LONDON: Many insurance brokers still rake in money from controversial fees paid by insurers, in spite of a legal and ethical furore over accepting them.

The lucrative practice of accepting "contingent commissions," which some insurers pay brokers for business brought to them, has come under intense scrutiny since New York Attorney General Eliot Spitzer sued Marsh & McLennan Cos for rigging bids and fixing prices last October.

The largest brokers - Marsh, Aon Corp and Willis Group Holdings - swiftly abandoned the practice under pressure from US State prosecutors, investors and large corporate clients.

But the fees remain a common feature in the industry.

"Most of the (other brokers) still take contingent commissions, and a lot of insurance companies still pay them," said Joe Plumeri, chairman and chief executive of the world's third-largest broker, Willis Group, in a speech last Tuesday.

Willis abandoned contingent fees last October.

The payments are unethical kickbacks, say US prosecutors, who have extracted more than US$1 billion from the two largest brokers, Marsh and Aon, to settle lawsuits alleging, in part, they received hundreds of millions of US dollars from insurers by steering unwitting clients to them.

But regulators, including the National Association of Insurance Commissioners in the United States and the United Kindom's Financial Services Authority (FSA), seem to disagree with the prosecutors, and have chosen not to outlaw brokers from accepting these fees.

Sarah Dalgarno, manager of FSA's Wholesale Insurance Department, told an industry seminar last month: "Banning inducements would have been very difficult to justify, as there is no evidence of detriment arising to customers," in the United Kingdom.

Whether the payment of contingent commissions leads to a conflict of interest would depend on how professionally they are managed by senior executives at the insurers and brokers, Dalgarno said.

FSA is to hold meetings with dozens of UK brokers this month to assess how well they identify and manage potential conflicts of interest, Dalgarno said.

A damaging schism may be developing in the industry, observers say.

"We have been warning of the danger of a two-tier system emerging," said Richard Gamble, executive director of Airmic, which represents UK corporate insurance buyers.

On one side are large, multinational, publicly traded brokers that have stopped taking the fees. On the other side are smaller, privately owned national brokers who still accept them.

Plumeri used a medical metaphor to question the current situation.

"I don't understand this. Why is my cholesterol bad, but for the others it is good?"

All brokers should abandon contingent commissions, because they create the perception of a conflict of interest in clients' eyes, Plumeri said.

"The industry should say enough!" he said. "Step up rather than con ourselves."

However, the UK's largest broker, Jardine Lloyd Thompson (JLT), said last week it might review its earlier decision to shun contingent commissions. It said its profits are suffering compared with those of smaller, regional brokers in Britain, the United States and Asia, who still routinely accept these fees.

JLT Executive Chairman Ken Carter said at the time, "We are not going to put ourselves at a commercial disadvantage to many of our competitors."

Carter said JLT's decision to abandon the fees, which could reduce its profits this year by up to 8 million pounds (US$15.3 million), "hasn't led to the creation of the level playing field that we had hoped for," as many rivals still accept the fees.

Agencies via Xinhua

(China Daily 03/14/2005 page6)