Yogi Berra once quipped, “Nostalgia ain’t what it used to be.” Risk managers can relate. Even though Berra was not referring to relationships with an insurance broker, he very well could have been. On top of their many other roles, risk managers should expect to have to justify the current brokerage relationship to upper management, more so than ever before.
When risk managers “manage” the relationship with outside insurance brokers, they should prepare for headwinds from upper management. Bland assurances of value-added relationships may not placate the top brass. C-level executives and boards of directors feel heightened pressure to demonstrate transparency in all financial transactions. The Sarbanes-Oxley Act and other corporate governance initiatives require that directors and officers ensure that the organization gets full value from every business relationship. This includes the insurance brokerage arrangement. Risk managers must assure upper management that the current broker is not involved in contingent commission arrangements or bid-rigging.
These are tough questions for sure. Many risk managers may not welcome them. They may seem intrusive and awkward. Nevertheless, even those risk managers with long-standing ties to specific brokers may be challenged to justify and rationalize that relationship on financial and quantitative grounds. Generalities carry little weight. Historical inertia or the incumbency of multiple years is simply not a compelling factor to higher-ups.
Questoins to Anticipate
One reason is that organizational layers above the risk manager are typically populated with quantitative and financial types. There is nothing wrong with this. Given their training and background, though, they will have questions that risk managers will be expected to adequately address. Lines of questioning might resemble the following:
One upshot is building good relationships with the brokerage community. Burn no bridges when (and if) you must part ways. However, let brokers know the pressure you are under to justify and rationalize the relationship. Work with them to make a compelling case to the CFO, CEO, and the board of directors. Brokers can be vital behind-the-scenes allies in building a case. In this realm, you two have common interests in staying the course.
Relationships with incumbent brokers may seem to be working well. They may be comfortable. Though we have all heard the adage, “If it ain’t broke, don’t fix it,” the executive suite and board will not view historical inertia as a reason to perpetuate even long-standing brokerage relationships. With so many functions and jobs being outsourced and put out for competitive bidding, it would be naïve to think that the broker relationship is immune to scrutiny.