Agents groups have issued strong criticism of comments by a risk manager's group that called for the elimination of agent contingent commissions due to what it termed an inherent conflict of interest in the fees.

The Risk and Insurance Management Society Inc. issued a statement Wednesday that was roundly critical of brokers who might be considering taking contingent commissions after promising they would not. It was also critical of the carriers' promotion of compensation models that would promote contingent payments.

In an interview with National Underwriter, Terry Fleming, a RIMS director and director of the division of risk management for Montgomery County, Md., said that the plans carriers are putting forward can be manipulated. Because of that, insurers should come up with a different model.

In March, both Travelers and Chubb said they would no longer pay contingent commissions. Instead, they said they would develop supplemental commission plans or upfront commission arrangements.

On Friday, Independent Insurance Agents of Texas President Robert Hempkins issued a statement saying, “To condemn an industry-wide compensation system solely because of abuse by a few large brokers is to grasp at an easy solution at the expense of the many honest independent agents who offer choice to their customers.”

He added that the RIMS stance “implies that agents who are contacted with carriers cannot act on behalf of their clients. That is untrue and unfair.”

David Nielson, executive director of Sacramento, Calif.-based The Alliance of Insurance Agents & Brokers, said, “A clear line must be drawn between legitimate contingency bonuses versus bonuses paid to firms as an incentive for steering business from one insurer to another.”

Such transactions have been the subject of investigations by various state and federal authorities that led to revelations of hidden fees being paid to brokers who schemed with carriers to rig bids for insurance contracts.

Mr. Nielson said, “The Alliance agrees that those involved in the underhanded deals must be punished. However, regulators, politicians and industry officials must understand this distinction and avoid knee-jerk reactions that punish honest, reliable agents and brokers.”

In a telephone interview yesterday, Robert A. Rusbuldt, chief executive officer of the Independent Insurance Agents and Brokers of America, said the association strongly disagrees with RIMS. In a free market society, it should be the individual risk manager who decides if he or she wants to deal with a broker who takes contingents.

“Those risk managers and chief financial officers will buy insurance based on price, coverage and service,” said Mr. Rusbuldt. “Incentive compensation will not be a determining factor.”

“Incentive compensation is not a conflict,” said Len Brevik, executive vice president and chief executive officer of the National Association of Professional Insurance Agents, in a statement. “The ability of businesses to compensate based upon sales performance is key to how the entire American system of free enterprise operates, not just the insurance industry.”

On the issue of transparency of fees, there was universal agreement with RIMS that brokers need to disclose their compensation.

Mr. Rusbuldt remarked that total disclosure “nullifies the conflict if the customer knows the arrangement exists. There is only a conflict if the broker does something not in the interest of the customer.”

However, Mr. Brevik was critical of RIMS for calling for full disclosure when its meetings on the topic were held behind closed doors.

The controversy over contingents arose in 2004, after former New York Attorney General Eliot Spitzer sued insurance broker Marsh over allegations that executives were steering contracts and falsifying bids in exchange for lucrative volume-based commissions. Investigations subsequently lead to the elimination of the taking of contingents by Marsh, Aon, Willis and Arthur J. Gallagher.

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