After several years of decline, new studies show contingency compensation is again on the rise. And it seems, so are the groups of agents and brokers who accept them.
In a shocking reversal of position, it appears that Willis will accept “traditional contingent commissions and bonus payments” again on the company’s employee benefits business—beginning on April 1. The recent trade press headline, “Willis says revenue up, will take contingents on benefits business,” is nothing short of stunning, considering the “public awareness campaign” conducted by Willis CEO Joe Plumeri for years against contingent compensation.
Contingent commission payouts are estimated to be 12% higher in 2012 than 2011 based on a study conducted by Ward Group of agency compensation and management practices at property-casualty insurance companies. The comprehensive study focused on commission practices, agent incentives and other agency management practices, and includes aggregated results from 2010 and 2011 for a diverse group of 69 companies. And the trend does not just apply to independent agencies. According to the latest Bank-Insurance Viability Index, a quarterly report compiled by MarshBerry and sponsored by the American Bankers Insurance Association, an analysis of bank-owned agencies showed contingent income grew 7.4% for the last quarter of 2011.
I guess Plumeri has decided to rejoin those mere mortals whose practices he stridently maligned in the agent and broker world by accepting contingent commissions, with the company’s rationale for the change based on the need to “ensure its competitive position.” Remember when Mr. Plumeri said that “it would be better if no agent or broker took [contingency payments], and no carrier paid them”? He maligned the legal and legitimate industry practice of incentive compensation and labeled a competitor’s decision to accept it as “back door payments from carriers” that are “troublesome and ambiguous.”
Even as recently as September 2010, Plumeri adamantly spoke out in the press against the practice. “When it became legal to accept contingent commissions again, Marsh and Aon resumed. Besides an acquired company’s program that we’re shutting down, Willis is the only one that doesn’t take them worldwide,” Plumeri said in Business Week. “I made this decision in 2004, and I’m sticking to it…of course I want to get paid. I’m just not going to be paid based on how profitable the business is for the insurer. I don’t think it’s the right thing to do.”
Plumeri’s self-serving business strategy has been to attack others in the insurance industry for accepting lawful payments while leveraging Willis’ own volume to negotiate higher up-front levels of commission. When asked in 2010 at a Risk and Insurance Management Society conference if Willis makes up for lost income from incentive compensation through such higher up-front compensation, Plumeri responded: “Of course, we have. Just because we won’t accept contingents doesn’t mean we don’t expect to be paid for our services.” His explanation for why incentive compensation is not OK but higher up-front commission is is that the higher up-front commission is “not enough to influence the placement decision.”
A Willis statement regarding its decision to accept contingent commission and bonus payments for its employee benefits business went on to note that, “As a result of this change in its employee benefits business, the company is also reviewing its corporate policies, public documents, and its compensation disclosure processes generally.”
So, this all begs a few questions. Does it mean Willis will abandon its public position opposing lawful incentive compensation after years of attacking it? And if so, is Willis now just recognizing what IIABA has said since the outset of attention and litigation on this issue—that agents and brokers should be able to accept lawful incentive compensation, which has been used to reward sales excellence in virtually all sales environments? And, does Willis understand that agents and brokers who accept incentive compensation conduct business like Willis indicates it is committed to doing—with “integrity and in [their] clients best interests”?
The Big “I” supports the right of agents and brokers to accept lawful payments, be they in the form of up-front commission or year-end incentive compensation. And, we continue to fully support clear, accurate and timely responses to clients’ questions or concerns about compensation.
I suppose it’s better late than never, but it would be good for the insurance industry and consumers to hear Plumeri say what he should have known all along, and what the change in position at Willis indicates—that accepting incentive compensation does not in any way undermine or diminish the integrity of independent agents and brokers in serving their clients’ best interests. Although he never responded to my 2010 challenge to publish the firm’s commissions on policies along with industry information on the average commissions for that line of coverage as part of his commitment to transparency, my hope is that he will do the right thing now by making a public statement acknowledging that accepting incentive compensation does not in any way undermine or diminish the integrity of independent agents and brokers in serving their clients’ best interests.
Bob Rusbuldt (email@example.com) is Big “I” president & CEO.