Willis Tells RMs: Use Your Clout To Halt Contingent Commissions

Mr. Plumeri said his firm stopped taking contingent commissions "in our retail business and is a better company for it. Buyers of insurance should ask their brokers to follow suit."

He added that "it's time for the level playing field to be free of these controversial payments. A broker should be squarely on your side, fighting to get you the best terms and conditions, the fairest premium and the fastest claim service, not putting profit before principle."

Willis has launched a new interactive Web site for risk managers–www.ClientsBeforeContingents.com–as the center of its awareness campaign. The site features:

o A "tool kit" to teach buyers about the mechanics of contingent commissions and the questions they should be asking their brokers.

o A blog to encourage debate from all sides of the contingent controversy.

o A "testimonial" page where buyers can sound off on where they stand when it comes to contingencies.

o A "newsroom" with all the latest coverage about the subject.

o A "White Paper" by the law firm of Edwards Angell Palmer & Dodge LLP outlining the history of contingent commissions and their inherent conflicts.

Contingents have been an issue since 2004, when major brokers were discovered to have earned such bonus fees as part of a rigged bidding process for certain lines of business.

As a result of settlement agreements with regulators, the major brokers were not permitted to accept contingents until this past February, when a new deal emerged to permit the payments to resume. At that time, Willis reiterated that it would not accept contingent commissions.

"I think there's a lot of apathy about contingents based on volume or profitability of business because most buyers still don't understand how these deals really work or how they can undermine the integrity of the relationship with their broker," said Plumeri.

"When contingents become 20 percent of your revenue and a much higher share of your profits, it affects behavior, and never to the client's benefit," he asserted.

Contingency fees based on the volume of business sent to a particular carrier can "pervert" placement decisions, while contingents based on how profitable an account or line of business is "creates an incentive not to get a client's claim paid," he added.

Don Bailey, chair and CEO of Willis North America, added that "insurance buyers have been fed misinformation over the years about contingents, and it's time to set the record straight." He added that "unless your broker tells you, upfront, who is paying them, how much they are being paid and in what form they are receiving payment, you're not getting the whole story."

When asked whether Willis had negotiated higher standard commission rates–paid as a pure percentage of premium–to make up for the loss of contingents, Mr. Plumeri said, "Of course we have. Just because we won't accept contingents doesn't mean we don't expect to be paid for our services."

However, when asked if differences in the standard commissions negotiated with different carriers might not also create a potential conflict, if placing business with one carrier would earn a higher commission than with a different carrier, Plumeri said "the difference in standard commissions among the carriers we do business with is minimal, and certainly not enough to influence the placement decision." He said his commission rates are disclosed to buyers.

In response to another question, Plumeri said if buyers would rather pay Willis a negotiated fee directly for placement and other services, they have that option. "That's up to the client," he said.

Plumeri said that "ignorance is the biggest obstacle we face in getting our message across on contingents," adding that "it is our hope that by virtue of this campaign, risk managers will begin to better understand their relationship with their broker, and why it's not in their best interests for brokers to be incentivized by contingents."

He said Willis bases its placement decisions on the price being charged for coverage, as well as the value of the policy–in part determined by how a carrier scores on the Willis Quality Index on factors such as speed in paying claims and delivering final policies.

"At the end of the day, that is how a broker's decision should be made," he said. "The possibility of triggering a contingent bonus in terms of volume or profitability should not be a factor."

Marsh's main brokerage unit does not accept contingents on U.S. and Canadian accounts, but does accept them in its independent agency affiliate.