Willis Group Holdings Chairman and CEO Joe Plumeri, speaking to a meeting of insurance executives at Willis’ London headquarters, reiterated the broker’s long standing position that it would not accept contingent commissions.
Plumeri explained that disclosure of broker and agent compensation is not “true transparency” because it doesn’t eliminate the conflicts of interest inherent in accepting contingent commissions.
Plumeri stated: “Simply telling clients that you are taking contingents does not make it okay. It does not change the fact that you have an incentive to act in the interests of someone other than your client – and that when push comes to shove you might not fight for the best deal in the marketplace or advocate fiercely to recover a claim if you know your compensation from the insurer will suffer. It sounds like transparency, but it can never be true transparency.
“I am convinced,” he continued, “that the only way to resolve the conflicts inherent in contingent commissions is not to take them. We stopped taking them because we want to be paid for the value we provide our clients, not the insurance companies.”
Willis announced its position in October 2004 in the midst of the Spitzer investigations. At the time it was the “first and only insurance broker to refuse contingent commissions from insurance carriers when working for retail clients,” said the bulletin. Regulators subsequently banned the major brokers from taking these types of commissions.
“We actually took a big step forward to building trust with our clients when contingent commissions were banned for the largest brokers in 2005,” Plumeri added. “At Willis, we’ve abolished them, and we’re not going back. We’re a better company for it.”
Citing a lack of public trust in the insurance industry, Plumeri said that a return of contingent commissions – payments from insurance companies to brokers based on the volume or profitability of business placed with clients – would overshadow the integral role that insurance plays in rebuilding lives and business after disasters.
Plumeri’s concerns go beyond simply broker/client relations. “We’re already one of the least trusted industries globally,” he reminded his audience. “How will we look as an industry if brokers can earn commissions from insurers for giving them business and not for the value we provide to our clients? People aren’t focusing on how we as an industry provide the capital and help pick up the pieces in San Francisco, Northridge, New Orleans, Cumbria and Lower Manhattan. Instead, they’re looking at how we are compensated, and they’re not happy, with good reason.”
Plumeri also indicated that he’s not opposed to a New York Insurance Exchange. In fact he said he welcomed the initiative. “If ideas such as the New York Insurance Exchange take off, I hope they will be implemented in a way that allows us to place business with greater speed through smart technology,” he stated. “Ultimately, that’s our job: to place our clients’ unique risks with the best markets, prices and terms.”
Plumeri, however, cautioned that, “The architects behind the re-emergence of the New York Insurance Exchange should be mindful that people will think about the past and why previous attempts at establishing such an exchange failed. So they need to act quickly to change that perception.”
The full text of Plumeri’s remarks may be obtained on the Willis web site at: www.willis.com
Source: Willis Group Holdings