Risk Managers Accept Contingent Commissions?

A new survey by Towers Watson, that is ongoing at the RIMS convention in Boston, has surprising findings about what fees and commissions risk managers are willing to accept.

By MATTHEW BRODSKY, senior editor/Web editor of Risk & Insurance®

BOSTON---The long and short of it is, it appears that risk managers are now willing to accept contingent commissions as a part of how brokers do business, with the qualification of course that these commissions are disclosed up front in a transparent way.

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That appears to be the conclusion out of the Pulse survey of risk managers that consultancy Towers Watson is doing at the annual meeting of the Risk and Insurance Management Society Inc. (RIMS). A couple hundred risk managers have responded to the survey already, so it is at the point of becoming statistically relevant, said Tower Watson's James Swanke Jr.

Only 27 percent of respondents so far have said that they will not permit contingent commissions in any situation.

Bout 41 percent of risk managers said they approve of contingent commissions as long as their broker discloses all compensation in a timely fashion, 11 percent indicated that they have no problem with them as long as current laws are followed, and 16 percent indicated that they don't like contingent commissions under the current guidelines but believe an appropriate system can be developed.

"It was very surprising," said Steve Levene of Towers Watson, speaking to Risk & Insurance® on the RIMS showroom floor in Boston during the last week of April.

After all, it is really only about five years since former New York attorney general Eliot Spitzer went after the big three brokers on this very same issue and the entire broker world seemed to be imploding.

Since then, the insurance departments in Illinois and New York have approved contingent commission, though both Willis and Marsh have announced that they will no longer take contingent commissions (in Marsh's case, at least for its large accounts). Contingent commissions are bonuses paid to brokers by insurance carriers for the amount of volume brokers bring to them. Bid-rigging can occur, and has, when this process goes bad.

Levene theorizes that Fortune 1000 risk managers might be more inclined to feel less friendly toward contingent commissions because they are the accounts often worked by the large brokers. When New York permitted contingent commissions, RIMS--the trade association that represents for the most part the risk managers of large insurance buyers--came out in opposition.

Levene suspects that risk managers employed at smaller firms might be less averse to these commissions because the smaller brokers and agencies they tend to work with never stopped taking in contingent commissions.

Stay tuned for the final results from the Towers Watson survey.

April 26, 2010

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