Producer Compensation Practices for U.S. Insurance Transactions
All of the member insurers of the Chubb Group of Insurance Companies doing business in the United States* (hereafter "Chubb")
distribute their insurance products through licensed brokers and agents ("producers"). The following is a brief overview
of the types of compensation paid by Chubb to these producers. Additional information may be available from the producer.
This overview focuses on U.S. insurance transactions. Thus it does not provide information about the Chubb Group's producer
compensation practices for insurance transactions in other parts of the world where the Chubb Group does business. The purpose
of this overview is to provide information about the costs associated with Chubb's distribution of its insurance products.
How We Pay Producers
Standard Commissions:
Chubb usually pays its producers a commission for each insurance policy they sell. This "standard" commission is a percentage
of the premium charged to the insured for the policy. The amount of the standard commission depends on the type of insurance
product sold. Chubb offers a wide variety of products, and therefore pays a wide range of standard commissions, which can
vary from transaction to transaction based on the size or complexity of the transaction. For the majority of our products,
we pay producers a standard commission in the range of 5% to 20%, although for some products, we pay higher or lower commissions.
In 2005 the overall average standard commission paid by Chubb U.S. insurers for all lines of business was approximately 11.9
% of direct premiums written for the year.
In some insurance transactions, an insurance producer may charge the customer a fee in lieu of receiving a standard commission
from the insurance company. In other transactions, such as one involving a wholesaler, more than one producer may be involved
in placing the insurance with Chubb, particularly if the requested insurance is a highly-specialized or difficult-to-place
coverage. If more than one producer is involved, both producers may receive a standard commission or, more often, the standard
commission is split between the producers.
Contingent Commissions:
As is generally standard in the industry among carriers that use independent producers, in addition to standard commissions,
producers also may be eligible to receive a "contingent" commission from Chubb. As the name suggests, eligibility for, and
the amount of, contingent commissions depend on the producer meeting pre-established goals for profitability, retention and/or
growth standards across all of the policies it places with Chubb during a particular year. If, in a given year, a producer
does not meet its growth, retention, and/or profitability requirements, that producer is not eligible for a contingent commission
and thus receives no contingent commission payment from Chubb.
In 2005 Chubb U.S. insurers paid contingent commissions in an amount equaling approximately 1.7% of direct written premiums
for the year.
Additional Compensation:
Chubb may enter into relationships with a licensed producer whereby the producer provides additional services on behalf of
Chubb. In these instances, the producer may perform some underwriting or administrative services, such as policy issuance,
for which additional compensation beyond standard or contingent commission is appropriate. Such arrangements represent a very
small portion of Chubb's overall business.
Chubb may give its producers complimentary items of nominal value. These items are generally not based on profitability or
growth but rather are typically in the form of marketing items to promote new products and programs. Chubb may also give
its producers the opportunity to participate in sales contests, promotions or other sales based incentive programs. Awards
offered under these programs are nominal in value and generally based upon growth or retention of business. Additionally,
Chubb may pay for professional continuing education for producers. Chubb also may pay for business meals with and other entertainment
expenses for producers that are customary in most business relationships.
It is also common in the industry for producers who collect premium from insureds on behalf of insurers to deposit such premiums
in interest bearing trust accounts and retain any interest earned before remitting such funds to the insurer. Chubb permits
this practice, provided that producers comply with any applicable disclosure or other regulatory requirements.
Also, a small number of producers have outstanding loans from Chubb. The loan agreements include volume- and/or profit-based
incentive provisions which may reduce the amount of principal and/or interest payable under the loan.
Producer Ownership Interests:
Chubb U.S. insurers are subsidiaries of The Chubb Corporation. The Chubb Corporation and/or its subsidiaries also own and
operate a small number of insurance agencies. For a complete list of these agencies, please see a list of insurance agencies
affiliated with Chubb U.S. insurers under Chubb Subsidiaries in the About Chubb section of this site. These companies are affiliates of Chubb U.S. insurers and each may serve as a producer for Chubb U.S.
insurers as well as for other insurance companies not affiliated with Chubb. As producers, these companies are eligible for
the same compensation arrangements as producers not owned by Chubb.
Some producers also previously owned an equity interest in Mountain View Indemnity Ltd. ("MVI"), a Bermuda reinsurance company
which previously reinsured a portion of certain risks written by the Chubb U.S. insurers. MVI was established in late 1998
as a cooperative venture among Chubb Global Financial Services Corporation ("Chubb Global"), a wholly owned subsidiary of
The Chubb Corporation, and certain U.S. producers selling insurance policies for the Chubb U.S. insurers. MVI is a risk-bearing
entity, through which producer shareholders of MVI shared in the profits and losses associated with certain policies reinsured.
As of June 23, 2005, the Chubb U.S. insurers stopped ceding any risks to MVI, all liabilities under the reinsurance agreements
were commuted and all of the reinsurance agreements were terminated. Notwithstanding the foregoing, Chubb remains obligated
as the primary insurer to pay 100% of all valid customer claims.
Other Important Information:
This overview provides information about how Chubb U.S. insurers currently compensate their producers. Because this is an
overview, there are exceptions not addressed within the scope of this discussion. If you would like additional information
about a commission paid on your policy, please contact your producer. Also, please check this web site periodically for updated
information on this subject.
* See a complete list of Chubb insurers, including Chubb U.S. insurers, under Chubb Subsidiaries in the About Chubb section of this site.
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