Willis chief tells StrategicRISK that buyers should drive contingents out of the industry by voting with their feet
Willis chairman and CEO, Joe Plumeri, urged insurance buyers to be the force that drives contingent commissions out of the insurance industry by choosing to use only those brokers that refuse to accept these fees.
He told StrategicRISK that while he would support a global ban on contingents he does not think it is logistically possible.
“The best way to regulate contingents out of [the brokerage] business is the buyer basically doing it. You have a buyer’s revolt. I hope that happens,” said Plumeri in a telephone call from New York. “I think it’s an archaic system that needs to go away. I can’t make it go away but I can disallow it from happening here.”
Willis became the first and only insurance broker to refuse contingent commissions from insurance carriers when working for retail clients as long ago as October 2004. Some US Regulators later banned the major brokers from taking such commissions.
Since then New York’s insurance regulator issued a new rule on “producer compensation” that appeared to legitimise contingent commissions. An earlier separate decision in Illinois allowed Arthur J Gallagher to accept contingent commissions in its retail brokerage division.
Buyers are concerned that these developments could lead big brokers to revert to accepting contingent commissions. If they do they will not be acting in the best interest of their commercial clients, said Plumeri. The question is whether or not they will?
Buyers could affect this decision by voting with their feet. Plumeri indicated that he would like buyers to stop and think about whether their broker is operating with their best interest in mind, or if the broker’s decision about which carrier to introduce them to is influenced at all by commissions.
He said New York’s decision was not taken because the regulator believes contingent commissions are good but rather to level the playing field. Previously it was only the biggest brokers that were technically bound by an agreement to refuse these fees.
“I don't believe for a minute that it hurts the economics of my company, because I think there are clients that would love to do business with us because we stand for integrity.
Joe Plumeri on refusing to accept contingent commissions
Plumeri said that refusing to accept contingents will not hurt his business, nor place Willis at a competitive disadvantage if other brokers revert to accepting contingents once again.
“I don’t believe for a minute that it hurts the economics of my company, because I think there are clients that would love to do business with us because we stand for integrity,” he said.
He is, however, concerned that if brokers decide to accept contingents they could artificially reduce the fees that they charge, therefore making themselves more competitive.
“What could occur is that a competitor that takes contingents could low ball the fee in order to win the account and then get paid the differential or more from the carrier. It is my hope that the clients see past that, because at the end of the day someone is paying for it. And it is my hope that people will realise that it is still money and it has got to come from some place and ultimately it comes out of the insured.”
“I don’t know how much of a competitive disadvantage there will be, I will have to see how that all plays out but I like the position we are in.”
Neither does he believe that not accepting contingents affects Willis’ ability to service its clients. “We have not taken contingents for five years…and…we have figured out a way to service our clients, generate revenue and have a fair return on our business. So the notion that it stunts your growth or impedes your ability to service your clients because your revenues are not being generated sufficiently in order to do that is not true because we’ve proven otherwise.”
