Contingent commissions took center stage at a broker and insurer executive panel Monday at the Risk & Insurance Management Society Inc.’s annual conference.

Industry leaders also discussed what might trigger a market turn.

Acknowledging the continued controversy surrounding contingent commissions, top executives from both the brokerage and insurer sides of the business weighed in on the issue.

“I don’t think contingent commissions are the litmus test for whether the broker has a conflict of interest or not. All insurer carrier revenue streams…have the potential of creating a conflict of interest,” said Dan Glaser, chairman and CEO of New York-based broker Marsh Inc. “Really, the way we address conflicts of interest is with full transparency and disclosure; systems and controls around the management of conflicts; and having an open dialogue with the client about the potential conflicts.”

“There’s only one thing that came out of the Spitzer-era that I truly believe was appropriate and is consistent with professional dealings and that is 100% transparency,” said J. Patrick Gallagher Jr., chairman, president and CEO of Arthur J. Gallagher & Co. in Itasca, Ill. “We disclose…contingents, we disclose supplementals, and if you as a buyer do not want us to participate in contingent or supplemental (arrangements), we make sure that your account is excluded from that. It’s just that simple,” he said.

“You can get up and rail about the evilness of contingent commissions, (but) the industry’s been doing this for over 100 years, and it’s not inappropriate, especially if your client agrees” to it, Mr. Gallagher said.

John Lumelleau, president and CEO of Kansas City, Mo.-based Lockton Cos., agreed that transparency is key.

“It’s never a bad idea for our clients to know what we earn,” he said. “We don’t look to hide it. We look to share it, and whenever that there is anything even remotely related to a disservice to our client base,” by accepting contingent commissions. “If there were, we quite frankly believe we would have seen that in our results.”

While not addressing whether Aon Corp. specifically plans to resume collecting contingents, Greg Case, the Chicago broker’s president and CEO, said the issue really revolves around the value Aon provides clients and the price paid for that value.

“We live and die on that,” he said, but “that equation only works with great transparency. Clients have to understand in every way, shape and form exactly what we charge and the way we charge. And while we certainly applaud some of the efforts around a movement toward greater transparency…we can go much, much further making sure that across the industry, clients understand exactly what they paid for and the value it’s providing.”

The issue of contingent commissions also was addressed during a second panel featuring the leaders of some of the nation’s largest property/casualty insurers.

Evan Greenberg, chairman of Zurich-based ACE Ltd., said that if he had his way “there would be no conflict of interest; the client would simply pay the broker. But that’s not the world we live in and disclosure is what is considered the way to cure this.”

“Clearly we’ve taken a very public stand that profit sharing for agents is appropriate and we’re willing to litigate it,” said Edmund Kelly, chairman, president and CEO of Boston-based Liberty Mutual Group Inc. “We think the agent works for us, with us and represents us, and to the extent that they can help us produce a better book of business benefits everyone.”

As for insurers paying contingent commissions to brokers, Mr. Kelly said he believes brokers should be paid exclusively by the insurance buyer.

Rather than focusing on how agents and brokers are compensated, the industry should be focused more on improving efficiency, said Kristian Moor, president and CEO of New York-based Chartis Inc.

Brokers and risk managers “should demand a lot more on the service side, on policy service, on policy issuance, on quoting, on all of the services that the industry provides….and take the cost out of the industry instead of increasing prices.”

Shivan S. Subramaniam, chairman and CEO of Johnston, R.I.-based Factory Mutual Insurance Co., which does business as FM Global, noted that he supports RIMS’ position that contingent commissions should be abolished from the brokerage industry.

The insurer executives also addressed the lingering soft pricing environment and what could trigger a market turn.

“I have to tell you, if cats are going to move this industry in a broad way, it’s going to have to be one hell of a cat season,” said ACE’s Mr. Greenberg, estimating it would take “well over $50 billion worth of cats” to turn the insurance market.

However, a return of high inflation would significantly harden the property/casualty market, Mr. Kelly warned. “The fundamental thing that has driven insurance pricing for 12 years is low inflation. Nothing, nothing is more damaging to the insurance market than inflation. We’ve had no inflation. It’s good for you, and it’s good for us.”

However, if inflation returns, which Mr. Kelly said is very likely to happen if the government raises taxes to reduce the deficit, “it will be a different world,” he said.