Industry representatives, mainly brokers, evaded the question of why buyers haven't seen cost reductions for their insurance policies now that carriers are not paying contingency fees to many brokers at a risk manager's conference last week.

Ellen Vinck, RIMS president and vice president, risk management & benefits with BAE Systems Ship Repair, in San Diego, raised the question at a leadership panel at the annual Risk and Insurance Management Society conference here last week.

Ms. Vinck agreed that she, the client, should pay her broker for any services rendered. But “I also feel that there's a pot of money that hasn't come back to the insureds.”

Her comment was followed by applause from the risk management audience.

J. Patrick Gallagher, president and chief executive officer of Arthur J. Gallagher & Co., replied, “I, for one, don't think there was all that much money in the pot for the risk management accounts that were in contingent arrangements.”

Gallagher and other large brokers agreed to forego the contingent fees after investigations by New York State authorities turned up evidence that they served essentially as hidden kickbacks for steering business and rigging bids with insurers.

When the panel was asked about the issue of integrity, Brian M. Storms, chairman and CEO of Marsh, remarked that a recent survey taken by the brokerage, set to be released later in the week, found that Marsh's “clients, and most of [its] prospects, have moved beyond this issue as it relates to Marsh and as it relates to our business around the world.”

He continued that Marsh's clients “understand that [the issue of bid-rigging] was isolated to a small number of people. They understand that we dealt with it in a severe fashion, and they understand that we restored the confidence in our business.”

Mr. Storms said he believed he could speak for other members of the industry when he said that “it's less of an issue today, the issue of this being a systemic problem within our business. It's not in any way a systemic problem.”

Greg Case, CEO of Aon, retorted that the issue of broker integrity is “a client issue.” He added that brokers need to do a better job bringing value to insurance buyers.

“So to me, this is going to be with us for a long time,” Mr. Case said. “The idea that we can declare victory and put it behind us and say we're good–it's not going to be a survey, it's not going to be anything other than day to day, doing a better job.”

He said brokers need to focus on the value provided for the price that is charged. At this point, he added, “it would be a huge mistake to declare victory.”

Ms. Vinck then asked for a show of hands from those risk managers in the audience who agreed that “this is an issue that is done and gone and over with.”

Out of a packed hall, only one or two hands were raised.

Mr. Storms quickly responded that “some panelists may have been confused with my comment,” which he said “had to do with the issue of integrity at one specific company, Marsh, not the integrity of the industry.” He said, however, that the issue is “largely behind us at Marsh.”

Panel members discussed their views of industry regulations that have imposed two sets of rules for brokers–the larger brokers being required to relinquish contingency fees while the smaller brokers are free to choose whether to accept the fees or not.

Martin J. Sullivan, president and CEO of AIG, agreed that the regulatory situation is “quite bizarre.” He said AIG made the decision not to pay contingent commissions on a global basis, but that having “two sets of strategies in the same marketplace does not make sense.”

Special Reports /

Buyers Seek 'Pot Of Money' From Insurers

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