Aon Will Begin Accepting Contingent Commissions Again

By | July 21, 2010

Giant insurance broker, Aon Corp., said it will resume taking contingent commissions from insurers where they are permitted— reversing its policy on the controversial compensation just six months after a legal settlement banning the volume-based payments was lifted.

In a press release, Steve McGill, chairman and chief executive officer of Chicago-based Aon Risk Solutions, said the firm has “conducted a great deal of research around broker compensation across the globe with a focus on serving the needs of our clients and competing on a level playing field in the marketplace….

“As a result, we have decided to accept various forms of compensation available, which may include supplemental (or) contingent commissions in the geographies and client segments globally where appropriate and legally permissible,” he said. “Our firm’s focus has been and will always be on doing what is right to serve the best interests of our clients.”

Aon was subject to a 2005 settlement with Illinois, New York and Connecticut that banned the acceptance of contingent commissions, although regulators and attorneys general from those states agreed in February to lift that ban. Marsh and Willis were also subject to the ban on contingents by similar settlements — those bans were also overturned this year.

Willis has made clear through several recent statements that it has no plans to accept the payments. The broker has set up a Web site to “educate” clients about the dangers of the payments and their detrimental effect on the insurance-buying process.

That is not the case with Marsh, which in March said it will not take contingent commissions in its brokerage business, but will allow the payments in its agency subsidiary, Marsh & McLennan Agency.

Aon’s decision to begin accepting contingent commissions is not a complete turnaround. Two years ago, in testimony to New York insurance regulators, McGill said, on principle, he favored a policy of disclosure over a stated ban on contingent payments, although he also admitted the payments muddied the waters for clients.

“The incentives created by contingent commission arrangements, are not as easy to disclose clearly and comprehensibly,” McGill said. “The factors that could influence a producer to steer a placement — such as whether the producer is approaching a threshold that would trigger increased payment, or whether the contingent is based on profitability and may therefore dampen the producer’s enthusiasm for claims advocacy — are complex and not easily communicated.”

The decision by its competitor drew scorn from Willis, which said a statement that “The recent history of broker behavior and regulatory oversight in the insurance industry is not a proud one. The permissive rules that have fostered rampant conflicts of interest have returned and, with them, an industry environment that’s headed deeper into a morass and bound for more trouble when ‘legally permissible’ is the new standard of excellence. Our industry can do much better by its clients, and clients should demand better from their brokers.”

The Risk and Insurance Management Society (RIMS) also criticized Aon for the decision, and urged the broker against taking the commissions. RIMS said it “has always maintained the position that contingent commissions should be universally banned and views Aon’s intentions as a step backwards with regard to the level of service it provides to its clients. RIMS will continue to call upon all brokers to refrain from accepting contingent commissions, as they pose an inherent conflict of interest and interfere with the relationship of trust between the broker and insurance consumer, regardless of the nature of the client or the intermediary.”

Was this article valuable?

Here are more articles you may enjoy.