Willis Group Holdings announced it is abolishing controversial contingency agreements with insurance carriers immediately in North America and as soon as possible in the rest of the world where it operates.
Joseph Plumeri, chairman and chief executive officer of Willis, told analysts at a conference call today that an internal investigation has uncovered no evidence at Willis of bid-rigging or tying of placements with insurers to sales of treaty reinsurance services.
The ending of contingency agreements will cost Willis an estimated $80 million, but the company expects it can make up that in new business. He said he would talk more about what Willis sees as opportunities to grow its business when it releases third quarter results next week.
Plumeri said that all of the firm’s so-called contingency market agreements under a most liberal definition had been expected to generate about $160 million in revenue in 2004, about $35 million of that from North America. Half of that, or $80 million, represents payments that are based on volume or profit considerations and will be abolished. The other $80 million at issue involves market service fees ($42 million) for product development, market research, claims management and similar services and miscellaneous fees ($38 million) that are only marginally related to volume if at all and these will be restructured.
Plumeri said his firm is cooperating with the investigation by New York Attorney General Eliot Spitzer and denounces all bid rigging and tying activities.
“The insurance brokerage industry is facing its biggest challenge in its history and how we respond will define the industry for years to come,” he told analysts. “It’s time for change to come to the insurance industry.”
He said Willis is ending the contingent agreements because clients disapprove of them and that it wants to avoid even the appearance of conflict. Plumeri was adamant that even if other brokers that have suspended contingency agreements reinstate them, Willis would not.
Plumeri said that his company will abolish the agreements totaling $80 million but is confident that it can earn back that revenue in the marketplace. In fact, he said this company “sees significant opportunities to grow our market share… now that there will be a more level playing field.”
He sidestepped questions about whether Willis is receiving resumes from employees at other insurance brokers but did say Willis “is ready to take every advantage of every opportunity” that comes about.
The broker also issued a Clients’ Bill of Rights setting forth promises over best practices and client advocacy.