After issuing its new producer compensation disclosure rule on Feb. 10, the New York State Insurance Department, together with four other state regulatory and legal authorities, agreed to amend the terms of the world's three largest brokers' 2005 settlement agreements, allowing them to once again collect contingent commissions. Under the new agreements announced last week, Marsh & McLennan Cos. Inc., Aon Corp. and Willis Group Holdings P.L.C. agreed to comply with the NYSID's new disclosure regulation nationally. The NYSID's Matthew J. Gaul, who recently was named deputy superintendent for life insurance, talked with Business Insurance Senior Editor Sally Roberts about the amendments, New York's disclosure rule and the events that led up to them.

Q: Earlier this month, the NYSID published the final version of its producer compensation disclosure regulation. As you know, the Risk & Insurance Management Society Inc. and the Independent Insurance Agents and Brokers of New York object to the new regulation saying, in RIMS' case, that you didn't go far enough and, in IIABNY's case, that you went too far. Does that mean that the department got it right?

I think there's sort of a lazy analysis that can run in that direction, but I don't think that's the best way to look at it. Often times in the regulatory process, you end up with people who are unhappy with the result and it's probably not the best way to judge things. Having said that...we think we did the best job we could in balancing all the various competing interests. We obviously wish there was more effort to kind of embrace this regulation and work with us on implementing it going forward, but these interest groups have their complaints and they're obviously free to air them.

Q: Do you think other states will look to New York's disclosure rule as a model and adopt similar regulation?

We've had conversations with other states through the (National Assn. of Insurance Commissioners) and through informal conversations. I think they're obviously taking note of the work that we've done. A few states seem to be somewhat interested in pursuing something like it. There's also an NAIC model that a few of the states have adopted—we think our reg is a little stronger than that—but overall I would have to say that in seeing the very difficult political process that we've gone through in getting this reg out, I'm guessing that most of the other states won't have an appetite for taking on this issue.

Q: Before joining the NYSID, you were with the New York attorney general's office and actually spearheaded former Attorney General Eliot Spitzer's bid-rigging investigation of Marsh & McLennan Cos. Now that things have come full circle, what's it like having been part of the effort to curtail contingents and now being part of the effort that brings them back?

Mixed feelings, obviously. I still am very proud of the work that we did at the AG's office. I think pretty much everyone who worked on those cases, including a number of people who moved over here to the department and the folks at this department who worked with us at the time, are very proud of the work that we did. I think we brought to light a lot of very troubling practices in the industry and caused a lot of people inside the industry to take a look at those practices, to be a little more introspective about how the compensation structures work, the value of transparency, whether certain types of compensation are problematic or not. It aired those issues. It caused a lot of public debate about those issues, and where we've ended up is with a focus more on transparency than on something like banning contingents. But that's where the bus has gotten us. I don't think it's a bad thing where we've ended up. I think it's certainly better than where the industry was before all of this.

Q: Do you personally think contingent commissions should be eliminated from the insurance brokerage industry?

Well, I think back at the time of the investigations we found a lot of bad behavior and outright fraud and bid rigging...and at that time we'd really been looking at fashioning a remedy for that. The first remedy was obviously getting those brokers to pay back a lot of money to their clients who had been harmed. But obviously we wanted to go beyond that and try to come up with ways to prevent that kind of behavior from happening again and that had to include disclosure as the first level. And then when we looked at contingents, we realized that a big problem was that disclosure, when it comes to contingents, is really very difficult. It's something that we've struggled with right through this regulatory process to the present day. So at the time, it made sense to say that this was a type of compensation that should just be off limits since it is so difficult to disclose. At the end of the day, I think that the problem with banning something like contingents is that there's a lot of difficulty in line drawing. There are lots of different forms of incentive compensation, including some of the upfront types of compensation that brokers and agents have always gotten, which provide powerful incentives for people to steer business. So transparency is probably the best fix. Maybe there could be more robust transparency in certain parts of the market, but this, I think, is the ultimate best solution.

Q: Although you were not at the New York attorney general's office at the time the bid-rigging cases went to trial, how do you feel about the outcomes of those trials where there were many more acquittals than convictions?

You have to have respect for the criminal process, really. I think there was ample evidence in each of those cases to bring the cases that our criminal prosecutors brought. And at the end of the day, there were a few convictions, some acquittals, and you just have to have respect for that process and for the work that the judge did in that case.

Q: It's been more than five years now since Mr. Spitzer's bid-rigging suit against Marsh. What do you see as the legacy of his investigations into the insurance brokerage industry?

Well, I think it's part of a larger legacy overall that really addressed issues with conflicts of interest. I think you see it both in the insurance investigations and in a number of the other Spitzer investigations—the troubling behaviors that result from unmanaged conflicts of interest. And I think it's caused this industry to take a look at that. I think you see some of the focus in the insurance agent and broker world really embracing transparency and using it to sort of tout a value proposition where they don't take certain types of payments. And I think this debate about different types of compensation and transparency will probably continue, but it's obviously better for this debate to be happening in a public forum in the regulatory process. Those investigations really brought all of this to light.