Contingent commissions back in play

The insidious return of contingent commission payments over recent months has raised more than a few eyebrows as larger brokers’ commitment to ending the practice has declined.

Following attorney general Eliot Spitzer’s attack on the practice, which resulted in the forced prevention of contingent commissions in 2006, regulators relaxed rules in 2010. Since then, the very same companies charged with perpetuating conditions creating a conflict of interest have returned to taking payoffs from insurers.

The relaxed regulations now allow brokers to take contingent commission payments as long as they disclose to clients that they do so. Nevertheless, they are not exactly shouting it from the rooftops.

Instead, recent statements from Aon and Marsh sideline any discussion of the practice itself, and highlight their commitment to “transparency”.

Another broker to backtrack on its contingent commission payment policy is Willis. In 2010 the broker launched an online campaign against the payments called Clients Before Contingent, but it made a somewhat spectacular U-turn in 2011 after its net profits halved and re-commenced accepting commissions on employee benefits in the US.

Brokers’ priorities questioned

Receiving payments for delivering profitable business raises a serious question mark over brokers’ priorities and their relationships with customers, as profitable business for insurers means fewer claims reaching them.

But Willis chief executive Joe Plumeri, who is leaving the company later this year and has long been critical of contingent commissions, has recently spoken out against a return to the practice, telling the Financial Times that the industry was “back to where it was before” the Spitzer probe.

He went on to say: “[Brokers] are getting paid if an insurance company makes more money, and the way you can make more money is if they don’t pay a claim. And your whole idea [as a broker] is to get your client’s claim paid. That’s a conflict – and it’s legal.”

Brokers’ ability to work for their clients is directly compromised by receiving payments from insurance companies. The industry needs to re-examine the real motives behind such commissions, and question whether it is something it can be proud of.