brokers. Under the settlement, independent insurance agents would transmit to insureds and potential insureds a court-mandated Mandatory Disclosure Statement describing Zurich's practices for compensating producers. Should other carriers be made to follow similar disclosure requirements, "the multitude of forms will exacerbate consumer confusion significantly, and create inefficiencies in independent agencies," according to Robert A. Rusbuldt, the Big I's chief executive officer.

"Zurich should have the responsibility to provide to insureds any disclosure form it is obligated by law or otherwise chooses to provide about how it compensates agents and brokers," Rusbuldt said in a statement. "Agents and brokers should continue to have the latitude to customize their interactions to the specific requests and needs of customers."

Moreover, argued PIA CEO Len Brevik, provisions of the settlement proposal that commit Zurich to support legislation abolishing contingent commission incentives amount to state attorneys general using "their law enforcement powers in an effort to bring about a fundamental change in the American system of free enterprise."

"Performance-based compensation is not a threat to that system, it is the basis of that system," Brevik said. "Certain provisions contained in these agreements are grossly unfair to PIA agents, and grossly unfair to carriers by restricting their ability to compensate their producers in a legal and honest manner."

The agents groups also said application of the agreement would discriminate unfairly against independent agencies. The Big I noted that the agreement doesn't require equivalent compensation transparency for insurance purchased from captive agents or direct writers. PIA's brief said settlement agreements that called for some of the largest commercial insurance brokers to abandon all contingent compensation have been amended in recent months to clarify the firms' ability to receive incentive rewards when acting as an insurer's managing general agent.

(By R.J. Lehmann, Washington bureau manager: [email protected])

Copyright 2006 A.M. Best Company, Inc.


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