Gallagher Will Need New Revenue, Analyst Says Dropping Contingent Fees Could Cost Insurance Company Millions of Dollars
Byline: Daily Herald Staff Report
Itasca-based Arthur J. Gallagher & Co. will need to develop other revenue to replace the loss of millions of dollars when it eliminates its controversial contingent fees, an analyst said Wednesday.
Gallagher said Tuesday it intends to end such fees starting Jan. 1 after it received a subpoena from the Connecticut attorney general requesting information about possible violations of the Connecticut antitrust laws involving the solicitation of bids for insurance.
Contingency fees, a common industry practice, helped to generate roughly $33 million, or 2 percent of gross revenues last year for the Itasca firm.
"If Gallagher will forgo the revenue, they'll need to replace it and could restructure some agreements," said Mark Dwelle of Richmond, Va., an equity analyst with Ferris, Baker Watts Inc., a securities products and services firm.
"But everything is uncertain, especially what form the industry will ultimately adopt," he said. "This form could be eliminated altogether."
Dwelle said it's too early in the investigation to determine if the probe or lost fees will impact future earnings.
Gallagher is among more than a dozen companies in the insurance brokerage industry that received the subpoenas.
They were served in the wake of a lawsuit filed a few weeks ago by New York Attorney General Eliot Spitzer against Marsh & McLennan Cos., the world's largest insurance broker. …