Living so close to Washington, D.C., and being a political junkie, I follow Capitol Hill pretty closely, especially on issues that pertain to risk management. The broker transparency issue has held my interest for a while now and it is something I hope to see addressed by some substantial, lasting legislation. It's a topic that is not just important to anyone who buys or sells insurance, but speaks to a larger need to look at risk in a whole new way.
From an insurance buyer's standpoint, broker transparency presents an inherent conflict of interest with any party that both serves an insurance buyer by brokering a policy transaction and receives a payment from the insurers it directs business toward. At the core of the problem is that insurance buyers cannot say they know 100 percent that their interests are being put first unless their brokers are completely transparent about who they receive contingent commissions from.
So far, the brokerage community--with the exception of Willis, which must be commended for swearing off contingent commissions entirely--has resisted any kind of law mandating transparency. But until transparency becomes fully implemented, either by law or by industry practice, the insurance transaction will remain as conflicted as it is qualified. In a world where insurance is more relevant as the DNA of business than ever before, this situation cannot be allowed to stand.
But there are larger issues at stake here besides broker transparency. For the Risk and Insurance Management Society (RIMS), this is just one of a number of high-level government initiatives we are pursuing at the federal level. RIMS is advocating the formation of a federal office of insurance information so lawmakers have a comprehensive and nonpartisan source
of background when dealing with insurance issues such as systemic risk, ratings and natural catastrophe coverage. We also are interested in the optional federal charter, because we believe it is the best way to provide consistent regulatory coverage across the entire U.S. when it comes to insurance.
As the AIG fiasco showed us, 50 different regulatory regimes are not enough to prevent companies from falling through the cracks, even when they are too big to fail, and even when the risks they carry can deeply impact us all.
RIMS' presence on the Hill has given us a great voice there, but it is still just one voice among many. Just as RIMS is reaching out to its student members and creating a dialogue with them, and just as we strive to create a dialogue among our members, we also encourage risk professionals everywhere--regardless of where they work or what groups they belong to--to reach out to one another and to share what they know, see, and need.
As the last decade has shown us, the risks we manage are not getting smaller, but the world they affect is, and the job of risk management has become one that nobody can do alone. In an age of global networking and instant conversation, we have a greater ability than ever before to pool our expertise, to manage risk more effectively, and to make the coming years a new age in our discipline. All we have to do is seize this rare opportunity and make the best of it. All we need to do, really, is to take a little risk.
