A major insurance broker said it will not accept supplementalcompensation plans offered by some carriers because thearrangements do not avoid conflict of interest.

In a statement today, Willis Group Holdings in New York said thecurrent plans do not avoid the conflict of interest situations thatwere associated with contingent commissions when they were droppedby the major brokerage firms a few years ago.

Willis said the plans involve performance-driven elementsdealing with retention, growth and profitability that were thebasis for conflict of interest accusations originally.

“As currently designed, the proposals do not afford aconflict-free environment for the client, and we are not going totake them,” said Joe Plumeri, chairman and chief executive officer,in a statement. He added that the decision was based on principaland not the plan's legality.

The firm did not name the companies involved and a spokesman wasunavailable for comment.

The issue goes back to 2004 when then-New York Attorney GeneralEliot Spitzer began investigating Marsh & McLennan's insurancebrokerage unit Marsh over allegations of taking kickbacks,falsification of insurance bids and steering insurance bids tocarriers in return for lucrative contingent commissions.

The investigation resulted in the world's four major brokeragefirms–Marsh, Aon, Willis and Arthur J. Gallagher–droppingcontingent commissions after questions over steering of contractsarose from attorneys general and insurance departmentinvestigations. Willis was the first to voluntarily end contingentcommissions.

The impact of Willis' announcement, said Bear Stearns' DavidSmall in an analyst's note, is that it would be more difficult forothers to accept the payments. He noted that Willis would use thefact it does not accept supplemental commissions as marketingleverage in requests for proposals with clients.

He also noted that insurance broker Hilb, Rogal & Hobbswould benefit from the arrangements because much of its business isagent related. The broker in 2005 entered into an agreement inConnecticut where it would no longer take volume-based commissionsbut would take commissions based on the book's profitability.

James B. Auden, senior director, insurance with Fitch Ratings inChicago, told National Underwriter that Willis' decision could havesome influence on other brokers and it will be interesting to seeif they follow suit.

Mr. Auden said the move may also force insurers to go back tothe drawing board and develop compensation plans that avoid theperception of conflict of interest, or the carriers may need todevelop separate plans to deal with the broker's concern.

He said the first indication of where this discussion may beheaded could be the analyst's conference call next Monday with MMCexecutives.

Last year insurers Chubb and Travelers said they were going tofix their compensation programs by ending all contingentcompensation. They, along with Zurich, ACE and AmericanInternational Group, entered into deals with attorneys general andagreed to pay hefty restitution and penalty amounts to dispose ofaccusations of involvement in the contingency fee scandal and otherquestionable insurance transactions.

Under the agreements, the carriers were to stop payingcontingents on certain business where 65 percent of the market doesnot pay contingents. Mr. Spitzer's office ordered the carriers tostop paying contingents on several insurance products, includingauto and homeowners, as of Jan. 1.