By CYRIL TUOHY, managing editor of Risk & Insurance®
At the annual conference of the Risk and Insurance Management Society Inc. in Philadelphia April 15-18, Willis Group Holdings Ltd. Chairman and CEO Joseph J. Plumeri sat down
for a 30-minute question-and-answer session
with Risk & Insurance® to discuss issues facing his company and the industry.
Q: Beginning in April, Willis has started to accept contingent commissions for the placement of North America employee benefits. What do you say to those who claim you are breaking a promise not to accept contingent commissions?
A: It was a promise made based on how we were paid by carriers. But the carriers then changed their tune. In this specific market, health care reform has altered the insurance industry in many ways, particularly as it relates to compensation. Many of the insurance carriers have transitioned from paying brokers uniform, standard commissions to paying brokers in a variety of ways based on volume, including tiered commissions based on the total volume, and the increased use of contingent compensation payments. Now, based upon a stance I took that was ethical, should I put my company at a disadvantage because of one segment that wants to pay me less? I didn't change my position. I simply had to react based on the way they changed the way they paid me.
Q: Can you foresee a day when Willis brokers will accept contingent commissions for retail property/casualty placements?
A: Anything is possible. I can't say Willis will never accept contingent commissions in property/casualty business. The next person who comes in after me may say that not accepting contingent commissions was a different time. My job is to provide the best value for insureds. Currently, property/casualty carriers have not changed the way they do business, so for now we continue to refuse them and that's the way we hope it stays. One thing I've learned in life is that I should never say never.
Q: Do you believe you've gained business because of your stance not to accept contingent commissions in retail property/casualty placements?
A: I think we gained business initially. When Marsh went through all of that drama, people were upset with them over bid rigging, but over time that has relaxed and basically the industry has gone back to the way it was before Spitzer. It's kind of disappointing. On that subject it represents the core of what industry is all about. There's a big issue with getting compensation because business isn't growing. If you are not growing, you are going to find any way you can to grow revenues. I always thought acceptance of contingent commissions disallowed brokers to concentrate on growing their business organically. Contingent commissions have created less quality in the business. The system is screwed up. Clients don't care and brokers don't care if they get paid by carriers in addition to getting paid by the client. And the carriers pay us for distribution so brokers may be paid more but they are not creating any more in terms of service or in terms of value for the client. What you've done with the contingent issue is to remove that dynamic of providing service and value. That's what this is all about. If you're getting paid over here, why take from over there? Contingent commissions should rest with the client, for example, and if the claim is paid quickly, if the placement is good then the client can reward the broker.
Q: Loan Protector has made life difficult for Willis over the past several quarters, as you've noted in several conference calls. What are you going to do with Loan Protector going forward? Will you eventually sell it? Or will you keep it and turn it around?
A: Loan protector is a form of forced placed insurance, and the clients of Loan Protector would be the big banks. We are a managing general agent that has been given the pen to write the business, and in 2008, 2009, 2010 business was up, but then the real estate business went down and commissions dried up. We'll keep it, but it's going to be a much smaller business for us.
Q: Is the integration of Hilb, Rogal and Hobbs (HRH) both in terms of culture and technology platforms, now complete? Or is there still work do be done with that here in North America?
A: Yes, we're all done with that.
Q: Does Willis have any plans to purchase other brokers/agencies in the North American market in 2012?
A: HRH was the big one. If there's a $5 million or $10 million agency in town that could fit in somewhere, then we'd buy it. But no, we're not in the market for any major acquisition. The market is getting harder and for a lot of owners it's a good time to sell. So I still see a contraction coming over the next few months.
Q: You're making a point of positioning Willis at RIMS this year as "being best where it matters most." What does that mean, exactly?
A: It means that we understand the client's business as much as we understand the insurance business. Everybody understands insurance, which they should, but they don't always understand a client's business. Understanding their industry is what matters the most, and in many sectors we have the best industry practices in the world: in energy, in cyber, in aviation, in construction, in marine, in health care. They all know we can talk about their industry instead of our industry.
Q: Can you give me some recent examples of large account wins globally over the past 18 months?
A: We've been enjoying a lot of success in the large accounts space. We're great at taking all of our capability around the world and applying it to the needs of our clients. For example, we're great at marine. We recently won an account, (Maersk) for example, that caused them to break a 30-year relationship with one of our competitors. That's an example of being best where it matters most.
Q: Willis has made big strides using technology over the past five or six years. WillPlace is an example of that. What other technology initiatives do you have for Willis in the next five years?
A: We've recently deployed several technology platforms. One system is called EPIC and it's our end to end client service and policy management platform. Now every retail office across North America is using the same system. When we took over HRH, ithad 280 different systems. Well now, integrating all of that, that's basically done.
May 1, 2012
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