In the wake of the ongoing US multi-district litigation surrounding contingent commissions and allegations of bid-rigging and anti-trust practices allowed by insurance firms and brokers, legal experts have spoken of the way forward while visiting Bermuda.

At the International Reinsurance Summit, held at Fairmont Hamilton Princess Hotel, the key word was transparency. A strong view to emerge from a panel discussion on the subject was that, providing there is disclosure of commissions being paid and customers are aware, then contingent commissions or the new breed of "after the fact" supplemental commissions should not be a problem.

But at the moment an unlevel playing field exists as a number of the larger companies, including Marsh and Ace Limited, no longer support contingent commissions as part of the regulation changes made in the legal settlements that have extracted them from the litigation.

Richard Hershman, senior managing director, forensic litigation consulting at FTI Consulting, said: "Some of the larger insurers say they will no longer pay contingent commissions — there is a reason for that - it was part of their settlement agreements.

"Everyone is sitting back and looking at the economics and corporate plans. And now we have supplemental commissions. So of the four of the major lead insurers (who have settled) two have said they are reviewing supplemental commissions being part of their plan."

Giving his own personal view, rather than a corporate position, Melvin Schwartz, general counsel with Guy Carpenter & Company, said: "There are a lot of brokers and insurance companies who are paying and receiving contingent commissions. That unlevel playing field seems to be an entirely untenable position.

"There are parts of the market where the major brokers are competing for the business, but there is a larger middle area where the smaller and larger brokers both compete and we are finding a situation in the market where some brokers can go to their clients and say 'I'll do that for nothing' — of course they are not doing it for nothing, they are receiving contingent commissions — and as you imagine it's a little difficult for other major brokers to go in and say 'I'll do it for X-hundred thousands dollars', it does not play that well. That seems to me, by any stretch of the imagination, an unjustified situation."

Giving a regulator's point of view, former New York State Superintendent of Insurance Howard Mills, who is now chief advisor of insurance industry practice with Deloitte Services, agreed there was an unlevel playing field.

"The big three in these settlements are maintaining a very visible and public argument that we (regulators) did not go far enough, that we now have an unlevel playing field. Some of them have referred to it as unilateral disarmament. And that is all true, because there isn't a level playing field."

He said the regulation of insurance in the US is heavily politicised and US insurance agents and brokers are a potent political force.

"When the state legislator in any state has a fund-raiser the groups that are there in force are realtors and insurance people so you don't have to be an insurance expert to be a legislator to be influenced by this group. The big guys in this force have a lot of power," he explained.

"This desire to get a level playing field is a very uphill battle because it is a potent force — the mainstream, mid-size broker likes the situation just as it is."

When it comes down to whether or not contingent commissions, which are not illegal, are detrimental to the consumer, the general view was that they weren't — providing they are disclosed clearly to the consumer.

Mr. Schwarz said: "Disclosure is a good thing. Assuming there is disclosure it is difficult for me to see what is wrong with contingent commission.

"In my view it is an anti-competitive thing to prevent contingent commissions that are disclosed. There are start-up insurers who will get business in any way that works. It is more productive for them to offer the money to the broker — again disclosed — than to offer to the client who probably doesn't understand or care. I think it does a disservice to the market and clients to disbar them as long as they are disclosed."

He holds a similar view on supplemental commissions, commenting: "They are based on 'after-the-fact payment' - for example 'last year you did this for me so therefore I will pay you X for last year's performance'.

"My personal view I do not see the difference. I do not see a problem if there is disclosure, but if your concern is skewing incentives so the broker is not doing things on behalf of their client it is hard to see the difference."

While Mr. Hershman noted: "Most brokers are sitting on the sidelines to see what is going to happen and what is the appropriate step to take. I would want to see how the carriers are going to develop these programmes because you don't want to wind up in the same soup you were just in where regulators jump back in."