There's Nothing Wrong With Contingent Fees

After Aon announced last month that it will again accept legally permissible contingency commissions, Willis Group Holdings Chief Executive Officer Joe Plumeri quickly responded, saying his firm would not resume collecting contingents, citing a conflict of interest in the compensation practice.

This statement is part of an ongoing "public awareness campaign" against contingents launched by Mr. Plumeri in April of this year, advocating that "it would be better if no agent or broker took them and no carrier paid them."

The direction of Mr. Plumeri's comments is troubling.

The self-serving business strategy of Willis attacking others in the insurance industry on this issue fails to mention that Willis' size–and resulting ability to leverage its volume–enables it to negotiate higher up-front levels of commission.

It is simply misleading for Willis to say that one form of compensation is being refused without noting that another form of compensation, without conditions, is being increased.

Despite this, Mr. Plumeri claims to want buyers "to have the whole story."

By maligning the legal and legitimate industry practice of incentive compensation and labeling a competitor's decision to accept it as "back-door payments from carriers" that are "troublesome and ambiguous," it is clear that the record needs to be set straight.

o Contingent commissions are legal, and recognized as such by respected industry experts such as Robert Hartwig, president of the Insurance Information Institute.

o Supplemental compensation has never been the problem. The real problem was the use of private placement agreements and illegal bid-rigging by a few mega-brokers. These few large players were intent on unlawfully manipulating prices and business placements to serve their own financial interests.

o Willis voluntarily ceased accepting contingent compensation, but it negotiated higher up-front commission levels not available to most agents and brokers.

o Simply shifting the timing of a payment and removing conditions to receiving it is not the same as forgoing certain compensation entirely, whatever it may be called or whenever it may be paid.

Launching a campaign to promote its view that contingent compensation puts "contingents before principle" is a clever public relations approach but doesn't tell the whole story.

Eliminating contingent commissions is not in the buyers' interest because it would result in substantial pressure on agents and brokers who accept such payments to focus on volume at the expense of their risk management efforts, which assist clients by reducing claims and lowering premiums.

Further, it would encourage more industry consolidation, as Main Street agents and brokers would be unable to compete with entities that have the massive size and resulting leverage that Willis can command from carriers.

A diminished independent agency force would limit choices for insurance consumers, including those who need the types of coverage large brokers generally do not offer.

Last, transparency is and has consistently been the official position of the Independent Insurance Agents and Brokers of America when it comes to compensation agreements with carriers.

We also understand that this may take different forms in response to the varied needs and interests of consumers, and we fully support clear, accurate and timely responses to clients' questions or concerns about compensation.

I do not disparage the Willis strategy of negotiating its compensation up-front and taking commercial advantage of its size, reputation and relationship with insurers.

However, I do take issue with its dogmatic assertion that the Willis approach is the only way to serve the needs of customers.

Mr. Plumeri's comments are clearly an attempt to try and force his company's decision not to accept contingent compensation on the entire industry.

If Mr. Plumeri is truly interested in compensation integrity, he will refrain from describing competitors in a way that infers they are somehow less than honest or forthright if they choose a different path.

I do challenge Mr. Plumeri to publicly instruct all Willis producers to publish the commissions on the policies they propose and deliver the policies along with readily available industry information on the average commissions for that line of coverage.

This would empower consumers to decide whether higher up-front commissions are preferable to other forms of compensation and truly give them the information Willis says they need.

Bob Rusbuldt is president and chief executive officer at the Independent Insurance Agents and Brokers of America. He may be reached at bob.rusbuldt@iiaba.net