By CYRIL TUOHY, managing editor of Risk & InsuranceŽ
Risk and Insurance Management Society Inc. (RIMS) President Terry Fleming, in April reiterated his organization's tough stance on contingent commissions.
"(It) is widely known that we want a prohibition of contingent fees," Fleming said, during a press conference in Boston.
Fleming didn't mince words, but whether buyers represented by RIMS--in other words the RIMS membership--feel as strongly as leadership about the commission payments is another matter.
A recent survey by Towers Watson revealed that insurance buyers have softened their stand against the practice of brokers accepting contingent commissions.
Though this most recent survey, based on less than 300 respondents, is still small, its initial results cast doubt on whether RIMS leadership and membership are in lockstep over the issue of contingent commissions.
Nearly half--41 percent--of buyers surveyed said they approved of the practice so long as brokers disclose the practice within reasonable time limits.
Just over a quarter of the respondents--27 percent--said they would not permit contingent commissions in any situation, according to the survey results.
That's a change from November 2004, when more than 75 percent of risk managers agreed or strongly agreed that such compensation payments to agents represents a conflict of interest, according to a survey co-sponsored by The National Alliance Research Academy.
Critics of the contingent commission payments maintain brokers can't represent the interest of buyers if they are getting paid by the seller of insurance--the carriers--as well as the buyer, whom brokers are supposed to represent.
Former New York Attorney General Eliot Spitzer went further, alleging that the practice pushed brokers to rig bids and steer business to favored carriers.
In the end, Marsh, Aon and Willis settled the allegations to the tune of hundreds of millions of dollars.
So RIMS leadership now wants to ban the practice, but nearly one in two risk managers in the Towers Watson survey say they don't object to the payments. Go figure.
Did furious lobbying on the part of the brokerage community change buyers' minds? Are the New York and Illinois insurance departments, who recently authorized brokers to resume collecting the contingents, responsible for the change in buyers' attitudes?
Was it that buyers, aware of the payments all along, never had much of an issue paying them despite initial surveys to the contrary? Or was it simply that buyers were now satisfied, so long as brokers agreed to let the buyer know exactly where brokers' income was coming from?
In truth, the extra commissions were and have always been part of doing business in the commercial insurance world.
One insurance executive, who spoke to Risk & InsuranceŽduring the height of the scandal five years ago, had no doubt that the practice would continue, as the majority of brokers had been accepting these extra commissions and telling buyers about them all along.
Just wait a few years, and the commission scandal will blow over, the executive said.
Turns out he was right. Look at what's happened to Spitzer ... and to Prohibition.
June 1, 2010
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