Brokers concede commission disclosure

Risk managers believe they have gained a small victory on the quality of service battleground with the insurance industry. The Risk & Insurance Management Society Inc. (RIMS) and global-brokers J&H Marsh & McLennan recently issued a joint statement to the effect that the brokerage has agreed to reveal contingency commission arrangements to clients on request.

The agreement calls for Marsh to identify, at a client’s request, the client’s insurers with which the broker has a contingency or similar agreement. The client can then obtain a reasonable estimate of the contingency revenue generated by those agreements by applying the latest average contingency factor, updated annually by Marsh.

Mark DeLillo, RIMS president, says most of the feedback to the agreement has been positive. “The vast majority believes RIMS has taken steps forward to the benefit of our members. The negative view is that we haven’t gotten far enough and this is a reflection less of the arrangement and more of the general concerns of risk managers about contingency commissions,” he notes.

Joining Marsh with concessions of their own are the New York offices of Willis Corroon which recently announced it had negotiated deals with two clients which take their premiums out of the contingency fee equation. While risk managers are carefully monitoring this development, Willis senior vice president of business development Bob Walker says the transactions do not represent any significant shift in the broker’s policy. “We don’t consider contingencies a huge issue, it accounts for less than 2% of our total revenues. So we have nothing to hide from our clients and are willing to negotiating unique deals,” he explains. Walker adds the concession is not a company policy and is negotiated on a deal-by-deal basis. “Despite all of the media attention, we really have not gotten a tremendous amount of reaction from our clients regarding the deal. For us, this is really a non-issue,” he says.

Risk managers applaud the developments but are disappointed it has taken the weight of the industry to compel disclosure. “We would like to be able to rely upon our broker partners to disclose their commissions in good faith. It’s upsetting that the risk managers had to lean on them to find out this information,” says Ontario Risk & Insurance Management Society (ORIMS) president Joe Hardy.