Plumeri Rejects Bonus Fees, Skips RIMS CEO Panel

NEW ORLEANS--Joe Plumeri, Willis Group Holdings chairman and chief executive officer, told National Underwriter he is rejecting insurers' new bonus compensation plans because they present the same conflicts of interest as the traditional contingency fees given up by the major brokerages two years ago.

In an exclusive interview, he said his intention "is not to show up carriers, but to stand by our principles."

"Any formula that suggests business be given to Tom, Dick or Harry based upon anything retrospective or prospective is a conflict," said Mr. Plumeri at a breakfast meeting in his hotel suite during the Risk and Insurance Management Society's annual meeting yesterday.

Mr. Plumeri explained his rationale a day after Willis released a statement rejecting "supplemental compensation plans" proposed recently "by certain carriers," which he declined to identify. He spoke with NU hours before a CEO panel hosted by RIMS, in which he had been scheduled to participate before cancelling his appearance last week.

A representative for Willis, Dan Prince, told NU that Mr. Plumeri had informed RIMS he would not take part in the panel discussion on the industry's status, which included the top officials from Aon, Marsh, Gallagher, ACE, AIG, FM Global and Zurich.

"Joe believes there were too many people on the panel to allow for a substantive discussion of the critical issues facing the industry," said Mr. Prince.

Willis was among those brokerages 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 the 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 NU. "That 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, "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., 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...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," he added.