The Mouse (Finally!) Squeaks

Wonder of wonders, the Risk and Insurance Management Society Inc., the largest contingent of risk managers in the world, at the behest of members who grew weary of its foot-dragging on the matter, has finally weighed in with a somewhat hard line on the insurance broker compensation scandal. Why it took three years to do so and why it took pressure on the leadership from impatient members to provoke action after all that time is of course an open question. In any event, this in part is what RIMS is now saying:

By Thomas J. Slattery

"Much has changed since RIMS issued its August 2005 statement on industry compensation and placement practices. In response to regulatory matters and settlement agreements, many brokers pledged to refuse to accept placement fees from insurers on business where they represent the buyer.

"RIMS applauded this action and supported the prohibition on the use of placement service agreements or other similar arrangements for the entire broker industry. We are disappointed to learn that some brokers are apparently reconsidering their pledge to refuse to accept these fees.

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"RIMS recognizes that contingent commissions are currently paid on agency generated business, where the agent represents the insurer not the buyer. Such practices have always existed in the insurance markets. However, for brokers and independent agents to accept these fees in transactions that are made on behalf of the buyer represents an inherent conflict of interest. The recent investigations, admissions and fines demonstrate how these practices can be manipulated to the disadvantage of the insurance buyer.

"RIMS also recognizes that many smaller, regional or privately held brokerage firms were not part of the various investigations and settlement agreements and have continued to utilize placement service agreements and contingent compensation arrangements.

"For the reasons listed above, RIMS supports the prohibition of these compensation arrangements for any broker or agent acting on behalf of a buyer.

"Moreover, RIMS believes that all sources of compensation, direct and indirect, now or in the future, should be disclosed to clients without their request. This disclosure will ensure that the risk manager understands not only the cost of coverage, but any arrangements with specific insurance companies or any fees obtained by the broker/agent from markets approached on behalf of the insured.

"The existence of compensation arrangements and the amount of potential compensation should be disclosed prior to placement of business and annually by line of coverage."

There's much to be questioned in this, not the least of which is RIMS' contention that this is a "restatement" of association policy, as though it has been on the cutting edge of this issue from the time the Eliot Spitzer investigation began. Be that as it may, all will benefit, and that includes agents and brokers, if the voice of the commercial consumer has heft and adds balance to the debate.

We can only hope that RIMS' heretofore puny voice will now grow in volume and frequency and that the association will at long last justify its existence on behalf of its 10,000 members. If not, the nation's risk managers should look elsewhere for effective leadership.

TOM SLATTERY, a veteran editor and writer on industry affairs, is currently managing director of Slattery-Esterkamp Communications of Baldwin, N.Y.

August 1, 2007

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