RIMS Takes Contingency Fee Stand

Nancy Chambers, RIMS president and risk manager for the Waterloo Region Municipalities Insurance Pool in Kitchener, Ontario, Canada, told National Underwriter that RIMS' position on transparency remains the same, but that more is needed in a changing environment.

She said that RIMS represents many risk managers who know what question to ask of their brokers, however, "some of our risk managers may not be aware of the arrangements. So it's critical that they, too, are equipped with this information."

To that end, she added, "We believe that the full disclosure without request is the most appropriate policy."

RIMS said in a statement that disclosure should include compensation or fees related to the broker's overall book of business, as well as those fees related to specific offices, to individual primary and excess coverage, and to reinsurance placements.

Existence of compensation arrangements, the organization said, should be disclosed prior to placement of business and annually by line of coverage. Failure to disclose such arrangements, it continued, "runs counter to the spirit of partnership that risk managers seek to achieve with their brokers, vendors and insurers."

The use of contingency fees is under investigation by the California Department of Insurance and the New York Attorney General's Office. At issue is whether contingency deals could result in brokers advising their customers to accept overpriced, unneeded or insufficient coverage from insurers in return for extra fees or higher commission rates.