NU Online News Service, March 26, 12:39 p.m. EDT

A risk management trade group has reacted with pleasure to a declaration by Marsh insurance brokerage that it will not accept controversial contingent commissions in its U.S. core insurance broking segment.

The New York-based Risk and Insurance Management Society is pleased with the Marsh decision, a RIMS executive said.

Marsh said it would refuse contingent commissions on any placements for any U.S. core broking operation clients, and will continue to provide detailed disclosure information on transactions. This includes all quotes received and compensation information.

Marsh & McLennan Agency LLC and Marsh Consumer's affinity sponsored program and personal lines businesses, however, will accept contingent commissions.

For these segments, the firm said it will provide plain language disclosure that meets or exceeds the New York Insurance Department's disclosure Regulation No. 194, as well as all other applicable legal and regulatory requirements.

The New York Department's rule, effective next year, followed a 2005 investigation revealing that large brokers had been taking hidden fees to steer commercial clients to a group of insurers involved in a bid-rigging scheme.

Marsh was among the brokers involved, and as part of 2005 settlement agreements, said they would not accept contingent commissions.

Last month, it was announced that Marsh–as well as Aon Corp. and Willis Group Holdings plc–had reached an agreement with New York, Illinois and Connecticut officials that would permit them to resume taking the commissions, providing they would abide by New York's new disclosure regulations. Willis, which abolished contingent commissions in 2004, said it would not resume taking them.

Terry Fleming, president of RIMS and director, division of risk management for Montgomery County, Md., said in a statement, "RIMS is pleased that Marsh has joined other large brokers in agreeing not to accept contingent commissions. We call on all brokers to make the same commitment to their customers."

He added, "Further, we call on the insurance industry to develop alternative forms of compensation that do not place the broker in the position of a conflict of interest in the insurance purchase transaction."

RIMS has always maintained the position that contingent commissions should be universally banned and said it views Marsh's intentions as a positive step forward with regard to its U.S. clients served by its core broking operations.

The organization said it is pleased by Marsh's decision to refrain from accepting contingent commissions for services rendered by its core broking operations, as well as its pledge to practice transparency regarding its brokerage compensation.

RIMS maintains that contingent commissions impose an inherent conflict of interests upon the insurance buying transaction, regardless of the nature of the client or the intermediary. Contingent commissions also impact pricing, as fees are passed along to the consumer. RIMS noted that it urges Marsh to adopt a global ban on such commissions.

RIMS also said it recognizes that many of its members regard enhanced commissions and contingent commissions as one in the same. To that end, RIMS said it acknowledges Marsh's efforts to collect enhanced commissions on a flat fee, rather than a volume basis, and encourages Marsh, its carrier partners and its clients to continue having open and frank discourse over the nature of such compensation, how it is collected and disclosed.

RIMS maintained it will continue to work closely with all parties on the issues of producer compensation and disclosure.

The New York disclosure rule, which Marsh agreed to adhere to, requires agents and brokers to describe their role in insurance transactions and how they are paid. More detailed information will have to be provided at the client's request. The Independent Insurance Agents and Brokers of New York has said it will sue to block the new regulation, arguing that it is too burdensome.

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RIMS Lauds Marsh's Stand On Contingent Commissions

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