Disputed practice 'cannot be ruled out'

The controversial practice of insurers paying brokers commissions based on the amount of clients' business they place with them cannot be ruled out here, according to the Irish Insurance Federation (IIF).

The payment of so-called "contingent commissions" by insurers to brokers has come under intense scrutiny following the New York Attorney General Mr Eliot Spitzer's decision to sue Marsh & McLennan, the world's largest insurance broker, for allegedly rigging quotes for coverage in order to earn contingent commissions.

Mr Michael Kemp, the chief executive of the IIF, said the federation was not aware of any instances of contingent commissions being paid.

However, he added that there was no regulation of commissions here because it was considered that they hindered competition between brokers.

Any broker accepting these sorts of commission could be in breech of its obligations under the Irish Financial Services Regulatory Authority (IFSRA) code, said Mr Kemp.

The IFSRA said yesterday that it was planning to conduct a review of the commission structure in the non-life insurance business.

Mr Thierry van Santen, president of Ferma, a body that represents insurance buyers at European-based corporate giants, said the payment of such commissions "is known as a common practice in the UK and in Europe".

Mr van Santen said market-rigging may take place in Europe in the way that it is alleged by Mr Spitzer to have taken place in the US, where Marsh is claimed to have solicited insurers to submit uncompetitive bids so it could funnel business to firms that paid it fees.

"While I have no knowledge that market-rigging is taking place in Europe, I do not see why we may not have the same problem over here," he said.

"After all, market-rigging can only begin when brokers are being paid contingent commissions by some insurers. That is already happening here."

The payment of such fees has contributed to the rising cost of insurance to clients, Mr van Santen said, as firms have ratcheted up their prices so the payments being demanded by brokers don't eat into their own profits.

Mr Graham McKean, chairman of privately owned insurance and reinsurance brokerage BMS Group, confirmed that contingent commissions have been paid in London for decades, although he added that his company's policy is never to accept such fees.