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Supplemental commissions, the industry's solution to replace contingent commissions, seem to be catching on.
In a sign that more insurers may seek to implement new incentive models based on past performance, the Hartford Financial Services Group Inc. last week announced that it will implement a supplemental compensation program for agents and brokers in 2008.
Hartford joins Warren, N.J.-based Chubb Corp. and St. Paul, Minn.-based Travelers, which introduced supplemental compensation plans earlier this year.
Hartford--which said agent and broker feedback spurred its decision to offer the new type of compensation--will pay a fixed commission, set prior to the sale of a particular insurance policy, that is based on the agent or broker's past performance and other factors.
Among insurance lines for which property/casualty agents and brokers will be eligible under Hartford's supplemental compensation are: homeowners, personal automobile, boiler and machinery, financial guarantee, middle market and marine, a company spokesman said.
Though they are a legal form of compensation, the market is divided on the issue.
"We're glad that insurers and brokers are looking at new ways to get at this issue that are fair to the companies, that are fair to the producers and, most of all, that are fair to the consumers," said a spokesman for the Property Casualty Insurers Assn. of America.
"Certainly, what a few companies and some very, very large brokers were doing with the price-fixing issues that were uncovered by insurance regulators...was wrong," the spokesman said. "Those companies have been punished, and if new types of agreements like the one Hartford is adopting help make commercial consumers feel that they have the disclosure and the information they need to make them feel better about the transition, that is wonderful."
The major brokerages seem to be split on the issue; only one so far, Willis Group Holdings Inc., has vowed not to accept supplemental compensation altogether while others are still deciding whether to accept supplementals.
The Risk and Insurance Management Society Inc., meanwhile, took a strict position in May, calling for prohibition of contingent commissions--and supplementals--within the brokerage industry.
"I'm disappointed that they continue to go down this road," said Terry Fleming, RIMS' director of external affairs who is also director of the division of risk management for Montgomery County, Md. "If I'm paying them to serve my business, then they should be working strictly for me, and not both sides. If they are receiving payment for placement of my business, then that's a conflict of interest."