Willis comes under Airmic fire over contingent U-turn

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The controversial issue of contingent commissions was thrown back into the spotlight this week after Willis performed a U-turn on its previous stance.

Willis announced the backtrack during its full-year results, which revealed a 52% fall in net profits to $219m (£139m) compared with $455m in 2010.

Willis chief executive Joe Plumeri spearheaded a campaign against contingent commissions, which are insurer payments to brokers in return for profitability or volume, allowing his company to call them “the Wild West of insurance compensation”.

But Willis said the decision to take contingent commissions on employee benefits was “a necessary move to ensure [Willis’s] competitive position”.

Airmic chief executive John Hurrell said recent developments at Willis flew in the face of the company’s previous stance on the issue, which was respected by Airmic members, but he was sure that they would take a different view on the broker’s decision to change the position of one particular class of its business.

“I think that any movements towards contingent commissions are likely to take us back into the sorts of areas of strife that we have had in the past,” Hurrell said. “This latest development is a bit of a surprise given the trouble it caused the first time around and the impact that it had once the New York attorney-general intervened, particularly on businesses.”

A Willis spokesman said the broker continued to maintain its stance on contingent commissions in other lines.

The backtracking on contingent commissions rounds off a difficult year for Willis in which its North American business was hit by a 7% fall in fourth-quarter organic commissions and fees. This was mostly down to deterioration in Loan Protector performance, but excluding Loan Protector, the deterioration is still 3%.

Willis also suffered problems at subsidiary broker HRH, as non-compete arrangements with employees who left during the merger expired.

Plumeri said he was “not satisfied” with HRH’s performance, but predicted an improved 2012. As a sop to shareholders, he is planning a $100m share buyback.

Stockbroker Stifel Nicolaus analyst Meyer Shields agreed that the results were weak, particularly on the production side. “The story we have been consistently told by insurance companies and really the insurance brokers is that the headwind for insurance rates is diminishing, but it has not necessarily gone in every region and every line of business. I think people were expecting some sort of boost to both revenues and profits in the fourth quarter just from that trend.”