NU Online News Service, July 21, 11:53 a.m. EDT
After several years of doing without contingent commissions, insurance broker Aon said it plans to begin accepting them once again.
In a statement issued today, the Chicago-based global insurance broker said it is in the process of exploring “various forms of alternative remuneration available” to the firm.
In the statement, Steve McGill, chairman and chief executive officer of Aon Risk Solutions, said the firm, while remaining committed to transparency, has “conducted a great deal of research around broker compensation” focusing on client needs and competing “on a level playing field in the marketplace.”
He said, “As a result, we have decided to accept various forms of compensation available, which may include supplemental and/or contingent commissions in the geographies and client segments globally where appropriate and legally permissible.”
Earlier this year, Aon, along with Marsh and Willis, reached an agreement with officials in New York, Connecticut and Illinois to lift a ban on taking contingents that was agreed to in 2005.
The brokers, which also included Arthur J. Gallagher (AJG), agreed to the ban after allegations were raised by New York’s attorney general that the brokers engaged in steering insurance contracts to carriers who paid the most lucrative commissions.
AJG reached an agreement to lift the ban on contingents earlier with Illinois’ attorney general.
Under the agreement, the brokers agreed to commission disclosure requirements laid out by the New York State Insurance Department that the department intends to impose on all brokers doing business in the state.
A spokeswoman for Aon said the firm plans to meet or exceed all requirements for transparency globally.
While both Aon and AJG said they will accept contingents once again, Marsh said it will not accept contingents on its core business in the United States and Canada.
At Willis, the company’s chief executive has been on the warpath criticizing the concept of contingents and emphatically saying the firm will not accept them.
“Will your broker really shop the market to get you the best terms, conditions, price and service if it’s beholden to one or more insurance carriers that will pay a bigger bonus? Not likely,” said Willis Chief Executive Officer Joe Plumeri in a recent column in National Underwriter.
The Risk and Insurance Management Society Inc. issued a statement saying it was disappointed in Aon’s decision and maintains its opposition to the practice of collecting contingent commissions. The payments–which are additional compensation based on quality or volume of business with a carrier–are an inherent conflict of interest and interfere with the “relationship of trust” between brokers and clients, RIMS said.
“RIMS urges Aon to join other large brokers in agreeing not to accept contingent commissions,” said Scott Clark, RIMS secretary and director of RIMS External Affairs Committee and Risk and Benefits officer for Miami-Dade County School Board. “Ultimately, we would like to see the insurance industry as a whole adopt practices that place the broker in a position that best serves purchasers of insurance.”
During an earings call in February, Mr. Plumeri told analysts that the firm had converted 90 percent of contingent commissions it inherited in its acquisition of Hobbs, Hilb & Rogal to upfront commissions.
This story was updated at 3:34 p.m. EDT