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IT IS NOT SURPRISING that the Risk & Insurance Management Society Inc. has come out against broker contingent commission arrangements.
What is baffling, though, is that it took RIMS so long to oppose an arrangement that is obviously against the best interests of its members.
As late as 2005--long after the contingent commission scandal broke in which Marsh & McLennan Cos. Inc. was accused of rigging premium quotes to maximize its income from compensation agreements with insurers--RIMS' position was that brokers should fully disclose their compensation arrangements to buyers.
Now RIMS says transparency is not enough. Contingent commissions, RIMS says, must go. It says contingents are an inherent conflict of interest and can be manipulated to the disadvantage of corporate buyers.
We couldn't agree more.
As we wrote in 2004 when then-New York Attorney General Eliot Spitzer leveled bid-rigging charges, if a broker knows that its compensation will be increased by a contingent commission, it may be tempted to step away from its duty to obtain what is best for clients. Agents, which represent insurers, can accept such payments because their relationship with buyers differs from that of brokers.
Just as important as RIMS' unconditional opposition to broker contingent commission arrangements is its admonition to its members to speak out on the issue. We have no doubt that if risk managers had fought contingents when they first appeared years ago, the arrangements would have died.
Now, as some insurers launch a replacement for contingents--supplemental commissions--buyers must oppose any arrangement that could encourage brokers not to act in their clients' best interest.