NEW YORK (Bloomberg) - Eliot Spitzer, the former New York attorney general whose 2005 curbs on insurance-broker compensation were reversed by regulators this week, said the fees that he banned "created inherent conflicts".

Brokers Marsh & McLennan Cos., Aon Corp. and Willis Group Holdings plc. won approval to again accept so-called contingent commissions from insurers, removing the Spitzer-era ban on the fees for placing policies, New York's Insurance Department said on February 16. The middlemen are already paid by insurance buyers.

"The contingent commissions created inherent conflicts and tensions that led to improper practices that we were trying to eliminate," Spitzer said on Thursday in a phone interview. "It was part of a larger reform effort to protect consumers and ensure the integrity of the marketplace." Spitzer, 50, declined to comment on the removal of restrictions.

Spitzer negotiated the ban five years ago to settle investigations into allegations of fraud and anticompetitive practices at the world's three biggest brokers. As part of the settlements, New York-based Marsh & McLennan agreed to pay $850 million, Aon of Chicago pledged $190 million and Willis, $50 million. Removing the curbs may be a step back for consumers, said Joseph Belth of Indiana University.

The repeals "are a whittling away of reforms instituted by Spitzer", said Belth, a professor emeritus of insurance at the university. "They illustrate how hard it is to accomplish significant and lasting reform in the insurance market for the benefit of insurance consumers."

Fewer restrictions may help boost earnings at the top three brokers over time, said Meyer Shields, an analyst at Stifel Nicolaus & Co. Marsh & McLennan, the second-biggest broker, and No.3 Willis rose the most in about two weeks on the New York Stock Exchange yesterday, while No.1 Aon advanced one percent.

"For the big three brokers, there's definitely upside," Shields said in an interview.

Contingent commissions, which insurers pay to entice brokers, vary in amount based on the quantity of coverage sold by the middleman and how profitable the policies turn out to be for carriers. In 2004, Spitzer called some contingent commissions "classic cartel behaviour".

Spitzer left his post without extending the fee ban to all smaller agents. He went on to become governor of New York, a position he resigned in 2008 amid a prostitution scandal. In the last two years, Aon, Marsh & McLennan and Willis called for common rules to be applied to all middlemen.

Marsh & McLennan and Aon appealed to officials for redress in 2008 as regulators opened a review. No.4 broker Arthur J Gallagher & Co., which won release in July from a ban of its own, has said it expects to make an extra $10 million annually by again accepting contingent payments. Marsh & McLennan said in 2004 that the payments totaled about $845 million a year, or 12 percent of brokerage revenue.

Contingent commissions "will likely be harder to recover than anticipated", Jay Gelb, an analyst with Barclays Plc in New York, said in a research note. "Risk managers are resisting paying insurance brokers higher fees, which in our view, could make it more difficult for insurance brokers to collect contingent commissions."

A group of insurance buyers yesterday criticised regulators for repealing the restrictions and permitting the payments.

Contingent commissions "can be, and were, manipulated at the expense of the insurance consumer", the Risk and Insurance Management Society said in a statement. "RIMS has strong reservations about a policy that permits contingent commissions again, and this development illustrates why RIMS so vigorously fought for a stronger rule."

Marsh & McLennan gained nine cents to $22.87 in New York Stock Exchange composite trading on Friday. The stock is less than half its 2004 peak before Spitzer sued the company. Aon fell one cent to $40.27, and Willis declined seven cents to $28.18.

"The parts of Eliot Spitzer's crusade that really didn't make a whole lot of sense are done," said Shields of Stifel Nicolaus. "Saying that a limited number of companies cannot collect revenue that are fully legal just because he's mad at them, when the people that misbehaved are gone, that seems like more of a stretch."

Willis CEO Joseph Plumeri said his company will not return to accepting contingent commissions. David Prosperi, a spokesman for Aon, said the broker had "no current plans" to resume the practice. Christine Walton of Marsh & McLennan declined to comment on contingents, saying the company is committed "to serving our clients' best interests".