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Ace CEO Greenberg Says Contingent Commissions A Conflict

Posted on 29 Jul 2010

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Ace Ltd. Chief Executive Officer Evan Greenberg said that contingent commissions, the once-banned payments that insurers pay to entice brokers, create a conflict of interest and ought not to become prevalent again.

Aon Corp., the biggest insurance broker, said last week it is considering bringing back the once-hidden payments that insurers pay to supplement the fees it takes from the buyers of coverage. Marsh & McLennan Cos., ranked second by brokerage revenue, said in March it will take contingent commissions at its unit serving mid-size U.S. clients.

“If customers tolerate the practice of contingents, their use over time will likely become more prevalent,” Greenberg said on a conference call with investors today. “Frankly, I hope that does not occur.” Ace, based in Zurich, is a provider of commercial liability and property-casualty insurance.

Regulators in New York, Connecticut and Illinois in February released the two insurance brokers and Willis Group Holdings Plc, the No. 3 broker, from a ban on accepting contingent commissions. The ban resulted from a 2005 probe by former New York Attorney General Eliot Spitzer.

Brokers are supposed to find the best insurance policies for clients, so the insurance companies’ payments to the brokers to direct business to them were a conflict of interest, Spitzer alleged at the time. He negotiated a ban on the practice to settle investigations of fraud and anticompetitive practices.

Following the states’ February lifting of the ban, brokers now must reveal the contingent fees if clients ask.

“Unlike agents who represent insurance companies, brokers represent their clients,” the purchasers of the insurance coverage, Greenberg said on the conference call. “In fact, if I had it my way, clients and not insurers would compensate brokers. But that’s just not a reality.”

Aon, based in Chicago, and New York-based Marsh & McLennan appealed to officials for redress in 2008 as regulators opened a review. London-based Willis said it won’t take contingents and called Aon’s stance last week “troublesome and ambiguous.”