Boston

Looking to lead by example, Risk and Insurance ManagementSociety President Terry Fleming urged his members to “walk thetalk” and emulate his practice of prohibiting brokers fromaccepting any contingent commissions on his account.

Broker compensation was a hot topic here during the RIMS annualconference, with Willis launching a Web-based campaign (www.ClientsBeforeContingents.com)to “educate” buyers about the bonus fees paid on the volume andprofitability of business delivered to a particular insurer. WillisCEO Joe Plumeri said his goal is to convince risk managers to “votewith their wallets” by working with brokers that don't accept suchincentive payments. (See “Pay Your Own Bills” on page 5 for more onthis controversy.)

During a press conference withthe RIMS leadership, Mr. Fleming said that “most sophisticated riskmanagers handle this well. They have service agreements, like theone I have with my broker, who we pay on a fee basis. They areprohibited from accepting commissions from carriers, and if thestructure of a placement includes any commission, that must befully disclosed and is deducted from the fee we owe, so there is noincentive to serve the carrier rather than the client.”

Mr. Fleming–director of the risk management division forMontgomery County, Md.–called on his fellow risk managers to followhis lead and “walk the talk. There are brokers out there who won'ttake contingents. I go with such a broker.”

However, Mr. Fleming conceded that “midsize or smaller riskmanagement programs may only have an insurance buyer on staff or apart-time risk manager, who often don't know how to handle suchsituations. We want to educate them on how to manage brokercompensation.”

Scott Clark, director of the RIMS External Affairs Committee,added that “the skill set of many risk managers does not normallyinclude the nuances of broker compensation.”

Mr. Clark, who is the risk and benefits officer for theMiami-Dade County public school system, said that even ifcontingent deals are disclosed, many risk managers don't know whatto make of them.

Mr. Clark noted that RIMS–which advocates for prohibition ofcontingency fees, and absent that, full transparency on a mandatorybasis–is not comfortable with the New York Insurance Department'sbroker compensation disclosure rule that he said will put theburden of disclosure on the consumer.

Under the new department regulations–due to take effect Jan. 1,2011–producers will be required to describe to consumers their rolein the transaction and how they get paid, but a more detailedstatement about compensation would only have to be provided if theclient requests it. Two agent groups have said they will challengethe rule in court because it is too burdensome.

Mr. Fleming concluded that “there has to be another [brokercompensation] model out there that doesn't involve back-endpayments and the conflicts that could result.”

Mr. Fleming also addressed the impact of the financial crisisand subsequent recession on his profession, suggesting that bothman-made and natural disasters have brightened the spotlight on thevalue of risk managers in loss mitigation.

In only 10 years the risk management profession has gone from“back office” to sought-after professionals, Mr. Fleming said in anearlier speech during the opening general session of theconference.

He said a series of catastrophic events–including the attacks onthe World Trade Center of Sept. 11, 2001, Hurricane Katrina, andmost recently disruptions in transportation and commerce caused byash from a volcano in Iceland–have raised awareness levels of theneed for proactive risk management.

“Companies are asking what they can do to mitigate risk,” hesaid. “Once insurance buyers, now they are business professionalsin many areas, asked to participate in C-suitedecision-making.”

He said RIMS, celebrating its 60th anniversary, is helping riskmanagers reach the top corporate officer level.

He reiterated five key objectives for RIMS during his term:

o Furthering leadership efforts of enterprise riskmanagement.

o Developing advocacy for risk managers with legislation andregulations.

o Continuing efforts to develop a RIMS internationalstrategy.

o Supporting efforts to continue to encourage students to enterrisk management careers.

o Encouraging more peer-to-peer benchmarking and sharing bestpractices.

RIMS Executive Director Mary Roth, celebrating her 25thanniversary with RIMS, said this year RIMS has awarded $4 millionin scholarships and $2 million in student grants.

In award announcements at RIMS:

o The Harry and Dorothy Goodell Award went toSteven M. Wilder, vice president of risk management at the WaltDisney Company and a former RIMS president. The award pays tributeto an individual who has furthered the goals of RIMS and the riskmanagement discipline.

o The Ron Judd “Heart of RIMS” Award waspresented to Mark Ryan, director of casualty insurance forOccidental Petroleum Corp. and member of the Dallas-Fort WorthChapter.

o The Arthur Quern Quality Award was presentedto Paychex Inc. for its predictive model within its ERMprogram.