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Illinois Decision to Allow Contingent Commissions Disappoints RIMS 7/29/2009


RIMS is disappointed with the decision taken by the Illinois Attorney General and the Illinois Department of Insurance to allow Arthur J. Gallagher & Co. to begin accepting contingent commissions. RIMS has consistently stated that contingent commissions should be broadly prohibited as they represent an inherent conflict of interest. The investigations, admissions and fines that culminated in the agreement signed by some brokers in 2005 prove that these practices can be, and were, manipulated to the detriment of the insurance consumer.

"RIMS is concerned that Arthur J. Gallagher & Co., who signed the agreement in 2005, is now permitted to participate in this compensation practice," says Terry Fleming, RIMS vice president and director of the division of risk management at Montgomery County, Maryland. "However, we hope that full disclosure of all forms of compensation will be provided to the insurance buyer in a timely manner. This will allow the consumer to determine whether the broker is acting in their best interest, before binding the contract."

The decision to lift the ban on contingent commissions comes without any concurrent proposal by the Illinois Department of Insurance and Attorney General to regulate producer disclosure. RIMS has great reservations about lifting the ban on contingent commissions without strong protections for consumers.

RIMS strongly urges Arthur J. Gallagher & Co. to continue to use the compensation disclosure requirements that were part of the 2005 agreement. Historically, RIMS has argued that, in the absence of a ban on contingent commissions, all forms of compensation-direct and indirect-should be fully disclosed to the consumer. This is a crucial component to the relationship between producer and consumer.

RIMS remains troubled that the insurance industry promotes compensation practices that can lead to conflicts of interest. The Society hopes for a continued open dialogue between all parties on issues of producer compensation and disclosure.

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