Recent industry press headlines announced: “Spitzer-era ban on contingent commissions for the world’s biggest insurance brokers has been lifted.” Aon, Marsh and Willis have a new agreement with the attorneys general of New York, Illinois and Connecticut that releases them from settlements signed in 2005, banning them from accepting contingent commissions. The new agreement also reduces their disclosure requirements in all 50 states to that which is required in the New York regulation released last week. This announcement comes, not coincidentally, on the heels of the New York State Insurance Department’s release of the final version of its disclosure regulation, slated to go into effect in January 2011. After the announcement was made, Willis CEO Joe Plumeri stated publicly that his firm still will not accept contingent commissions, to the uninformed; Plumeri was appearing to take the high road as he will no doubt continue to push for his view of a “level playing field,” by insisting all producers share the punishment of eliminating contingent agreements.

Mr. Plumeri’s announcement makes me wonder about Willis’s commission structure overall. Is the firm really taking the high road, as it would appear, or is it that Willis has negotiated a commission structure that doesn’t require contingent commission to make it whole? Has Willis really been hurt by a lack of contingent commissions? ...It seems only logical that a brokerage of that scope would be able to negotiate a far more favorable commission structure with its carriers than Main Street agents like you and me. A quick look at the firm’s most recent annual report shows Willis has enjoyed a steady increase in income since 2004, despite the adverse economic climate and the continued soft market. What agency do you know that has done that well recently? Two years ago in this column, I expressed my umbrage over Mr. Plumeri’s testimony before the NYSID, in which he declared that Willis would forego contingent commission— again, appearing to take the high road, rather than admitting that it had little choice in light of the allegations against his firm.

I said it before, and I’ll say it again: Anyone who believes Willis and other mega-brokers gave up their contingent commissions for altruistic reasons, or that they are not compensated differently than we Main Street agents, is naive and misguided. Unlike mega-brokers, which appear to be doing just fine with their new contingent- less compensation structure, it is an absolute fact that Main Street agents need contingent commissions to survive. In the public hearings held by the NYSID during the development of the disclosure regulation that was announced earlier this month, PIANY and other producer associations testified that any action to eliminate contingent commissions for all producers, as some (including Willis) were proposing, would be unwise, unfair, and critically damaging to agencies.

As PIANY argued, contingent commissions function as an incentive for insurance producers to properly underwrite business for the long term. Producers keep their “skin in the game,” beyond the initial sale, by depending for part of their compensation on the lasting quality of the business they bring in. Proper upfront underwriting and pricing in turn protects the stability of the market and financial soundness of insurance carriers. Contrast this approach to the “book and dump” mentality of some direct auto sellers.

Fortunately for us, and because right is right, courts later deemed that there is nothing illegal about contingent commissions. Regulators then turned their attention wholly toward compensation disclosure. Much has been written in recent weeks about the disclosure regulation that the NYSID published earlier this month, and there are still many pages to turn before we reach the end of the story. What we do know now is that, despite the wishes of some in our industry, contingent commissions remain legal and functional. Apparently, they have once more been deemed to be appropriate for the mega-brokers that were responsible for the initiation of all of this mess in the first place. However ironic I find that, I’ll accept it, since my own contingent agreements remain intact… At least for now.