November 2004 NEWSLETTER to clients of Knox Insurance Brokers Ltd. From Randy Bushey, A.I.I.C., General Manager	Close newsletter
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TOPIC: CONTINGENT COMMISSION CONTROVERSY

As you may have read in the press, the New York Attorney General has launched an anti-trust and fraud lawsuit against Marsh & McLennan, the world's largest insurance broker. Among the allegations are descriptions of fraudulent bid rigging by Marsh, together with other attempts to pre-determine the successful bidding insurer; if true, this appears to be intended to confuse and deceive their insurance clients.

The Canadian press has picked up this story, suggesting that "secret kickbacks" routinely occur between brokers and insurers in Canada, all to the detriment of the policyholder.

To help provide some context and clarity relating to the relationship between Knox and you our client, we offer the following:

• When we sell or renew an insurance policy, we are generally paid by commissions which range between 5% and 25% of the total premium; in our office, the average commission is less than 14%.
  
• In some situations we charge a fee, or combination of commission and fee. When this is done, we always spell out the fee plus the commission (if any) on the accompanying invoice.
• In much of the press reporting, there has been confusion of industry terminology. Marsh is alleged to have been involved in contingent commissions which are supplemental commissions arranged with the insurer when the policy is sold; this is alleged to have occurred on specific policies without the knowledge of the client. This is distinct from contingent profit, a global industry practice dating back approximately 100 years, where at year end, insurers reward brokers who have placed profitable business over the prior year. These payments are measured over the long-term, are not tied to individual accounts, and are designed to share profit, if any, on a portfolio of business.

At Knox we highly value ethics in business. Our Core Values state as follows: at the foundation of all our business and relational dealings, is a desire to be guided by, and demonstrate, superior ethical standards.