US ruling raises spectre of contingent commissions

European risk managers expressed concern about a recent ruling in the US state of Illinois that allows brokers to resume taking contingent commissions.

The Federation of European Risk Management Associations (FERMA) expressed concern over the issue. The same stance was taken by US risk managers through the Risk and Insurance Management Society (RIMS).

‘The contingent commission discussion in the United States affects us since the major brokers are based there, and we serve the interests of our members even if this goes further than 'our borders'. We live in a global village,’ said FERMA President, Peter den Dekker.

Historically, RIMS has argued that, in the absence of a ban on contingent commissions, brokers should disclose all forms of direct and indirect compensation to the customer.

“The contingent commission discussion in the United States affects us since the major brokers are based there.

FERMA President, Peter den Dekker

In Europe, FERMA has campaigned for a voluntary ban by brokers on accepting contingent commissions and for full transparency of compensation arrangements.

The development in Illinois is set to fuel debate about the future of broker remuneration at the FERMA Forum in Prague in October. The French risk management association AMRAE has organised a workshop asking whether European risk managers should call for a mandatory net quoting system, now in effect in several European countries.

FERMA said the Illinois decision provokes other questions, such as why do US insurers continue to include a standard percentage of brokerage in their quotes and refuse to reduce it? What kind and what quality of services do risk managers receive from brokers for what remuneration?