As everyone knows by now, megabroker Arthur J. Gallagher has received the blessing of Illinois regulators to resume the practice of collecting contingent commissions nationwide starting in October, a move that’s expected to generate more than $10 million in earnings.

The practice, eliminated in 2004 as part of the fallout of a major investigation by former New York AG Eliot Spitzer, hit AJG, M&M, Aon and Willis and caused a major ruckus in the industry, especially among the industry’s biggest brokers and insurers, who are still smarting from billion-dollar fines and lost revenues.

And AJG’s decision has observers speculating on whether the other big brokers will try to follow Gallagher’s lead to get contingent commissions reinstated.

Not everyone is pleased with the news. Yesterday RIMS issued a statement expressing “disappointment” with the move, reiterating its belief that incentive commissions are an inherent conflict of interest, even though Gallagher vows to practice full transparency in the process.

The controversy harkens back to the original discussion of whether or not any sort of commissions, incentives or whatever you want to call them are a conflict of interest — whether it’s for placing insurance or selling cars. Any sales-based culture uses volume requirements and profitability goals as incentives for its producers to sell more. The rub lies in whether or not the customer knows or cares about what goes on behind the scenes.

We’ve all learned a lot since 2004. Transparency is now the mantra, not just for insurance, but every other business, especially with the hot spotlight on government oversight of financial services. You can be sure that in today’s hypersensitive business environment, any practice that smacks of collusion will be scrutinized, vilified and quashed — and rightly so.

It should be interesting to see whether AJG’s decision will generate any backlash from those outside the industry — or if yesterday’s atonements and adjustments have paved the way for a more lenient view of a practice that, when done ethically, is just part of a sales culture.

London-based insurance broker Willis’s upcoming occupation of space in Chicago’s Sears Tower means a name change to the landmark Chicago building to Willis Tower. The name change officially goes into effect today.

In a Crain’s Chicago Business interview, Willis CEO Joseph Plumeri talked about naming rights, possible job relocations, and the fact that Willis will be competing on the home turf of giant competitor Aon. He stated that Willis did not pay extra for naming rights; it was included in the deal leasing 142,000 square feet, which will house 500 Willis employees.

Commenting on possible sensitivity around the renaming, Plumeri said:

You can call it the Big Willie, and that would be fine with me…I don’t mean that in a comedic way. (Chicago) is a town of neighborhoods and it’s a town of nicknames. And people in this town, when you call something by a nickname it’s not meant to be demeaning, because I come from the neighborhoods. It’s meant to be a term of endearment. So if they did that, that would be fine.

Hmmm. Aside from the salacious implications of a 110-story skyscraper being called Big Willie, Plumeri is apparently oblivious to the tenacity of Chicagoans about their traditions.

Take Marshall Field’s, for example. When Macy’s steamrolled into town and bought the venerable State Street department store in 2006, the deal included a name change and a complete rebranding. The public backlash was so intense — and Macy’s lost so much profit and goodwill — that management was changed several times, to little effect. Three years after the takeover, a May 2009 NBC poll shows that Chicagoans still hate Macy’s, and that hate is reflected in Macy’s declining stock price.

Granted, this sort of attitude is unlikely to affect Willis’s big business clients, but Willis and others could take a lesson from Macy’s. Renaming a beloved Chicago landmark after what sounds like a character in a 1970s blaxploitation movie might not generate a lot of positive feedback from Chicagoans.

Hey, it’s our second city complex — we’re just funny that way.

Conning’s recent study on property-casualty insurance distribution made some pretty obvious observations about its competition: specifically, that Web aggregators are giving traditional agents and brokers a run for their money by allowing prospects to get quotes directly online. However, the report observes that this same system’t built-in flaw is that most aggregator transactions are one-and-done deals that don’t yield repeat business. On the other hand, banks — the other “threat” in the Conning report — are leveraging both the ability to compare rates on the Web and building relationships with customers to ensure repeat business.

I’ve been around long enough to remember the pre-Gramm-Leach-Bliley days when everyone was worried about banks stealing business from independent agents. For the most part, that threat has proven unfounded. While biggies like Wells Fargo are aggressively pursuing agencies and brokerages for acquisitions — a trend that will probably increase as struggling financial institutions seek diversification in profitable businesses — banks, like direct writers, can’t really offer policyholders the service and relationship that agents can.

However, a while back another Conning study shed light on something that could be a more insidious threat to the independent insurance distribution system: property-casualty companies offshoring not only the “no-brainer” back-office functions they’ve been doing for 20 years, but “services requiring higher levels of intellectual capital,” including actuarial, claims and underwriting. 

This study indicates that the number of service providers offering such high-level functions are expected to grow over the next 5 years, from 33 percent to 58 percent. Moreover, formerly “cheap labor” countries like India are being bumped out by emerging economies where labor is even cheaper, like Russia, the Dominican Republic, Argentina and South Africa.

And although it wouldn’t seem that the services provided by independent agents would lend themselves to offshoring, one of the service areas offshore providers will be expanding over the next 5 years is customer relationship analysis — pretty sophisticated stuff for foreign guys in a far-flung service center.

Just gets you to thinking…