NU Online News Service, April 28, 2:14 p.m.EDT

BOSTON--Contingent commissions are either a seriousconflict of interest that clouds the insurance buying decision, orcan act as leverage in the carrier-client relationship, accordingto the conflicting views of two brokers.

Their debate was part of a session titled "Insurance PurchasersSpeak Up! Your Rights on Contingent Commissions," presented hereyesterday at the Risk and Insurance Management Society'sConference.

The session was moderated by Deborah Luthi, director ofenterprise risk management services for Sacramento, Calif.-basedMatheson Trucking Inc. and vice president of RIMS.

Defending contingent commissions was James S. Gault, presidentand chief executive officer, brokerage services division of ArthurJ. Gallagher, and opposing was Donald Bailey, chief executiveofficer of Willis North America.

Mr. Bailey began the discussion by saying that "it is odd thatwe have created the exact same environment where we were five yearsago," when the major brokers agreed to stop taking contingentcommissions.

Under agreements with attorneys general in several states in themidst of a kickback scandal in 2005, the four major brokers--Aon,Arthur J. Gallagher, Marsh and Willis--gave up taking contingentcommissions.

Earlier this year those agreements were reversed, allowing themto accept the arrangements. However, not all brokers are taking thecommissions, as some have refused them on portions of theirbusiness.

Willis has launched a public campaign against contingentcommissions on the grounds that they carry an inherentconflict.

Mr. Bailey suggested that part of the reason why the fees werenever banned throughout the industry is because of apathy on thepart of risk managers, noting that he expected the subject wouldfill the room to capacity, which was far from the case as the roomwas less than half full.

Part of the problem, he said, has to do with education, which iswhy Willis on Monday announced a Web site with materials aimed ateducating risk managers on the subject (http://tinyurl.com/37qu7e9).

Willis has steadfastly refused to accept any contingents onbroker business.

Mr. Gault said the issue comes down to client choice, and hisfirm totally discloses all compensation arrangements to itsclients. If the client is uncomfortable with the arrangement, AJGwill tell the carrier that contingents are to be excluded on thatbook of business.

"Transparency should be the norm, and customers should know howcarriers compensate us," said Mr. Gault.

Mr. Bailey said one advantage for clients is that withoutcontingent commissions, premiums are lower because the built-incost of those commissions is taken out.

"We have won business on our position on contingents," henoted.

Mr. Gault argued that by accepting contingents, the playingfield has been leveled among all brokers. For AJG, the company wasat a disadvantage when it came to acquisition activity because fora time any agency that joined the firm would have had to give upthe compensation as part of the transaction. That disadvantage nolonger exists.

The important thing is disclosing all compensation to the clientand showing what benefits the client gets from the insurancearrangement and why, said Mr. Gault, adding. "It is aboutdelivering service and doing what is best for our clients."

Responding to questions about contingents, Mr. Gault pointed outthat at his firm brokers have no idea what the arrangements are,that they receive no financial benefit from them, or know how theywould benefit the firm. He also said that having a large book ofbusiness with an individual carrier can allow the broker toinfluence a carrier's decisions to an AJG client's advantage.

William J. Kelly, president of WJK Advisory, LLC, and formerpresident of RIMS, discussed what risk managers should do tocontrol the compensation arrangements.

He noted that the most important thing is to lay out the termsof the arrangement in a well-crafted request for proposal (RFP). Headded that buyers should give the broker plenty of time to reply tothe proposal with a thoughtful reply.

Mr. Kelly pointed to literature RIMS has available to memberslaying out the different compensation arrangements and what riskmanagers should do to control that part of the conversation.