Risk managers, brokers square off as compensation rift spurs tension.

Thousands of risk managers gathered in Philadelphia, the City of Brotherly Love, the week of April 18 for their annual conference, but at times there seemed little love lost between these corporate insurance buyers and the brokers who serve them.

The event marked the first major meeting of the Risk and Insurance Management Society Inc. since the industry became consumed by ever-widening investigations into the practice of contingent commissions and the potential conflicts of interest that arise when brokers accept these fees from carriers. Following probes by New York state Attorney General Eliot Spitzer, megabrokers Marsh, Aon, Willis and Gallagher announced that they no longer would accept contingent commissions--the fees paid by an insurance company to a broker based on a share of the profits it earns on the clients the broker places with that carrier. The four also pledged to fully disclose their fees to their clients.

Not surprisingly, the compensation issue dominated the four-day RIMS conference, along with the question of whether industry groups can manage to agree on a new distribution model to remedy the situation before regulators decide to step in.

As the conference unfolded, it was clear how much the compensation controversy has damaged trust between risk managers and brokers. Take risk manager Susan R. Meltzer, assistant vice president of Sun Life Financial, who used a lunchtime forum to pointedly question the leaders of Aon and Marsh on why they had missed the potential conflict of interest in accepting contingent commissions from carriers. Or the sight of hundreds of risk managers attending an information session to determine if they will join in the $850 million settlement that Marsh reached with Spitzer in February. Spitzer alleged that Marsh was guilty of bid-rigging, defrauding clients and indulging in "kickbacks" in the form of market service and contingent-commission agreements.

Some risk managers say the broker compensation issue has gone so far as to create a crisis of confidence within their own companies. "What has happened over the past 12 to 15 months has placed long-term relationships, in the eyes of senior management, in serious jeopardy," Sheila Small, risk manager for Verizon, told fellow panelists at a discussion sponsored by Best's Review magazine during RIMS.

Lance Ewing, vice president of risk management for Caesars Entertainment, sees the legal and moral lines being redrawn now "sometimes externally, sometimes internally, and sometimes by you as a client," he told the Best's Review panel.

Contingent commissions are legal. These commissions, which are separate from fees regarding placement, have been around at least since the 1970s, and there was widespread awareness of their existence, said Paul W. Sugarman, a shareholder at Heller Ehrman White & McAuliffe.

But when concerns arose about these commissions in the late 1990s, they became the prime topic of the RIMS 1998 annual conference, he said. The following year, agreements were forged between RIMS and Marsh, and between RIMS and Aon, that recognized the potential for conflict of interest in use of contingent commissions and provided for disclosure, if requested by the client, Sugarman said. "And the emphasis is on 'if asked,'" he said.

Joe Plumeri, chairman and chief executive officer of Willis Group Holdings Inc., couldn't be more firm in his view that this practice has to stop across the board.

"Contingent commissions," Plumed said," Over. Done. Finished."

LEARNING MORE: A conference attendee stops by the Liberty Mutual booth.

--Meg Green contributed to this article