Like the proverbial skunk at a garden party, I spoiled a perfectly civil panel discussion among three mega-brokers on "leveraging innovation as a market differentiator" by asking what innovations were ahead to replace the billions their firms surrendered in contingency fees to settle bid-rigging allegations. Their responses showed there are still hard feelings on the subject.

"The playing field is ridiculously unlevel," grumbled Don Bailey, CEO of Willis North America, during the 19th Annual P-C Executive Conference, sponsored by the National Underwriter Company and top rating, consulting, private equity and law firms.

"Four people gave up contingency fees, while thousands of brokers did not," he added, noting that some insurers and brokers are scrambling to come up with new forms of compensation that will pass muster with regulators and buyers.

"New supplemental commissions may just be contingency fees in drag," he warned.

While conceding that "transparency is a given--clients should know what brokers make on their accounts," he said "it is impossible to have an intelligent conversation about this" while a handful of major brokers are prohibited from taking contingency fees but the vast majority can do so and keep that fact from buyers.

"It's obviously a high point of frustration for us," he added.

"On the retail side, it's a bit absurd and even surreal," said Ted Devine, CEO of Aon Re Global. "Contingencies have not gone away, except for three or four firms."

He predicted there will be "a lot of innovative thought on remuneration"--with future brokerage fees perhaps following the "transaction-based capital markets model."

"When we're in a bake-off with a broker who does not have to disclose their compensation plans, it is fundamentally unfair," complained Norman Brown, managing director and head of product development at Marsh. "We need to level the playing field."

New York is moving to do just that, with a draft regulation due soon that would require all retail brokers to reveal all compensation schemes to buyers.

Meanwhile, Marsh recently announced that it is discussing with carriers the payment of enhanced commissions on midsize and small commercial accounts in the United States.

As reported by our own Mark Ruquet, Michael Cherkasky, president and CEO of Marsh & McLennan Companies, said the enhanced commissions will be fully disclosed to clients and will not be accepted without their approval, adding that a couple of insurers have already agreed to the new commission schedule.

Corporate buyers represented by the Risk and Insurance Management Society reacted cautiously to the scheme, being polite at least until more details are known.

"Transparency and client disclosure are the cornerstones of RIMS' position on broker compensation," the group said. "Marsh's announcement...describes a program that is in accord with RIMS' position."

However, RIMS cited the need for "further clarification on disclosure and assurance that full disclosure on all commissions takes place in advance of the transaction, ensuring adequate time for the buyer to determine if the proposal is acceptable."

Still, I can't help but wonder if Marsh's new compensation scheme is merely "a pig with lipstick," as one insurer suggested to me after the Marsh news broke.

I was not alone. While the panelists whined about their competitive disadvantage, I detected little sympathy among insurance company attendees--one caught my eye and pantomimed someone playing a violin to mock the broker laments.

As for me, I would quote the street savvy TV detective Tony Baretta, who said, "Don't do the crime if you can't do the time."

Sam Friedman is NU's Editor In Chief. To respond to his column, e-mail him at sfriedman@nuco.com, or go to his blog at www.property-casualty.com.

Special Reports /

A Contingency Fee By Any Other Name

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