MONTREAL—Accepting a contingent commission creates an inherent conflict for brokers, according to top executives of the world's three largest brokerages, who said the practice should be abolished across the insurance brokerage industry.

Michael G. Cherkasky, president and chief executive officer of New York-based Marsh & McLennan Cos. Inc.; Patrick G. Ryan, executive chairman of Chicago-based Aon Corp.; and Joseph Plumeri, chairman and CEO of London-based Willis Group Holdings Ltd., all spoke of their opposition to the continued acceptance of contingent commissions during the 30th annual Canadian Risk Management Conference in Montreal.

The practice should be discontinued because the subjective judgment of brokers while they are recommending a placement cannot be audited if they have a profit motive to give business to an underwriter, Mr. Cherkasky said. "You have to be able to rely on (your broker's advice) and I'm telling you, no matter how transparent, no matter how much you have a relationship, it's a bad practice if that person is taking a contingent," he said. "It's not auditable that they are doing it for your best interest and therefore, we cannot allow it."

He apologized for Marsh & McLennan's role in the current insurance industry crisis and for causing risk managers to question whether Marsh was acting in their best interests. "We're ashamed at Marsh that, in fact, we allowed that question to be raised," he said. "We're ashamed of a few people who in fact betrayed the trust of our clients."

MMC earlier this year agreed to pay $850 million in restitution to settle charges of bid rigging and steering leveled by New York Attorney General Eliot Spitzer. Aon and Willis soon followed suit, settling charges and concerns by state authorities that they steered business to insurers paying the highest contingent commissions. The settlements by all three brokerages total more than $1.0 billion.

While settlements reached with MMC, Aon and Willis call for the elimination of contingent commissions, another major brokerage's recent settlement sanctions such commissions for its agency business. Glen Allen, Va.-based Hilb, Rogal & Hobbs Co.'s settlement with Connecticut Attorney General Richard Blumenthal allows HRH to keep contingents when it acts as an agency but not when it places business as a broker.

The fact that some brokers continue to accept contingent commissions has created an unlevel playing field, Mr. Plumeri said. "Anytime that you have 20% or 30% of your profits that come from some place other than your client, it is impossible to always do the right thing," he said. "You've got to have an inherent conflict because it's so much a part of your bottom line."

Mr. Ryan said contingent commissions should be abolished for all brokers. "My personal belief is that if you take a contingent commission, then you're really an agent for the underwriter. You're not a broker," he said.

Aon is forced to do business with underwriters who are still paying contingent commissions to brokers and agents who accept them, Mr. Ryan noted. "We don't have the luxury, because of market capacity issues, to say that we won't do business with an underwriter that pays contingent commissions," he said. "As a matter of fact, I would think the regulators would not allow us to do that in that we have a settlement agreement to go out and get the best terms, like we always did anyhow. And they may come from an underwriter that pays contingent commissions."

Aon has made a conscious decision not to allow underwriters to pocket any funds that were previously paid to the brokerage as a contingent commission, Mr. Ryan said. "We are very diligent in negotiating terms that keeps them from in effect increasing their profitability by recovering what was paid as a contingent commission," he said.

Ellen Vinck, president of the Risk & Insurance Management Society Inc. and vp-risk management, benefits and safety for United States Marine Repair Inc. in San Diego, agreed with that stance. "I personally, as a risk manager, would like to see a reduction in my premiums equivalent to the contingent commissions that were being paid," she said. "And I think that's fair."

Mr. Plumeri suggested that all the contingent commissions not being paid by insurers to brokers should be used to create technology so insurers can issue insurance policies and pay claims more quickly. "They've got billions of dollars at their disposal to do it," he said.

While stressing that he was not shifting the blame for the contingent commission crisis, Mr. Cherkasky encouraged risk managers to be more involved with the placement of insurance. "A broker is simply an adviser, not a decision maker," he said. "Passive, uninvolved, unknowledgeable, undemanding risk managers simply are more likely to be taken advantage of."

During the question-and-answer period, the brokers were asked about a wide range of other topics, including the impact of Hurricane Katrina on the insurance industry.

Mr. Ryan said underwriters have been informed that brokers and regulators are viewing losses suffered due to Hurricane Katrina as wind-driven losses, which would make policyholders eligible for reimbursement.

"So to be hiding behind flooding, saying it's not covered, is going to be a very difficult position to take," Mr. Ryan said. "So we are encouraging them to be aggressive and assume the responsibility. That's our position; it's not necessarily going to be the underwriter's position."