In 2004, the regulatory whip came down on some large, publicly traded insurance brokerage firms. The New York attorney general successfully brought anti-trust and fraud charges against individuals in one large firm, and he and other attorneys general around the U.S. won agreements with large brokerage firms that forbid them from accepting "contingent commissions."

Insurance broker compensation flows in part from commissions, most of which is based as a share of the premium revenue accruing to insurers. But the industry had developed a supplemental way to pay brokers, with special commissions contingent on the profitability and/or volume of business placed with an insurer.

On the face of it, you can see some ways a broker could abuse the client's interest with these things. One could simply place overpriced business with an insurer and reap the benefits, in theory. But markets can work to solve problems like that just as well, or better than, regulators. In turn, contingent commissions can also work to align the interest of the insured with the insurance company and the intermediary, if they work to reward the broker for delivering lower cost business to the insurer. Contingents can inspire a search for efficient risk management and loss control programs among brokers and commercial insurance buyers.   More