Three of the industry's leading brokers were eager here to respond to lingering questions from risk managers about contingency fees, but getting answers wasn't as easy when it came to one common practice among intermediaries better known as “float.”

Talk about broker compensation dominated the discussion for the third consecutive annual conference of the Risk and Insurance Management Society. But for the first time, questions were also raised about why many brokers collect premiums from policyholders, only to hold onto them for 60 days or more before passing the money along to insurers, earning investment income in the interim.

The issue was raised twice in questions submitted by the audience during the CEO Leadership Panel Luncheon sponsored by RIMS.

Panel moderator Roger L. Andrews, a former RIMS president and director of risk management for E.D. Bullard Company, put the audience member's question to the panel, which included the top officials of Aon, Gallagher and Marsh, as well as ACE Ltd., AIG, FM Global and Zurich.

“I just got a demand to pay my premium, but the carrier allows 60 days to pay. Why does the broker get to hold these funds?” he said, reading the question.

“That's a good question,” Mr. Andrews said, but when no member of the panel offered an explanation, he moved on to other subjects. However, when Mr. Andrews received and read another audience question pressing the brokers on the same subject, the panelists reluctantly responded.

“This makes for a great sound bite, but it's a complicated issue,” said Brian Storms, chairman and chief executive officer of Marsh. “This is part of the overall value and compensation question, but it won't be solved here in this brief discussion.”

J. Patrick Gallagher Jr., chairman, president and CEO of Arthur J. Gallagher & Company, said that “clients should be part of the discussion when it comes to setting the terms of the trade,” adding that he was open to discussing the practice with any risk manager who wanted more information.

Greg Case, president and CEO of Aon Corp., chimed in that “we'd love to have a dialogue about this, but the bottom line is that it doesn't affect the price clients pay.”

Evan Greenberg, president and CEO of ACE Ltd., said this was an issue for clients to take up with their brokers, adding that “we'd be more than happy to get the money quicker and put it to work, since we are already bound on the coverage.”

Later on, at a press conference with RIMS officers, President-Elect Janice Ochenkowski, when asked about the “float” issue, said that “when we talk about disclosure, we mean total disclosure. We're glad to hear the brokers inviting clients to discuss this, and I hope risk managers take them up on their offer.”

If brokers are earning income by holding onto client premiums, “that makes it part of the compensation discussion,” according to Ms. Ochenkowski, who is currently the vice president and chief risk officer at RIMS. “Risk managers who object could negotiate to pay their carriers directly, which many already do,” she noted.

“The amount of premium involved might not be substantial enough to make much of a difference,” said Ms. Ochenkowski, who is managing director at Jones Lang LaSalle, where she is in charge of global risk management for the Chicago-based real estate services and money management firm. “However, for the larger risk managers out there paying a much bigger premium, the money involved is far more material.”

The brokerage panelists also addressed reports that insurers, such as Chubb, had recently come out with “supplemental compensation plans” for brokers, which could take the place of the volume-based contingency fees given up by the top brokerage firms after allegations of bid-rigging and account-steering.

“This makes for a great sound bite, but it's a complicated issue….This is part of the overall value and compensation question, but it won't be solved here in this brief discussion.”

Brian Storms, Chair & CEO, Marsh

“When we talk about disclosure, we mean total disclosure. We're glad to hear the brokers inviting clients to discuss this.”

Janice Ochenkowski, RIMS President-Elect

“We'd love to have a dialogue about this, but the bottom line is that it doesn't affect the price clients pay.”

Greg Case, President & CEO, Aon Corp.

Special Reports /

Brokers Sink When Challenged On RIMS Panel About 'Float'

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