NU Online News Service, April 27, 2:08 p.m. EDT
BOSTON–As brokerages hotly debate the propriety of accepting contingent commissions, a leading insurer said since insurance buyers ultimately pay the cost, they should decide how to compensate their brokers.
The comment came from Evan Greenberg, chair of ACE Ltd., during a panel discussion here among insurance company leaders at the Risk and Insurance Management Society's annual conference.
"Attorneys general and regulators have spoken–contingents by any name present a potential conflict of interest that can be alleviated by full disclosure," he said. "But contingents are still legal, so the marketplace will have to decide this."
However, Mr. Greenberg added that "since brokers, unlike agents, work for the client, in a perfect world the client would pay their broker directly. But that's not the way the system usually works."
He said that ultimately "we have to look to the buyer. Either way, it's your money paying brokers. What form of broker compensation is your organization comfortable with?"
Edmund Kelly, chair, president and CEO at Liberty Mutual Group, agreed that however brokers are compensated, "it's going to end up in the cost of coverage. We'd all be better off if the client just paid for their broker's services, but since that's not how it goes most of the time, disclosure is at least a big step forward."
Mr. Greenberg hastened to add that "we do not begrudge brokers their fair compensation. We're just discussing how that should be done."
The debate was sparked by the announcement here yesterday of a public awareness campaign launched by Willis brokerage to educate risk managers about the evils of contingent commissions–a move denounced by one of its main competitors as nothing more than a "red herring."
Joe Plumeri, chair and chief executive officer of Willis Group Holdings, unveiled a new interactive Web site (www.ClientsBeforeContingents.com) as the centerpiece of the Willis initiative to discourage the use of contingents, during a press conference at his exhibit booth here during the RIMS conference.
However, Dan Glaser, chair and CEO of Marsh, said during a broker CEO panel discussion at the conference later that same day that the controversy over contingents is "a bit of a red herring."
"I don't think taking contingents is a litmus test on whether a broker has a conflict of interest," he said. "Lots of other revenue streams could present a conflict. The solution is full disclosure [of broker compensation.]."
Mr. Glaser added that "it is simplistic to say if you take contingents, you have a conflict, and if you don't, you're conflict-free. That's just not accurate."
John Lumelleau, president and CEO of Lockton Inc., said that "the issue is not contingents; it's behavior. Full disclosure is the answer. It's never a bad idea for our clients to know what we earn. We don't hide it. And if there are any objections, we adapt."
© Arc, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to TMSalesOperations@arc-network.com. For more information visit Asset & Logo Licensing.