Like the proverbial skunk at a garden party, I spoiled a perfectly civil panel discussion among three mega-brokers on "leveraging innovation as a market differentiator" by asking what innovations were ahead to replace the billions their firms surrendered in contingency fees to settle bid-rigging allegations. Their responses showed there are indeed still hard feelings on the subject.
"The playing field is ridiculously unlevel," grumbled Don Bailey, CEO of Willis North America, during the 19th Annual P-C Executive Conference, sponsored by the National Underwriter Company and a host of top rating, consulting, private equity and law firms.
"Four people gave up contingency fees, while thousands of brokers did not," he added, noting that some insurers and brokers are scrambling to come up with new forms of compensation that will pass muster with regulators and buyers.
"New supplemental commissions may just be contingency fees in drag," he warned.
While conceding that "transparency is a given--clients should know what brokers make on their accounts," he said that "it is impossible to have an intelligent conversation about this" while a handful of major brokers are prohibited from taking contingency fees, but the vast majority can do so and keep that fact from the buying public.
"It's obviously a high point of frustration for us," he added.
"On the retail side, it's a bit absurd and even surreal," said Ted Devine, CEO of Aon Re Global. "Contingencies have not gone away, except for three or four firms."
He predicted there would be "a lot of innovative thought on remuneration"--with future brokerage fees perhaps following the "transaction-based capital markets model."
"When we're in a bake-off with a broker who does not have to disclose their compensation plans, it is fundamentally unfair," complained Norman Brown, managing director and head of product development at Marsh. "We need to level the playing field."
As I mentioned the other day, New York is moving to do just that, with a draft regulation due soon that would require all retail brokers to reveal all compensation schemes to buyers.
The three brokers on yesterday's panel were clearly steaming about their competitive disadvantage, but I detected little sympathy among attendees--one of whom caught my eye and pantomimed someone playing a violin to mock the panelists' laments.
As for me, I would quote the street savvy TV detective Tony Baretta, who said, "Don't do the crime if you can't do the time."
Comments (3)
I could not agree more with your closing comments!
They complain that the playing field is unlevel? Was it level when they were rigging bids?
They made their beds....let them sleep in them. No sympathy!
Posted by Thom Bradshaw | November 12, 2007 11:57 AM
Posted on November 12, 2007 11:57
The mega-brokers just don't seem to get it. They engage in patently illegal acts, then when they get caught, pony up and swear off the error of their ways, they become as pious about contingent commissions (which aren't illegal) as a reformed smoker who thinks everyone else should also quit smoking.
They ignore the fact that the majority of brokers are also agents, not solely representing the policyholder as do the giants. They refuse to acknowledge that incentive compensation for good performance is built into the sales culture throughout the entire business community, and rightly so.
But the part I don't get is their whining about not having a level playing field---as if the contingent income an agent might receive 3 months after the end of the year on his entire book of business somehow allows him to underprice the big brokers when fighting to get a particular account.
If anything, it is the agent who lacks a level playing field when competing against the market clout the big brokers have with carriers.
But the funniest epilogue to the whole matter is the way the big brokers are now squirming to get extra compensation and dress it in different clothes. I love it!
As for the holy grail of "transparency," it's okay for huge brokerage accounts mostly transacted on a fee basis and won't hurt anybody if it gains traction.
But if the New York plan gets enacted, there will be a lot of issues on how to present to a lay person the effect of a "maybe" contingent commission on an entire book of business.
My guess is that it will ultimately be confusing to the client (not a benefit) and won't affect his view of the broker's capability anyway.
Because ultimately an insured will put his business with a broker/agent that provides great service and a good cost/coverage equation. Can we get our eye back on that ball instead of on how much everyone's making?
Posted by Philip Lieberman | November 16, 2007 11:30 AM
Posted on November 16, 2007 11:30
Sam,
It is nice to see you stand up to those guys.
Mr. Bailey is right. The playing field is unlevel--he just has the tilt all wrong.
Most of us can’t trade on our name, most of us don’t have an army of Orks to do our bidding and most of us NEVER GOT BIG CONTINGENCY CHECKS IN THE FIRST PLACE.
What goes as a contingency check around most agencies wouldn’t cover the annual membership fee at his country club.
I’m a gentleman farmer, so allow me to use a metaphor. If I catch a big horse stealing feed, I don’t starve all of the other animals in the barn. I just lock the horse away for a few days then put him back on standard rations.
The horse isn’t smart enough to understand this, but all that feed was never good for him in the first place. It just made him an arrogant beast with a messy stall and upset the balance everywhere.
And in correcting the matter, I take as much time to worry about “fair” as he did when he buried his snout in the feed bag and kicked anyone who came near.
The big brokers did this to themselves, they got what they deserve, and they just can’t believe that the party’s over.
How many accounts do you think those huge shops still have because of some dirty trick they pulled years ago to get the business in the first place?
How many CSRs and mailroom people did they lay off to cover the cost of being dirty?
Down here, where the employee gets looked in the eye, it’s a bit more complex.
Posted by Angry Agent | November 27, 2007 4:31 PM
Posted on November 27, 2007 16:31