NEW YORK, Jul 25, 2008 (BUSINESS WIRE) ----Don Bailey, CEO of Willis North America, a subsidiary of Willis Group Holdings (NYSE: WSH: 31.08, -0.02, -0.06%), the global insurance broker, today told members of the New York Superintendent of Insurance and Attorney General's panel that the insurance industry has failed on its own to reform the practice of contingent commission payments to brokers and said regulators must finish the job begun by former Attorney General Eliot Spitzer in 2004.
Among the major insurance brokers to testify at hearings today in Manhattan, Willis was the only one to take a stand against the practice of insurance companies paying contingent commissions to brokers.
"The practice of contingent commission payments is fundamentally at odds with the best interest of clients," Mr. Bailey said. "We continue to believe strongly that former Attorney General Spitzer missed a great opportunity to do the right thing by banning all brokers from accepting contingents. For whatever reason, he left the job unfinished. The result is the largest brokers now work within new boundaries, but the rest of the industry does not work within the same boundaries.
"If we are truly serious about raising standards in our industry, a formal ban of contingent compensation agreements is the right thing to do," Mr. Bailey continued. "We can live with regulation and the higher cost of compliance - even if it makes us work harder to drive more profitability for our business. But we believe we have a right to expect that this regulation be uniform across the industry."
Mr. Bailey's testimony today was the second time he has addressed a public hearing in New York State this month as officials consider a proposed regulation on the subject of insurance producer compensation standards and disclosure. On July 14, Mr. Bailey testified in Buffalo, N.Y.
In October 2004, Willis became the first insurance broker to voluntarily commit to ending the practice of accepting contingent commissions. As part of that initiative, Willis established a Client Bill of Rights - a 10-point document emphasizing the Company's commitment to client service, transparency and best practices.
Over the last several years, Willis executives have been outspoken public advocates of applying a consistent standard for compensation practices and transparency in disclosure in order to strengthen client confidence and faith in the insurance industry.
About Willis Group Holdings
Willis Group Holdings Limited (NYSE: WSH: 31.08, -0.02, -0.06%) is a leading global insurance broker, developing and delivering professional insurance, reinsurance, risk management, financial and human resource consulting and actuarial services to corporations, public entities and institutions around the world. Willis has more than 300 offices in some 100 countries, with a global team of approximately 16,000 Associates serving clients in some 190 countries. Additional information on Willis may be found at
www.willis.com.
Editor's Note: A copy of the full text of Mr. Bailey's testimony can be found below:
ORAL TESTIMONY FOR JULY 25, 2008 PUBLIC HEARING DON BAILEY, CEO,
WILLIS NORTH AMERICA WILLIS GROUP HOLDINGS Good morning. I'm pleased to have the opportunity to return to this panel on behalf of my colleagues at Willis Group for further discussion of our views on issues surrounding insurance producer compensation. Our last discussion was productive and stimulating, and I look forward to another interesting session as you conduct a thorough analysis of these issues. Judging by the questions that you asked at the last hearing, it is clear that this panel is committed to a thoughtful review of the current standards. I know I learned a few things about our industry during our meeting in Buffalo.
In the time allotted to me, I'd first like to talk about how we do business at Willis - with the clients' best interest always in mind, and compare that with some of the testimony we heard in Buffalo. As you know, in 2004 we established a Client Bill of Rights - a 10-point document emphasizing our commitment to client service, transparency and best practices.
It's the framework for what clients can and should expect from us - to make sure we always have our eyes squarely on their best interests. That focus has served us - and our clients - very well in recent years.
But when I listened to the extended testimony of independent brokers in Buffalo, I heard a distinctly different story.
What did they tell us?
-- We heard them say they see nothing wrong with the practice of paying contingent commissions, and that this type of compensation should only be disclosed if the client asks for the information.
-- We heard a broker refer to contingent payments as really a form of "profit sharing."
-- We heard that it is also acceptable to receive contingent payment in different forms... extravagant trips, special gifts and even money for office expenses.
I would respectfully submit that these opinions are, in fact, representative of the views of our competitors in the independent brokerage industry.
I personally find this viewpoint very disappointing. Using a term like "profit sharing" to describe contingent payments provides a clear picture of where true loyalties lie, and illustrates that at least some brokers consider the insurer to be their de facto employer.
But this is not the broker's role, and I would submit to the panel that this is why former Attorney General Spitzer first became interested in the issue of contingent compensation. Insurance companies are important business partners for brokers; however, we are not their employees. We are in business to help our clients get the right coverage for the best possible price. Clients need to be absolutely certain that their brokers keep their interests paramount.
Otherwise, they will question the integrity of the services we provide. We heard that some brokers do not think contingent payments are a conflict of interest. If they really believe that, then why do they still track volume and profitability with carriers on a monthly or quarterly basis?
We feel strongly that this "profit sharing" subsidy from insurers is fundamentally at odds with the interests of clients. It is the reason why we were the first major insurance broker to voluntarily commit to end the practice of accepting contingent commissions. We don't want compensation directly correlated to volume or profit. We want to be paid based on the service we provide and the value we give to clients. But I am personally disappointed that so few of my peers in the industry have chosen to take the same step.
I would again submit that we brokers who do not accept contingents - or supplementals, or whatever term you want to use to describe them - are operating at a competitive disadvantage. We are constrained in our ability to compete on price with those who still accept contingents.
As I said in Buffalo, we must routinely explain to potential clients that our prices are higher because we don't accept contingent commissions. On the other side, we've learned our independent competitors have no interest in full disclosure. I think it's clear why that is the case - they know contingents help them compete on price, and they don't want to see this important advantage erode.
We've been able to succeed at Willis - despite this disadvantage - because we've changed our business . You asked how we explain our position to our shareholders... we do it by acknowledging that you cannot put a price on integrity and by showing how we have worked harder and smarter to make up the lost revenue.
We see ourselves as true advocates for our clients. That means our mission is to make sure claims get paid; contracts are delivered quickly, and that we are committed to placing our clients' business with carriers who can best meet their needs.
As part of that commitment, we developed the Willis Quality Index to capture, analyze and share vital carrier information. Through qualitative information from Willis associates across the globe, and using quantitative data and measurements from our various tracking systems, we are able to help clients make better-informed carrier choices and demonstrate our commitment to raising standards and service levels.
We've also succeeded because of our clear reputation in the industry for integrity. We know that you can't measure integrity in a tangible way, but we clearly gain significant benefits from it. We've worked hard to build a great company with a successful business , and we focus every day on preserving our reputation by acting in a way that provides even more value for our clients and, ultimately, our shareholders.
Still, it's hard for us to just overlook the fact that we are working within a two-tiered system with regard to contingent payments, and that there is a tangible economic benefit to those who continue to accept them.
We know we are doing the right thing, but we are certainly paying for it - we are clearly disadvantaged both in terms of revenue and the cost of compliance.
It's hard for us to accept this uneven playing field and the sense that we have been unfairly penalized because regulatory action did not go far enough. Despite our hopes, it's clear the industry has not corrected this issue on its own in the last three-and-a-half years. We continue to believe strongly that former Attorney General Spitzer missed a great opportunity to do the right thing by banning all brokers from accepting contingents.
In essence, he investigated the three largest companies - Willis among them - and then moved on. For whatever reason, he left the job unfinished. The result is these three companies now work within new boundaries - and I should note here that we were never found to have acted in an inappropriate way - but the rest of the industry does not work within the same boundaries. I'd like to say again - Willis was never found to have acted inappropriately, was never sued, and we know of no wrongdoing.
We can live with regulation - even if it makes us work harder to drive more profitability for our business. But we believe we have a right to expect that this regulation be uniform across the industry. We shouldn't be penalized because we helped bring about reform.
In that spirit, I would like to take this opportunity to re-state some of our suggestions on actions the Department of Insurance may take. As you know by now, we would like to see a consistent industry standard enacted that levels the playing field. Obviously, we would prefer that contingent commissions be prohibited.
We see several potential avenues to achieving this goal in a fair manner:
-- One option is to require any broker renewing a license with the New York State Insurance Department to end the practice of accepting contingent payments - say by 2010.
-- Another option would be to adopt a market solution. This is how the FSA in the UK effectively addressed the issue of "contract certainty." In 2004, in lieu of mandating new rules, the FSA challenged the insurance industry to achieve "contract certainty" within two years - which all members of the industry joined together to successfully accomplish. A similar challenge could be made to brokers to end contingent commission.
As I noted in Buffalo, we don't think it's necessary or even feasible to abolish contingent commissions overnight - they should be phased out over a reasonable period of time that will allow brokers to adjust their business s.
In that regard, I'd like to again note that we are grateful to the New York State Attorney General and New York State Department of Insurance for recently amending our original agreement with you to permit acquisitions of brokers who do accept contingents. This allowed Willis to enter into an agreement to acquire HRH. As we noted before, we are committed to phasing out HRH's contingent commissions over three years. So ultimately, another broker will not be taking contingents.
We also want to make the distinction between acting as a broker where the client is being represented, and clearly acting as an agent where the insurance carrier is the one being represented. In either case, transparency about how you are paid is a non-negotiable.
In all instances, we believe transparency should be improved and made compulsory - perhaps in the form of some uniform level of disclosure as was discussed at the prior hearing - to make sure that clients can clearly see how brokers are being paid.
You've heard independent brokers argue that clients don't really care about contingents - so why should regulators care? You've also heard them argue that there is no need to make proactive disclosure. We think it's clear that these two issues are linked. Clients don't appear to care - but that's because they haven't had the benefit of complete transparency.
Obviously, we believe clients do care. Some may be more familiar with the impact of contingent commissions than others, but all clients want their interests put first. It's clear from testimony you've heard that independent insurance brokers who are accepting contingent commissions believe their interests are more aligned with insurance companies than with clients. We find this unacceptable - both in our practice and as a matter of public policy - for an industry that is subject to regulation and benefits from a federal antitrust exemption.
We believe regulators should do what's best for all clients - and the integrity of the industry overall. We urge you to finish the job that former Attorney General Spitzer started more than three years ago.
To summarize, Willis asks for:
1. All contingents to be abolished.
2. All broker compensation to be made transparent, and,
3. The creation of a level playing field where all brokers abide by the same rules.
We continue to believe this is a great opportunity for New York State regulators to set a high standard for what the insurance brokerage industry can become: transforming how we operate in a way that elevates our clients' interests, advances openness and improves service.
Again, I thank you for providing Willis with these opportunities to contribute to this important public policy discussion.
SOURCE: Willis Group Holdings Limited
Willis Group Holdings Limited Investors: Kerry K. Calaiaro, +1 212-915-8084 kerry.calaiaro@willis.com or
Media: Will Thoretz, +1 212-915-8251 will.thoretz@willis.com
