Chubb's supplemental commissions based on performance for the previous year

WARREN, N.J.—Chubb Corp.'s supplemental compensation plan for agents and brokers would split commissions into two categories: standard commissions paid upfront and a later lump-sum supplemental check for all of a broker's business with the insurer, sources familiar with the program say.

Chubb announced the plan last December in conjunction with its $17 million settlement of state probes into its compensation practices. It also agreed to halt contingent commission payments.

The insurer has not offered details of how the commissions are calculated, and a Chubb spokesman declined to comment on the plan's structure.

Sources who have reviewed the program, though, say that a fixed supplemental commission is calculated by taking into account the broker's prior-year performance in such areas as premium volume growth, retention rate and business profitability.

Chubb would then tell a broker, for example, that, based on its 2007 performance, its commission on property business for 2008 would be 15%, consisting of a 12% upfront commission payable as business is produced and a 3% supplemental commission payable at or after year-end on all business produced that year.

Chubb would cut a separate, lump-sum check to the broker for the supplemental commission, and the broker would have to allocate shares of the total to individual clients to provide those clients with compensation reports, sources explain.

The Chubb plan is aimed largely at regional and local agents that split their commissions with subproducers, one source said. Those agents would continue sharing their standard commission, but would retain control over the supplemental commission and could share it or keep it as they see fit, the source said.

Willis Group Holdings Ltd. announced last week that it would not accept supplemental commissions, finding that they present the same conflicts of interest as the contingent commissions they are designed to replace.

A Chubb spokesman said the supplemental plan has been "overwhelmingly accepted by our independent agents and brokers," but that "we respect Willis' right to request its compensation be structured in a way that is consistent with its own internal operating guidelines."