St. Paul to stop paying contingent commissions

HARTFORD, Conn.—St. Paul Travelers Cos. Inc. has agreed to halt all contingent commission payments by the beginning of next year, following Chubb Corp.'s similar move last month, Connecticut regulators announced.

In a Dec. 29 letter to Connecticut Attorney General Richard Blumenthal's office, St. Paul, Minn.-based St. Paul Travelers said it will encourage all of its agents this year to opt for fixed commissions with no contingent component. The insurer expects agents in all insurance lines to be working on a fixed commission basis by next Jan. 1, the letter said.

The St. Paul Travelers letter came in response to notices the insurer received from Connecticut and other states that it would not be permitted to pay contingent commissions this year in six lines of coverage under the terms of its $77 million settlement with Connecticut, New York and Illinois last August. Under the settlement, the insurer was barred from paying contingents on any line, product or segment of business if insurers representing 65% of gross premiums written in that line do not pay such commissions or have similar settlement agreements.

Regulators notified St. Paul Travelers and three other insurers in November that the 65% "tipping point" had been reached in six lines, including boiler and machinery, financial guarantee and several personal lines coverages.

In its response to Connecticut, St. Paul Travelers agreed not to pay contingents in the six lines but then went further, reporting its plans to abandon contingent commissions altogether.

The decision represents an apparent change for the insurer, which had earlier planned to continue to pay contingents on commercial lines where allowed. For personal lines, St. Paul Travelers notified its agents last month that it would pay a new supplemental fixed commission in lieu of contingent commissions, in part to reflect agents' business performance.

A St. Paul Travelers spokeswoman declined to comment on the Connecticut announcement.

"St. Paul Travelers is doing the right thing, voluntarily agreeing to stop paying contingent commissions," Connecticut's Mr. Blumenthal said in a statement. "This decision upholds our longstanding position that insurance carriers do not need to pay contingent compensation to profitably compete in the insurance industry."

The insurer's move follows Chubb's decision last month to halt contingent payments. Chubb is instead launching a "supplemental compensation program" that pays fixed amounts based on agents' prior years' performance and is not considered contingent compensation.