Old sneaky Pat. WHat portion will be going to the producers generating all of the revenue? I already know the answer $0. Fat Pat and the boys will be partying down in Chicago as usual. Perhaps they will loosen up the T&E guidlines so producers can start overblowing their expense reports each month as a means of additional compensation, a widely accepted practice in this organization and encouraged by managers on a local level.

SEE ARTICLE BELOW FROM INDEPENDENT AGENTS:

Contingent Comp Returns for Gallagher
Will other brokers follow suit?

Arthur J. Gallagher & Co. announced Tuesday that it will accept contingent commissions again on retail business, starting on Oct. 1, 2009. This change of course is possibly due to amendments of the company’s agreements with the Illinois attorney general and Illinois Department of Insurance that previously barred acceptance of such payments.

The company discussed the development on its second quarter earnings call Wednesday, during which J. Patrick Gallagher, Jr., chairman, president and CEO, commented that “We’ve said all along that we were willing to give [contingent compensation] up if the rest of the industry was going to follow.”

Gallagher added that he projects the company will generate about $10 million on an annualized basis by 2011 from contingent commissions. He said that amount is in addition to supplemental compensation, which recaptured about two-thirds of the revenue previously generated by contingent commission.

Gallagher said the company had met with the Illinois attorney general’s office about 25 times since 2005 to discuss this issue. He added that once the Illinois attorney general and Department of Insurance realized that “the industry standard of contingent commissions was not going to change –[they] agreed that it would be unfair to leave us in a situation where we could not collect them.” He also reiterated the firm’s commitment to full transparency and disclosure with clients, which he said “resolves any conflicts” and “fosters trust.”

Speculation abounds if other brokers subject to settlements barring acceptance of contingent compensation will be able to get their agreements amended. To the extent these brokers have not made up for the loss of contingent compensation with supplement commission or other fees, it is likely some will seek amendments, characterizing the new landscape as an unlevel playing field where they are at a disadvantage, especially since contingent compensation is legal.

Reactions to the development have been mixed. The Big “I” continues to support free market principles, including the right of carriers to pay and producers to accept incentive compensation. RIMS expressed disappointment with the development, however, stating in a press release Wednesday that “contingent commissions should be broadly prohibited as they represent an inherent conflict of interest.”