The Risk and Insurance Management Society (RIMS) has taken a strong stance against contingent agent and brokerage fees. A recent article in the National Underwriter Property and Casualty Online Edition suggests the debate of this topic may be heating up again.

In 2005, then New York Attorney General Elliot Spitzer filed lawsuits against the major brokerage firms with strong proof of bid rigging and collusion of major policyholder accounts. As part of the settlement of those suits, the large brokerage firms agreed to stop the practice of accepting secret “contingent” brokerage fees from the insurance companies. Now, Illinois has approved contingent fees for one brokerage firm. Many corporate risk managers are not going to be happy with that because they feel the money should go to the policyholder rather than their agents and brokers.

The statement by RIMS was clear:

“RIMS, in its statement released yesterday, said the organization “has consistently stated that contingent commissions should be broadly prohibited as they represent an inherent conflict of interest. …

…RIMS suspects “what will happen is that once New York passes this new regulation on transparency and disclosure for brokers to comply with, that the New York Attorney General’s office will probably lift the settlement agreements with the ‘big three’ that they settled with several years ago,” He added, “RIMS favors a prohibition on contingency fees—across the board—because they represent a conflict of interest.”

I suspect that many corporate policyholders may find it financially worthwhile to request their brokers to disclose the contingent fees and ask that the insurer provide a lower rate rather than a greater fee for the agent. I can almost guarantee there will be litigation over this issue in the future if the practice is re-instated.