HRH examining fees
Hilb, Rogal & Hobbs Co. is re-evaluating its policy on receiving contingent commissions.

The industry practice of paying contingent commissions is under scrutiny because of the lawsuit filed by New York Attorney General Eliot Spitzer against Marsh & McClennan Cos. Insurance carriers commonly pay contingent commissions to brokers in exchange for hitting profit or volume targets. Spitzer alleges Marsh was rigging insurance bids and steering business to certain insurers to collect these fees. Since the suit was filed, three of the nation’s top brokers — Marsh, Aon Corp. and Willis Group Holdings Ltd. — have stopped accepting these commissions.

Many industry experts, including Virginia Insurance Commissioner Alfred W. Gross, say there is nothing wrong with the fees as long as they are fully disclosed to clients.

HRH Chairman and Chief Executive Officer Martin L. “Mell” Vaughan III addressed the issue in an October statement discussing the company’s earnings. “The central issue is the distinct difference between contingency agreements, which have been standard in our industry for decades, and allegations of fraud by some competitors,” Vaughan said. “We receive contingent and override commissions for placing insurance with underwriters based on formulas that incorporate loss ratios or profitability, growth and total volume of business. By design, HRH sales and marketing professionals are not involved in negotiating these agreements, nor do they [receive] income derived from these agreements.”

For the nine months ended Sept. 30, HRH received $39.4 million in contingent and similar commissions, Vaughan said.