Sun Life Financial to review its sales commission practices

By KAREN HOWLETT AND PAUL WALDIE

Sun Life Financial Inc., Canada's second-largest insurer, has joined a growing number of companies reviewing their sales commission practices amid a deepening scandal in the United States.

Sun Life is looking at how it compensates brokers in Canada and the United States, including so-called contingent commissions paid on top of normal fees, spokesman Nick Thomas said yesterday.

"[The company] is looking at the whole thing as opposed to singling out specific elements of it, just to make sure what the practices are," he said.

Mr. Thomas said he does not know whether executives at Sun Life's U.S. operations will be queried by regulators there, adding the company has not received a subpoena requesting information.

Sun Life is the second major Canadian life insurance to review its
commission practices. Manulife Financial Corp., the country's largest insurer, has said it is launching a review because it expects the regulators to ask about practices at its U.S. subsidiary.

Insurance regulators in the United States began investigating contingent commission payment schemes more than nine months ago. But it was a civil suit filed against Marsh & McLennan Cos. Inc., the world's largest insurance broker, by New York Attorney-General Eliot Spitzer earlier this month that
has left the industry scrambling.

The suit alleges that Marsh conspired with insurance companies to inflate bids at the expense of clients. Yesterday, the embattled firm's chairman and chief executive officer, Jeffrey Greenberg, stepped down from the helm.

In Canada, insurance regulators are also reviewing contingent commission arrangements between insurance companies and brokers. Property and casualty insurance companies in Canada paid out contingent commissions totalling $290-million last year, according to figures obtained by Report on Business.
These payments were in addition to base commissions of typically 12.5 per cent on auto insurance and 20 per cent on home insurance.

The practice has been commonplace in the industry for decades but hidden from consumers because contingent payments are not publicly disclosed.

The Insurance Brokers Association of Canada, a trade group that represents 27,000 brokers across the country, yesterday expressed its concerns about the mounting controversy over these payments.

"Brokers have nothing to hide; member brokers freely declare that they are compensated on a commission basis with the potential for contingent commission," Dan Danyluk, the association's chief executive officer, said in a statement. "The compensation of insurance brokers -- be it sales commissions or contingency commissions -- does not influence the decision-making processes or recommendations of reputable insurance
brokers," he added.

Contingent commissions paid by insurers are most often based on the profitability of the business a broker does with a company. For the life insurers, they typically pay contingent commissions to brokers who sell their group health and life insurance to corporations.

Manulife's shares closed down 58 cents at $53.40 on the Toronto Stock Exchange yesterday. The shares have fallen 4.3 per cent in the past five trading days.

Sun Life and its subsidiaries offer a wide range of financial products and services in the United States, including individual and group life insurance and annuity products, group disability income and medical stop-loss insurance, mutual funds and investment management services.

ING Insurance Co. of Canada, the country's biggest property and casualty insurer, is also reviewing its practices related to contingent commissions.

Winnipeg-based Great-West Lifeco Inc., meanwhile, said it believes its business practices are appropriate. "We are following developments in the insurance industry in the United States," spokeswoman Marlene Klassen said.
"We've no reason to believe we are the target of, or will become the target of, any investigation."

Along with regulatory probes, dozens of insurance companies and brokers have been hit with class-action lawsuits. One suit filed in New York names more than 30 brokers including Chicago-based Hub International, which is 26 per cent owned by Canada's Fairfax Financial Holdings Ltd.

That suit alleges the brokers engaged "in a massive scheme to manipulate the market for commercial insurance." Hub said it is reviewing the complaint and "intends to vigorously defend against the suit."