2nd UPDATE: Aon To Take Commissions Once Banned Under Spitzer

Insurance broker Aon Corp. (AON) said Wednesday it will accept, with some self-imposed restrictions, a form of compensation that for a while was banned after former New York Attorney General Eliot Spitzer mounted a campaign against the payments in 2004.

Aon joins rival Marsh & McLennan Cos. (MMC) in deciding to accept contingent commissions, after New York's insurance regulator allowed the practice earlier this year. The two firms, along with smaller rival Willis Group Holdings PLC, had been banned from accepting them for about five years.

Insurance brokers match the companies that buy insurance with the sellers of the coverage; since the contingents were banned, the three brokers have been paid only by the buyers for that service. Smaller brokers such as Brown & Brown Inc. (BRO) have continued to take the commissions from insurers, raising questions about whether the ban created an uneven playing field for brokers. The size of the commissions can be linked to factors including how profitable the policy is for the insurance company.

Spitzer had argued the contingent payments amounted to secret kickbacks, and the three companies agreed to stop accepting them in 2005 in a settlement with the New York Attorney General's office that applied worldwide. Under an agreement reached with New York regulators in February, the three leading brokers agreed to disclose the fees to their clients as a condition for lifting of the ban.

Marsh & McLennan said in March its large and middle-market operations in the U.S. and Canada wouldn't take the payments, but it would accept contingent commissions elsewhere.

Aon wasn't as specific in a statement released Wednesday.

"We have decided to accept various forms of compensation available, which may include supplemental and/or contingent commissions in the geographies and client segments globally where appropriate and legally permissible," said Steve McGill, chairman and chief executive of Aon Risk Solutions.

Willis has said the payments raise the question of whether the broker is acting in the best interest of its clients, and launched a website (clientsbeforecontingents.com) to argue against the practice and promote the fact that its retail brokerage doesn't take contingents.

The company issued a scathing statement after Aon's announcement Wednesday, saying its rival was "retreating to a troublesome and ambiguous position."

Aon's announcement "should come as a wake-up call to all risk managers and buyers of insurance to re-evaluate whether their broker really works for them, or the insurance carrier," Willis said.

A brokerage that Willis acquired in 2008, Hilb Rogal & Hobbs, was allowed, under an agreement with regulators at the time, to accept the payments for three years. Willis spokesman Will Thoretz said HRH was one year ahead of schedule in converting clients to a different fee structure that compensates for the lost contingent revenue.

In 2004, contingent commissions accounted for 2.5% of Aon's revenue, compared with 9.7% for Marsh & McLennan and 3.1% for Willis, according to data compiled by Citigroup analyst Keith Walsh. Contingent revenue at Brown & Brown peaked at 6.3% in 2007 and dropped back to 4.9% last year, while contingents at Willis were 1.5% of total revenue last year because of HRH.

-By Erik Holm, Dow Jones Newswires; 212-416-2892; erik.holm@dowjones.com

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