Bermuda insurance heads say they have seen little impact on the bottom line from ceasing to pay incentive commissions to brokers, while at the same time calling on investors to take an active role in the reform of how brokers are compensated.

The focus on broker compensation comes after an industry-wide investigation alleged some brokers were colluding with several insurers to rig bids as well as demanding kick back payments for business placement.

New York Attorney General Eliot Spitzer set his sights on the insurance industry last year in a wide-scale probe that resulted in a raft of subpoenas being issued, including to numerous Bermuda-based firms.

That included a unit of ACE Limited being named as participating in the ‘illegal' practices in a stinging lawsuit against global broking giant Marsh & McLennan. Since then two ACE employees have been fired, including one who pleaded guilty to a minor criminal charge related to the investigation.

In specific, Mr. Spitzer's suit alleged that ACE, commercial insurance giant AIG and other insurers had conspired with Marsh to unreasonably “restrain trade and commerce” through rigging the bidding process and making incentive payments to the broker for sending business its way.

In total, eight insurance workers have now pleaded guilty to charges laid by Mr. Spitzer. The former head of Marsh, Jeffrey Greenberg, a brother of ACE's Mr. Greenberg and son of AIG's Maurice ‘Hank' Greenberg was also sacked after the scandal.

Speaking with investment analysts in New York this week at an event hosted by Merrill Lynch, ACE's Mr. Greenberg said that while he was “distressed” by the behaviours revealed in the ACE unit, he was “gratified that little else has been found”.

An internal investigation launched by ACE is due to conclude by month's end.

Mr. Greenberg said clients had stuck by the company: “We are an ethical company. We conduct ourselves in a fit a proper manner...clients have recognised who we are; an honourable organisation bent on doing the right thing.”

Although Mr. Greenberg said he was pleased there had not been any “business fall-out as a result of the investigation” he called on investors to take an active role in reforming how brokers are paid. “I hope you as investors will become informed and weigh in with your views as well.”

He continued: “ I believe there is merit to the criticism of some of our traditional industry business practices, and reform is called for. Shareholders should be aware and should help to drive that debate that should take place. While I think it is unfair to criminalise accepted regulatory-approved practices, I do recognise that some of those practices have led to abuses and the appearance of conflicts.

“These practices, in my judgement, do need to be changed and that changes will likely come whether we in the industry like it or not. So let's have thoughtful and adequate change. Let's therefore lead that change.”

He told the investment community ACE's stance on reforms had been a proactive one.

“We at ACE have proposed to regulators an integrated set of simple reforms to realign the commercial insurance market, and to make sure it is acting properly and equally important, to make sure the rules of the road are well enough defined so that people can act securely in the knowledge of what those rules are.” He said this was not just a legal issue but that new policies should be crafted to avoid even the appearance of conflict of interest.

“Stated bluntly, brokers should be fairly compensated for the services they provide, and should be compensated by their clients. In general, they should not be compensated by insurers because they don't work for them. As a matter of regulation, brokers or agents should be required to disclose all quotations to their clients together with a discussion of their recommendations. As part of these reforms, we also need a clear definition of the difference in responsibilities between brokers and agents.”

For ACE - which discontinued paying any contingent or PSA commissions in the U.S. after these payments came under fire from the Marsh suit - there were some savings from not paying the incentive commissions to brokers in the fourth quarter. However, management said this was largely eaten up management by the continued costs of complying with Sarbanes-Oxley corporate governance regulations and legal expenses. Since Mr. Spitzer's suit - which Marsh, as the only defendant, since settled by setting up an $850 million fund to go to some US clients - Connecticut Attorney General Richard Blumenthal launched separate legal action again ACE and March. ACE said it sees the suit as without merit and will move to have it dismissed.

XL Capital CEO Brian O'Hara, also speaking at the investment conference, said his company had too seen most of its savings on cutting out contingent commissions from the end of the third quarter consumed by other costs.

“A fair amount was eaten up by Sarbanes and internal controls, and satisfying subpoenas.”

Although satisfying the subpoena received from the New York Attorney General following the Marsh suit, Mr. O'Hara quipped that he would like to know who to send the bill to.

He added that a “mind set among brokers to replace contingent commissions upfront” might not be realistic.

“Ultimately, I don't think the customer will allow full amount to be made up in upfront commissions. I could be wrong, we'll see.”

Joe Plumeri, head of third largest global broking company Willis, said at the same conference that his company (which has about six percent market share in the US), would look to make up what it could of an expected $80 million drop in revenue - after the company ceased accepting contingent commissions - through cost cutting and efficiency measures as well as trying to increase market share.

“You don't just say they aren't going to be there anymore. You can rest assured we are going to do everything we can to make it up. We are not just going to rely on market share to make it up. That would be silly. “ he said.

Despite “sending back” cheques received in the fourth quarter for contingent commissions, Mr. Plumeri said the company had been able to post a 14 percent increase in profits for the year.

He added that business was coming its way - with 21 new accounts added in one week recently - which might be the result of the company's transparency in telling global customers what was being paid for and why, as well as a better record than other brokers.

“I'll tell you that whatever Marsh did, bid rigging or whatever, we didn't do that.”