The New York Insurance Department has taken a major step toward lifting a ban on some insurer-paid commissions for the three biggest insurance brokers, which could boost their earnings.

The insurance department's proposed Producer Compensation Transparency regulation imposes transparency rules that require insurance brokers to tell their customers whether they accept payments from insurers and if the payments are based on profitability or business volume, so-called contingent commissions.

Several state attorneys general and other regulators have signed agreements with the largest brokers--Aon Corp. (AON), Marsh & McLennan Cos. (MMC) and Willis Group Holdings Ltd. (WSH)--that bans them from taking contingent commissions, but the officials are widely expected to reconsider lifting those bans once the new compensation regulation goes into affect.

As a last step toward adopting the proposed regulation, which spells out disclosure rules for brokers, the N.Y. insurance regulator published the proposed language Dec. 2, which means it will likely go into effect 45 days later, in January.

Matthew Gaul, special counsel at the insurance department, said the office has gone through an extensive comment and revision process for nearly 18 months, and that the required 45-day period for public comment is likely the last step before the regulation is adopted, perhaps with some minor changes.

"We plan to move quickly once we have the authority," he said Wednesday. He said some broker groups are opposed to the regulation on the grounds that it will be difficult to implement, but other broker groups have come to accept it, though are requesting some minor changes.

Connecticut Attorney General Richard Blumenthal said in a September interview he was in discussions with the brokers to bring back a "level playing field," on compensation rules.

Blumenthal did not immediately return a phone call asking about the current state of discussions. A spokesman for the New York Attorney General's office did not immediately return a phone call asking for comment.

Terry Fleming, a board member of the Risk and Insurance Management Society, which has criticized the commissions, said recently he expects attorneys general in key states to consider allowing the commissions for the biggest brokers once the regulation is adopted.

Keith F. Walsh, an analyst with Citigroup, called the likely change a "reversing of Spitzer's regulatory regime," referring to former New York Attorney General Eliot Spitzer, whose investigation into insurer-paid commissions led to the ban.

Walsh estimated in a note Wednesday that a return of the commissions could boost earnings per share by as much as 10% for Aon, Marsh and Willis.

Willis Group Chief Executive Joseph Plumeri has said the broker will not accept contingent commissions. Plumeri has said the commissions set up a conflict of interest for brokers, who serve as advocates for policyholders, but stand to receive an insurer-paid commission if the policy is more profitable.

Shares of Aon recently fell 2 cents to $37.86, Marsh was off 1 cent to $21.53 and Willis were down 8 cents to $26.72.

-By Lavonne Kuykendall, Dow Jones Newswires; 312-750-4141; lavonne.kuykendall@dowjones.com
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