How time flies. It's been years now since then New York Attorney General Eliot Spitzer barred broker compensation and bid-rigging irregularities among the megabrokers, principally Marsh. Even so, the issue remains unresolved.
Back then, there wasn't much evidence of a movement toward deep disclosure or transparency, except at the uppermost levels. "Even discomfort about the whole matter is difficult to detect," I wrote at the time. "Sure, the big three got nailed big time, but others seem to be flying comfortably, even cluelessly, under the radar, apparently secure that Eliot Spitzer's attention span (and that of potential Spitzer clones) is limited."
That has changed. Today, Spitzer has taken up residence in the governor's mansion in Albany, but the controversy lingers. Agents seem now somewhat buoyed by the new incentive pay plans being offered up by a number of insurance companies, to replace the old contingent commission schemes. Even so, they still want other companies to hold off on changing their compensation packages until agents see where this is going in the future.
The depth of their concern was expressed by Bob Rusbuldt, president of the Independent Insurance Agents and Brokers of America, who said in news reports in March, "If you have 10 carriers in your agency with 10 different disclosure requirements, 10 different disclosure forms, it could create incredible inefficiencies and chaos in an independent agency."
He went on to say, "I think this is rapidly going to morph into a pure disclosure issue. I think that the issue of agent compensation will go away in the near future and the emphasis in the insurance industry will be on transparency and disclosure. That issue is not going away. I think that issue is going to become one of the preeminent issues at the state level and at the federal level, and it's going to evolve even past insurance agencies."
In contrast to the agents who seem more receptive to the new approach, the big brokers seem ultra cautious right now on the question of what these new arrangements mean and whether or not they will change the compensation landscape and free them of past difficulties, or so they say.
They were driven to drop contingent commissions in the wake of the Spitzer investigations into bid-rigging and client-steering charges that indicated they were acting not in the best interests of their clients but in their own best interests in building profit centers within their firms. As a result, they lost up to $1 billion in revenues.
With the exception of Arthur J. Gallagher & Co., the biggest brokers are standing back from the latest calls for performance-based supplemental income ostensibly worrying whether this would be an improvement over the prior system.
Joseph Plumeri, chairman and CEO of Willis Group Ltd., remarked in press reports in March that "I can't tell the difference, frankly, between that and a contingent." J. Patrick Gallagher, president and CEO of Arthur J. Gallagher, on the other hand, doesn't see the problem. "All conflict of interest is waived through disclosure, in my opinion," he was quoted in the same press reports.
It's a good thing, I suppose, that most of the major brokers are showing this kind of sensitivity to one of the biggest and most destructive issues of the time. One has to wonder though, in light of past performance, just how sincere this is. Is it legitimate concern? Or is it grandstanding? Do they have a point? Or are they merely being political?
No one in the broker community wants to revisit the troubles of the past few years. Transparency and disclosure remain the keys.
a veteran editor and writer on industry affairs for 40 years, is managing director of Slattery-Esterkamp Communications, of Baldwin, NY.
April 15, 2007
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