Willis can provide an overview of the ways that we currently get remunerated for the value we deliver. In our “How We Get Paid” brochure we focus on the retail insurance broking sector. However we also include a brief commentary on reinsurance and wholesale practices towards the end.
Broker Remuneration is a complex topic and constantly evolves. Therefore it is almost impossible to cover all eventualities in the How We Get Paid document. However it is important to set out as clearly as we can the principles that apply within Willis in respect of our retail insurance broking businesses.
Inevitably, in a global business, regional variations exist. While it is difficult to outline all these variations here, details of our remuneration policies and how they are disclosed to our clients are also set out in the Client Engagement Agreements, Terms of Business Agreements, and Standard Terms and Conditions provided to each of our clients based on their specific circumstances. This is in line with our policy of complete transparency.
Willis’ remuneration principles are twofold:
- To avoid any conflict with putting the clients’ best interests first
- Transparency of its remuneration to the client
Throughout all our dealings, our objective is to ensure that our clients achieve the most cost effective and appropriate solutions and also to ensure they fully understand how we are compensated for delivering them.
Our principle sources of revenue are:
- Original commission which is a fixed percentage of the premium quoted by an insurer.
- Fees negotiated with individual clients.
It is also important for Willis to be clear about what remuneration it is not prepared to accept. Historically, the brokerage industry received contingent commissions on the portfolios of business that they placed with carriers. Willis’ definition of contingent commissions is remuneration paid by insurers to brokers that is in addition to a broker’s normal earnings from upfront commissions and fees. Contingent commissions are conditional payments, typically calculated at the end of a calendar year and may come from the following:
- Set thresholds of premium volume being hit
- Achieving a prescribed level of new or renewal business;
- The underwriting profit performance of a book of business or account.
Willis voluntarily gave up receiving contingent commissions in its retail insurance brokerage units in 2004. Despite Willis’ objections, many insurance carriers have imposed volume-based compensation in certain parts of the US employee benefits business. To continue to serve its clients in this business, as of July 2011, Willis has no viable option but to accept this compensation, which it fully discloses, in medical lines only. Contingent commission agreements that Willis inherited with the acquisition of HRH will expire in 2011. Willis may also accept contingent compensation when it serves as an intermediary to another insurance producer.
Willis’ commitment to transparency includes telling a client in straightforward and complete terms all of the relevant facts related to hiring or retaining the company.
These terms include:
- Whether Willis is working for a client as a broker, or whether we are representing the insurer as an agent;
- Exactly how Willis is being paid for a particular service or product;
- Disclosing whether we have an ownership interest in – or other incentives that could lead us to recommend – a particular insurer or product.
Clients deserve to know this information up front.
In some limited and disclosed instances Willis serves, in one form or another, as
an agent of the insurance carrier and may accept additional payment from them. It is important our clients fully understand why and when we accept market derived income.
Again, it is important to emphasize that there are significant variations between the applicability of these revenues to various regions and/or business segments and if in doubt a client should refer to their Client Engagement Agreement or terms of Business Agreement or direct any questions to their Willis Client Advocate®.
Click here to read the full How We Get Paid brochure.
Click here to read Joe Plumeri’s update of July 15, 2011.