Arthur J. Gallagher & Co., the fourth-biggest insurance broker in the United States, says it has reached a nationwide agreement with Illinois regulators releasing it from contingent commission prohibitions. Gallagher said the agreement allows it to begin taking contingent commissions October 1. The firm was one of four brokers that agreed to drop the contingent fees in 2004 after a New York state investigation alleged that the lucrative commissions served as a reward for rigging bids and steering commercial insurance clients to certain insurers. Marsh, Aon and Willis agreed to end taking the commissions at that time, and that has not changed to date.

J. Patrick Gallagher Jr., chairman, president and chief executive officer, said since the agreement was reached in 2004, he has been to the office of Attorney General Lisa Madigan 25 times to discuss the issue. He said when Gallagher agreed to eliminate contingent commissions it was with the understanding that there would be an open discussion on the issue if the rest of the industry did not eliminate them. “We vehemently disagreed that contingent commissions were in any way illegal or immoral. We’ve said all along that we were willing to give them up if the rest of the industry was going to follow.”

The Risk and Insurance Management Society (RIMS) immediately condemned the decision. Willis Group Holdings Ltd. also disagreed with the Illinois AG decision. According to Business Insurance, during a July 30 analyst conference call, Willis Chairman and Chief Executive Officer Joe Plumeri reiterated previous statements that Willis will not collect the contingent commission payments from insurers because they pose an inherent conflict of interest with clients. “That doesn’t mean I don’t expect to be paid…like others,” Plumeri said. If an insurance company pays a competitor a certain amount in contingents “I expect to be paid the same amount,” just not in the form of a fee that is contingent on profits or volume, he said, adding that such contingents pose an inherent conflict of interest with clients.

Brokers React to A.J. Gallagher Getting Contingents Back (National Underwriter 7/30/09)

RIMS Fears All Brokers Will Get Contingents Okay (National Underwriter 7/30/09)

Willis Will Not Collect Contingent Commissions (Business Insurance 7/30/09)

August 4, 2009