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Aon Can Resume Controversial Fee Payments in Illinois, Other States

Aon Corp. has received clearance from three state attorneys general, including Illinois’ Lisa Madigan, to resume accepting controversial payments from insurers that Aon and other big commercial insurance brokers agreed to halt five years ago.

February 18, 2010

Aon Corp. has received clearance from three state attorneys general, including Illinois’ Lisa Madigan, to resume accepting controversial payments from insurers that Aon and other big commercial insurance brokers agreed to halt five years ago following investigations by then-New York Attorney General Eliot Spitzer.

But a spokesman for the Chicago-based broker said it has no “current plans” to again accept so-called contingent commissions—extra payments from insurers to brokers like Aon based on the volume or profitability of the client premiums those brokers place with the underwriters.

Late Tuesday, February 16, Aon announced the changes to its settlement with Madigan’s office, as well as the attorneys general of New York and Connecticut. The Aon spokesman noted that the settlements don’t apply to Florida, which negotiated a separate deal with Aon, or 29 other states affected by a separate settlement Aon negotiated with the National Association of Insurance Commissioners.

A spokeswoman for Madigan said in an e-mail that the original settlement with Aon and other big brokers ended the insurance industry's most egregious practices, such as bid-rigging and routine steering of client accounts to insurers that paid the highest commissions.

“Because other [smaller] brokers continue taking contingent commissions, [continuing] the ban may require Aon to operate at a competitive disadvantage, particularly in this difficult economy,” she added.

Discussions are under way with Florida’s attorney general, as well as the NAIC, that would lift their bans on accepting contingent commissions.

The payments drew controversy in 2004 when Spitzer uncovered evidence that some brokers were steering client accounts to insurers that paid particularly high contingent commissions, in addition to the normal front-end commissions.

Aon ended up negotiating a $190 million settlement with New York, Illinois and Connecticut, creating a fund to reimburse clients.

The country’s largest commercial insurance brokers, including Itasca, Illinois-based Arthur J. Gallagher & Co. and New York-based Marsh & McLennan Cos., long have railed against what they call an unfair dual system of banning back-end payments from insurers to big brokers while continuing to allow smaller competitors like Chicago’s Mesirow Financial Holdings Inc. to accept them.

The new settlements with Illinois, New York and Connecticut will require the brokers to disclose to their clients any back-end payment arrangements with insurers. 

Filed by Steve Daniels of Crain’s Chicago Business, a sister publication of Workforce Management. To comment, e-mail editors@workforce.com.

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