Willis

Willis remains the only global insurance broker that has reaffirmed its stand that contingent commissions represent a conflict of interest with clients and has publicly committed to refuse to accept them in its retail brokerage business.*

What are contingent commissions?

Essentially, they are year-end bonuses that insurance carriers pay to retail agents and brokers based on the volume and profitability of the business they give to carriers. Contingent commissions allow insurance brokers to accept incentives from carriers that may lead your broker from always acting in your best interests. New York regulators recently reversed a five-year ban on contingent commissions among the major brokers, freeing the so-called “big three” to accept them once again, rejoining the thousands of agents and brokers who never stopped the controversial practice.

First, some history:

In 2004, the year before regulators acted on contingent commissions, Willis Group Holdings made a decision to stop accepting them in its retail business. It was the right thing to do then, and it’s the right thing to do now.

In 2005, the New York Attorney General banned contingent commissions for the three global brokers, Willis, Marsh and Aon.

In 2010, the ban which had been in effect for five years was lifted through an amended and restated agreement between the brokers and the regulators.

There are benefits to the elimination of certain compliance obligations that were of the old agreement, but along with those benefits come added concerns for insurance buyers that a new wave of contingent commissions will bring new conflicts into the marketplace.

“Clients Before Contingents” represents Willis’s effort to inform commercial insurance buyers – and other stakeholders in the marketplace – that contingent commissions represent a conflict of interest in retail insurance. It would be better if no agent or broker took them and no carrier paid them. In the absence of that, it falls to the buyers of insurance to make an informed decision about how to avoid these conflicts.

When retail brokers accept contingent commissions from carriers, they introduce into the insurance transaction a second master: carriers. This creates the conflict of interest. The business model of insurance companies is predicated on maximizing the amount of premium collected and minimizing the associated claims cost. That’s their business model, and it works for them. But when there’s a big claim, and you’re the one making it, that business model may not be in your best interest.

That’s where the retail insurance broker comes in. The broker, if they are representing the client only, should be working in the client’s best interest, fighting to get claims paid quickly and fairly, free from the conflict that may come if their remuneration depends on the profitability of the insurance company.

Ask questions. Demand transparency.

Stand up against contingent commissions.

* Despite Willis’ objections, many insurance carriers have imposed volume-based compensation in certain parts of the US employee benefits business. To continue to serve its clients in this business, Willis has no viable option but to accept this compensation, which it fully discloses, in medical lines only. Contingent commission agreements that Willis inherited with the acquisition of HRH expire in 2011. Willis may also accept contingent compensation when it serves as an intermediary to another insurance producer.