NU Online News Service, Feb. 16, 3:20 p.m. EST
Disclosing agent compensation is not enough to eliminate conflicts of interest stemming from the acceptance of contingent commissions, said Joe Plumeri, chairman and chief executive officer of Willis Group Holdings plc.
Details of Mr. Plumeri's remarks during a speech last week in London at an industry forum were provided by his brokerage.
"Simply telling clients that you are taking contingents does not make it okay. It does not change the fact that you have an incentive to act in the interests of someone other than your client–and that when push comes to shove you might not fight for the best deal in the marketplace or advocate fiercely to recover a claim if you know your compensation from the insurer will suffer. It sounds like transparency, but it can never be true transparency," he said.
Mr. Plumeri announced he is convinced that "the only way to resolve the conflicts inherent in contingent commissions is not to take them. We stopped taking them because we want to be paid for the value we provide our clients, not the insurance companies."
Willis noted that in October 2004, it became the first insurance broker to refuse contingent commissions from insurance carriers when working for retail clients. Regulators later reached agreements with three others banning them from taking such commissions.
Those agreements followed investigations that found brokers were taking hidden fees to steer commercial clients to insurers involved in a bid-rigging scheme.
Of the four major brokers that agreed to the ban, Arthur J. Gallagher was permitted to again accept contingents at the end of last year.
"We actually took a big step forward to building trust with our clients when contingent commissions were banned for the largest brokers in 2005. At Willis, we've abolished them, and we're not going back. We're a better company for it," said Mr. Plumeri.
Citing a lack of public trust in the insurance industry, Mr. Plumeri said that a return of contingent commissions–payments from insurance companies to brokers based on the volume or profitability of business placed with clients–would overshadow the integral role that insurance plays in rebuilding lives and business after disaster.
"How will we look as an industry if brokers can earn commissions from insurers for giving them business and not for the value we provide to our clients?" he asked.
"We're already one of the least trusted industries globally. People aren't focusing on how we as an industry provide the capital and help pick up the pieces in San Francisco, Northridge, New Orleans, Cumbria and Lower Manhattan. Instead, they're looking at how we are compensated, and they're not happy, with good reason," said Mr. Plumeri.
On another issue, he said he welcomed reestablishment of the New York Insurance Exchange.
"If ideas such as the New York Insurance Exchange take off, I hope they will be implemented in a way that allows us to place business with greater speed through smart technology," he said. "Ultimately, that's our job: to place our clients' unique risks with the best markets, prices and terms."
Mr. Plumeri cautioned, however, "The architects behind the re-emergence of the New York Insurance Exchange should be mindful that people will think about the past and why previous attempts at establishing such an exchange failed. So they need to act quickly to change that perception."
Willis said Mr. Plumeri was one of four speakers at the event. The others were James Wrynn, superintendent of the New York State Insurance Department; Tom Bolt, director of performance management at Lloyd's; and Martin Albers, Swiss Re's head of client markets for Europe.
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