Dominic Burke denounces contingent commissions and similar arrangements

Jardine Lloyd Thompson (JLT) chief executive Dominic Burke has joined Hiscox chairman Robert Hiscox in condemning mega-brokers for seeking remuneration from underwriters.

“We don’t think the way they conduct their relationships with insurers is entirely appropriate,” Burke said as he announced JLT’s full-year 2010 results. The broker made an after-tax profit of £90.7m, up 28% on the £70.9m it made in 2009.

Burke said that less than 1% of JLT’s 2010 revenues came from so-called “contingent commissions”, where underwriters pay a fee to brokers depending on the volume or profitability of the business they are shown.

The practice was banned in the USA following a campaign from then New York attorney-general Eliot Spitzer in 2005, but the ban has since been lifted, bringing the issue to the fore again.

“We are now seeing a tactic from the big three brokers, which is the same as what we saw pre-Spitzer, where they would quote for nil fees in a particular year so they could win the business,” Burke said.

“But we know that they have got financial arrangements, contingent commissions and profit shares that are going to remunerate them on that account in the year in question,” Burke said. “We don’t afford ourselves those.”

Burke said he would support the market moving to “net terms” – whereby all broker remuneration is negotiated with the client, rather than paid as a percentage of premiums. If that happened, “we would win”, he asserted. “I challenge the big two: they couldn’t compete with us on net rates.”

In a statement accompanying his firm’s results, Robert Hiscox hit out at brokers undercharging clients and seeking to make up the shortfall from underwriters.