The biggest insurance brokers are in negotiations with regulators to reinstate a type of commission once banned for them due to perceptions of a conflict of interest.

Regulators are conducting complicated multi-party negotiations to revise, or even lift, the 2005 ban on so-called contingent commissions for the three largest brokers. Contingent commissions are paid by insurers to brokers and are based factors such has how much business a broker brings to an insurer and how profitable it is.

Regulators say a resolution will likely be reached that will put the biggest brokers on par with smaller brokers, who are allowed to take the money.

"We are sensitive to the need for a level playing field, so companies are treated equally," Connecticut Attorney General Richard Blumenthal told Dow Jones Newswires in an interview on Thursday.

Blumenthal was one of the lawmakers involved in the investigation that led to the ban on the commissions for Aon Corp. (AOC), Marsh & McLennan Cos. (MMC), and Willis Group Holdings Ltd. (WSH). Regulators and insurance buyers said the commissions created a conflict of interest for brokers, while brokers have called for a set of rules that are consistent for all brokers. Fourth-largest broker Arthur J. Gallagher (AJG) was once part of the group, but its prohibition will be lifted in October, by Illinois Attorney General Lisa Madigan. That change could increase pressure on other regulators to do the same for the big three.

Blumenthal said discussions are taking place between himself, the attorneys general of New York and Illinois, regulators and the brokers, over "various options under consideration that level the playing field." The group is "approaching the end point to these discussions when we will make a decision with these companies," he said. "We are mindful of the need to protect consumer interests." Blumenthal predicted a resolution before the end of the year.

Representatives for Aon, Marsh & McLennan, Willis, and Arthur J. Gallagher declined to comment on any discussions.

Arthur Gallagher estimated that a renewal of contingent commissions will add $10 million to its annual revenues by 2011. Barclays Capital analyst Jay Gelb estimated in a Tuesday note that lifting the ban on the commissions could result in an additional $254 million in annual revenues for Marsh, $51 million for Aon, and $40 million for Willis. Willis Chief Executive Joseph Plumeri has said he is against accepting the commissions again.

Proposed producer compensation regulations under consideration by the New York state Insurance Department are likely a step towards relaxing the ban, industry groups say.

The proposed regulation requires insurance brokers to let their customers know whether they represent the purchaser or the insurer in the sale, and whether they receive the commissions, and that buyers can request more information.

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