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Joe Plumerai Interview FT

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20 views2 pages

Joe Plumerai Interview FT

aboutJoe Plumerai interview FT

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neggie
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January 13, 2013 8:24 pm

Insurers’ contingent commissions attacked


By Alistair Gray in London

The outgoing head of Willis, the world’s third-biggest insurance broker after Marsh and Aon,
told the Financial Times he was “astounded” corporate policyholders tolerate practices he
said create a clear conflict of interest.

Joe Plumeri, who is stepping down after 12 years at the helm and has been a critic of so-
called contingent commissions in the past, said the industry was “back to where it was
before” a previous regulatory crackdown.

John Phelps, the new president of RIMS – a New York-based society of global risk managers
that represents corporate insurance buyers and whose members include Chevron and Cisco
Systems – has also spoken out. “Brokers are starting to accept them again. The brokers can
engage in this conflict of interest legally . . . It’s an increasing concern.”

Insurers pay contingent commissions to brokers based on factors such as how much business
they place with them and how profitable it is.

“Clients don’t seem to be rising up and yelling foul over these practices,” said Mr Plumeri.
“It blows my mind.”

“The whole industry can now accept contingent compensation as long as you tell clients that
you take them – without necessarily enumerating exactly how much that is. I think that is
crazy.”

“[Brokers] are getting paid if an insurance company makes more money, and the way you can
make more money is if they don’t pay a claim. And your whole idea [as a broker] is to get
your client’s claim paid. That’s a conflict – and it’s legal.”

Of his two bigger rivals, he said: “Marsh does it, Aon does it.”

Top brokers were banned from receiving contingent commissions following an inquiry into
the industry about eight years ago led by Eliot Spitzer, former New York attorney-general.
But the ban raised concerns about whether it created a level playing field across the industry,
as smaller brokers carried on taking them.

Regulators agreed to change the terms for the leading brokers in 2010, resulting in a less
onerous compliance regime.

Bruce Hepburn, chief executive of Mactavish, a UK insurance research boutique, said that
across swaths of the insurance brokerage sector, “the remuneration model has become
untenable in terms of poor transparency and conflicts of interest”.
Contracts “are subject to ‘light touch’ regulation – even though light touch regulation has
proven a catastrophic failure in banking”.

Mactavish has gathered evidence, about practices in the UK insurance sector, used by the
Law Commission, which is set to draw up separate draft legislation that will make it harder
for insurers to turn down claims because of minor technicalities.

In London, the Lloyd’s Market Association, which represents underwriters at the historic
insurance market, has called on regulators to tighten disclosure requirements.

Aon said: “Our view on transparency and best value for price in the industry is well known.
Contingent commissions are not and never have been an important part of our business
strategy.”

Marsh said: “Clients care a great deal about the level of transparency and disclosure around
their broker’s remuneration, and Marsh believes it leads the industry in these areas. We
provide details of how we are paid so that clients can make fully informed insurance-
purchasing decisions.”

People close to rival brokers highlight that Willis itself last year began accepting contingent
commissions for employee benefits business in the US.

Willis argues it had to do so to remain competitive. It declined to quantify how much it


receives from the payments but said it is confined to this particular line of business.

Aon and Marsh also declined to quantify how much they receive from such payments.

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