Contingency Fees Still Haunting Big Brokers

I called a representative for Willis, Dan Prince, right after the session let out. He told me that Mr. Plumeri had informed RIMS last week he would not take part in the panel discussion. "Joe believes there were too many people on the panel to allow for a substantive discussion of the critical issues facing the industry," according to Mr. Prince.

While I enjoyed the give and take of a wide-ranging one-on-one interview with Mr. Plumeri in his hotel suite blocks from the convention center just hours before the CEO panel, I did not know when I sat down with him that he had already cancelled his RIMS appearance, and it was never brought up during the conversation. So I was just as surprised as everyone in the main meeting hall, and more than a little disappointed when the panel moderators announced–without explanation–that the industry's most outspoken critic of contingency fees had decided to skip the forum.

I personally think Mr. Plumeri made a big mistake. While his prediction that the panelists would be reduced to sound bites was not off the mark entirely, in bowing out he became conspicuous by his absence–especially after making such a fuss this week about the new supplemental compensation plans hitting the market.

In effect, his absence became the story, and not in a good way. Again, as I emphasized here at RIMS on Monday while moderating a panel of my peers on press relations, too often companies mismanage what should be a positive news development and end up generating negative press.

In any case, in my exclusive interview with Mr. Plumeri, he said his "intention is not to show up carriers, but to stand by our principles," even declining to identify the particular insurers that had proposed the new bonus plans.

Mr. Plumeri explained that he decided to pass on new bonus compensation plans because he believes they present the same conflicts of interest as the traditional contingency fees given up by the major brokerages two years ago–essentially, they are wolves in sheep's clothing.

"Any formula that suggests business be given to Tom, Dick or Harry based upon anything retrospective or prospective is a conflict," he told me.

Willis was among the firms that voluntarily gave up contingency fees after a probe by New York's then attorney general (now governor) Eliot Spitzer found evidence of bid-rigging and account steering on the part of a number of the major brokerages to trigger volume-based bonus payments.

During my exclusive interview, Mr. Plumeri said that the latest supplemental compensation plans being shopped by carriers amount to "numeric semantics."

"We're dead set against contingency fees," he told me. "The doesn't mean we don't want to get paid. We just don't want our pay to be based on any particular set of circumstances that could lead to conflicts with client interests."

"I don't know why we can't simply make a deal that companies pay us a fair commission and that's that," he added. "Why must there be some extra motivation to place business with some particular carrier? Then it just becomes a race for companies to get the attention of the broker, rather than focusing on doing what's best for the client."

Even if regulators or attorneys general sign off on the latest bonus agreements, Mr. Plumeri said he wants no part of them.

"When we were kids, and you did something you probably shouldn't have done, you used to say, 'There's no law against it.' But that's not the way you should run your business," he said.

Mr. Plumeri angered independent agent groups in the past with remarks about the need to do away with contingency fees altogether, but this time around the Willis statement said "such supplemental plans are best housed in an agency relationship."

What's the difference? "Our conflict comes with the fact that as brokers we represent clients to the market," he explained. "Agents represent markets to the client, so in that context, if they earn contingency fees from the carriers they represent, that's okay, as long as that's disclosed. But brokers must be held to a different standard to avoid conflicts of interest."

Discussing the new supplemental compensation plans during the RIMS CEO panel, Marsh CEO Brian Storms said his firm "is going to take time to examine the issue. We're going to talk with our clients about what they think about it. Whether or not they are satisfied is our ultimate priority."

Aon's president and CEO, Greg Case, said that "we don't know what the definition of 'supplemental' is yet, but I can say for sure that we're not going to do anything to jeopardize our relationship and credibility with clients."

J. Patrick Gallagher, chairman, president and CEO of Arthur J. Gallagher & Company, said that he, too, would "sit down with clients and say, this is up to you. If the value is there, how are we going to get paid? We are committed to transparency."

However, Evan Greenberg, president and CEO of ACE Ltd., offered up a reality check when he said that "if these supplemental commissions are based upon the behavior of a brokerage, as distinguished from an agency, I don't like them. Transparency does not eliminate conflicts."

He went on to lecture that "for brokers, there should be no contingency fees unless it's one negotiated between a broker and their client. Frankly, it's a little cynical to me to even be discussing this after all that's happened."

Not having seen the latest proposed bonus deals, I don't know what to make of them, but my instinct is to agree with Mr. Greenberg. Brokers should reject anything that could raise further conflict-of-interest questions, especially so soon after the Spitzer probes.

What do you all think?