Risk managers from both the private and public sectors issuedrenewed calls for complete transparency and full disclosure of allbroker revenue from insurance placements and services to make sureevery transaction is in the buyer's interest.

The latest push for broker compensation disclosure came inseparate statements and independent initiatives from the Risk andInsurance Management Society and the Public Risk ManagementAssociation.

The RIMS report–”A Practical Guide to Insurance BrokerCompensation and Potential Conflicts of Interest for the RiskManager”–was released to assist corporate insurance buyers inunderstanding broker compensation and potential conflicts ofinterest, the New York-based group said.

The ultimate goal of the report, according to RIMS, is to“heighten members' awareness of the potential pitfalls surroundingthe insurance purchase transaction, so buyers are empowered topress for greater transparency in their negotiations with brokersas well as for regulatory reform in their own states.”

“In ideal settings, insurance brokers and risk managers areworking very closely toward a common goal–marketing the insured'scoverage to achieve optimal results within the commercial insurancemarket,” said Deborah Luthi, director of the RIMS External AffairsCommittee, as well as director of enterprise risk management atMatheson Inc.

Broker compensation has been a controversial issue since 2005,when an investigation by the New York State Attorney General'sOffice revealed that commercial insurance brokers had acceptedundisclosed contingency payments from insurers for steeringcustomers their way, with bid-rigging exposed as well.

As a result of that probe, some major brokerages agreed to ceaseaccepting contingent commissions–bonus fees based either on thevolume of business a producer places with a carrier, or on thequality of that business in terms of loss experience.

Ms. Luthi said that because regulators have “yet to mandate fulldisclosure, risk managers must be diligent in their brokerselection process. This report gives them the tools they need, notonly to successfully make that selection but to drive a higherstandard of conduct industrywide.”

In tandem with the executive report, RIMS also released arevised position statement on broker compensation. It reiteratesthe call for risk managers to demand full transparency of allrevenue streams by the broker in advance of any submission tomarket, purchase or placement of coverage.

The statement also addresses broker-marketed new products andservices to carriers. “While RIMS takes no issue with new products,there must be a separate agreement between the two parties whichdoes not link these services to specific clients,” Ms. Luthisaid.

“However, if a broker receives payment from both the carrier andthe buyer for placement of insurance products, all transparencyrequirements should adhere to that transaction,” she added.

The report stresses that any compensation to the broker frominsurers with whom the broker places client business must betransparent or eliminated altogether to ensure that the brokers areacting solely in the interest of their client.

The report also includes:

o An extensive outline of insurance broker compensationarrangements.

o Tips for crafting an effective request for proposal.

o Recommendations for delineating services to be provided andassociated charges within a service level agreement.

Meanwhile, PRIMA released a statement calling on insurancebrokers to disclose all compensation arrangements with insurers tothe public jurisdictions they deal with.

“Transparency in government is a prerequisite to financialoversight and budgetary control regardless of the size and make-upof the public entity, said the Alexandria, Va.-based PRIMA.

“Public-sector employees are held to high standards oftransparency whenever they provide programming and services totheir communities,” PRIMA added. “These high standards areespecially pertinent when it comes to the management of publicfunds.”

PRIMA said it would like to “reiterate that full and mandatorydisclosure of ALL forms and sources of broker compensation shouldbe provided to purchasers of insurance.” PRIMA said transparency inbroker compensation is important for the following reasons:

o The disclosure of broker compensation that is concurrent withthe release of insurance program information is fiscallyresponsible. Therefore, all costs associated with an insurancepurchase are captured as a cost to the program whenever the policyis bound.

o Complete transparency is the only way to maintain trust in thepurchasing process, particularly when it involves public-sectoremployees, who are subject to intense public scrutiny and arecharged with the public trust.

PRIMA added that the conduct of risk managers and other publicemployees and officials “must always be professional andabove-board. This means that the transactions they are involvedwith must be done in good faith and with complete integrity. Thedivulging of potential conflicts of interest gives support totransparency and promotes open communications between the engagedparties.”

PRIMA said it supports efforts that encourage and enforce fulldisclosure of insurance commissions or “other payment relationshipsthat could either affect the placement of insurance coverage orhave the appearance of such an impact.”

PRIMA said it will “continue to advocate for open dialogue onthis matter.”