Canadian Underwriter

RIMS would support ban on contingent commissions

November 16, 2004   by Canadian Underwriter

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Testifying before a Senate subcommittee on the issue of broker compensation, a representative of the world’s largest risk management organization says her group would support a ban on contingent commissions.
The Risk & Insurance Management Society (RIMS), which represents commercial insurance buyers, has long advocated the need for disclusre of broker compensation agreements with insurers. Speaking to a subcommittee of the Senate Committee on Governmental Affairs, RIMS vice president of external affairs Janice Ochenkowski says, “as the facts are becoming known and the investigation into placement service agreements continues, in an effort to address the potential conflict-of-interest issue, RIMS would support a prohibition on the use of placement service agreements by insurers and brokers.” She notes that the world’s largest insurers Marsh, Willis and Aon have already stated they will no longer use such forms of compensation.
RIMS has tackled the issue of contingent commissions twice in the past six years, coming out with position papers in both 1999 and early 2004, both times calling for full disclosure of how brokers are compensated by insurers. In 1999, RIMS said brokers should disclose such information upon request, but in 2004 said that such disclosure should take place whether the client requests it or not, and Ochenkowski says this disclosure should be made in writing. “Complete disclosure of all compensation arrangements will go a long way to promoting transparency, reestablishing the trust between the broker and the customer, and providing customers with sufficient information to evaluate any potential conflicts of interest in the placement of insurance policies.”
Ochenkowski says this trust relationship has been impaired by allegations laid against brokers and insurers by New York Attorney General Eliot Spitzer. While Spitzer has filed civil charges against Marsh and Universal Life Resources only, his has publicly accused the industry of widespread “steering” of clients to carriers based solely on compensation agreements and not the clients’ best interest.
“RIMS is shocked by recent allegations of illegal activities by certain brokers and insurance companies in the placement of insurance contracts,” she told the Senate subcommittee. “We have been particularly distressed by the findings and allegations by New York Attorney General Spitzer that insurance brokers have violated their position as a trusted advisor to their clients by steering clients to favored insurance companies and engaging in bid-rigging schemes.”
Ochenkowski adds that whatever approach is taken to deal with the compensation issues, the best interest of buyers needs to be at the heart, and that RIMS advocates a national approach rather than “51 different approaches” to the issue.