AJG contingent approval opens old wounds

As everyone knows by now, megabroker Arthur J. Gallagher has received the blessing of Illinois regulators to resume the practice of collecting contingent commissions nationwide starting in October, a move that's expected to generate more than $10 million in earnings.

The practice, eliminated in 2004 as part of the fallout of a major investigation by former New York AG Eliot Spitzer, hit AJG, M&M, Aon and Willis and caused a major ruckus in the industry, especially among the industry's biggest brokers and insurers, who are still smarting from billion-dollar fines and lost revenues.

And AJG's decision has observers speculating on whether the other big brokers will try to follow Gallagher's lead to get contingent commissions reinstated.

Not everyone is pleased with the news. Yesterday RIMS issued a statement expressing “disappointment” with the move, reiterating its belief that incentive commissions are an inherent conflict of interest, even though Gallagher vows to practice full transparency in the process.

The controversy harkens back to the original discussion of whether or not any sort of commissions, incentives or whatever you want to call them are a conflict of interest — whether it's for placing insurance or selling cars. Any sales-based culture uses volume requirements and profitability goals as incentives for its producers to sell more. The rub lies in whether or not the customer knows or cares about what goes on behind the scenes.

We've all learned a lot since 2004. Transparency is now the mantra, not just for insurance, but every other business, especially with the hot spotlight on government oversight of financial services. You can be sure that in today's hypersensitive business environment, any practice that smacks of collusion will be scrutinized, vilified and quashed — and rightly so.

It should be interesting to see whether AJG's decision will generate any backlash from those outside the industry — or if yesterday's atonements and adjustments have paved the way for a more lenient view of a practice that, when done ethically, is just part of a sales culture.