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Looking to lead by example, Risk and Insurance Management Society President Terry Fleming urged his members to “walk the talk” and emulate his practice of prohibiting brokers from accepting any contingent commissions on his account.

Broker compensation was a hot topic here during the RIMS annual conference, with Willis launching a Web-based campaign (www.ClientsBeforeContingents.com) to “educate” buyers about the bonus fees paid on the volume and profitability of business delivered to a particular insurer. Willis CEO Joe Plumeri said his goal is to convince risk managers to “vote with their wallets” by working with brokers that don't accept such incentive payments. (See “Pay Your Own Bills” on page 5 for more on this controversy.)

During a press conference with the RIMS leadership, Mr. Fleming said that “most sophisticated risk managers handle this well. They have service agreements, like the one I have with my broker, who we pay on a fee basis. They are prohibited from accepting commissions from carriers, and if the structure of a placement includes any commission, that must be fully disclosed and is deducted from the fee we owe, so there is no incentive to serve the carrier rather than the client.”

Mr. Fleming–director of the risk management division for Montgomery County, Md.–called on his fellow risk managers to follow his lead and “walk the talk. There are brokers out there who won't take contingents. I go with such a broker.”

However, Mr. Fleming conceded that “midsize or smaller risk management programs may only have an insurance buyer on staff or a part-time risk manager, who often don't know how to handle such situations. We want to educate them on how to manage broker compensation.”

Scott Clark, director of the RIMS External Affairs Committee, added that “the skill set of many risk managers does not normally include the nuances of broker compensation.”

Mr. Clark, who is the risk and benefits officer for the Miami-Dade County public school system, said that even if contingent deals are disclosed, many risk managers don't know what to make of them.

Mr. Clark noted that RIMS–which advocates for prohibition of contingency fees, and absent that, full transparency on a mandatory basis–is not comfortable with the New York Insurance Department's broker compensation disclosure rule that he said will put the burden of disclosure on the consumer.

Under the new department regulations–due to take effect Jan. 1, 2011–producers will be required to describe to consumers their role in the transaction and how they get paid, but a more detailed statement about compensation would only have to be provided if the client requests it. Two agent groups have said they will challenge the rule in court because it is too burdensome.

Mr. Fleming concluded that “there has to be another [broker compensation] model out there that doesn't involve back-end payments and the conflicts that could result.”

Mr. Fleming also addressed the impact of the financial crisis and subsequent recession on his profession, suggesting that both man-made and natural disasters have brightened the spotlight on the value of risk managers in loss mitigation.

In only 10 years the risk management profession has gone from “back office” to sought-after professionals, Mr. Fleming said in an earlier speech during the opening general session of the conference.

He said a series of catastrophic events–including the attacks on the World Trade Center of Sept. 11, 2001, Hurricane Katrina, and most recently disruptions in transportation and commerce caused by ash from a volcano in Iceland–have raised awareness levels of the need for proactive risk management.

“Companies are asking what they can do to mitigate risk,” he said. “Once insurance buyers, now they are business professionals in many areas, asked to participate in C-suite decision-making.”

He said RIMS, celebrating its 60th anniversary, is helping risk managers reach the top corporate officer level.

He reiterated five key objectives for RIMS during his term:

o Furthering leadership efforts of enterprise risk management.

o Developing advocacy for risk managers with legislation and regulations.

o Continuing efforts to develop a RIMS international strategy.

o Supporting efforts to continue to encourage students to enter risk management careers.

o Encouraging more peer-to-peer benchmarking and sharing best practices.

RIMS Executive Director Mary Roth, celebrating her 25th anniversary with RIMS, said this year RIMS has awarded $4 million in scholarships and $2 million in student grants.

In award announcements at RIMS:

o The Harry and Dorothy Goodell Award went to Steven M. Wilder, vice president of risk management at the Walt Disney Company and a former RIMS president. The award pays tribute to an individual who has furthered the goals of RIMS and the risk management discipline.

o The Ron Judd “Heart of RIMS” Award was presented to Mark Ryan, director of casualty insurance for Occidental Petroleum Corp. and member of the Dallas-Fort Worth Chapter.

o The Arthur Quern Quality Award was presented to Paychex Inc. for its predictive model within its ERM program.

Special Reports /

RIMS President Urges Risk Managers To &#039;Walk The Talk&#039; On Brokerage Fees

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