If brokers are supposed to act as their advocates, however, why did so many risk managers fail to hold them accountable for their separate pay schemes with insurers — schemes that could distort broker loyalties and cloud risk managers' views of how much competition was actually taking place in the marketplace?
Truth be told, many risk managers have too much invested in their relationships with brokers to question their compensation closely. Although the buyers present themselves as the consumerists of the insurance world, they simply don't want to offend their intermediaries. Part of the timidity might have to do with the industry's revolving door: Risk managers often end up in more highly paid broker jobs. What's more, the brokers do a lot of the policy-scrutinizing work that risk managers might have to do themselves if they dealt directly with insurers.
The result has been that risk management departments often constitute little insurance "shops" within corporations, institutionalizing the buying of insurance and the attendant shelling out of broker commissions as if they were givens. In such a situation, the advice of the broker seems to have held sway, and the contingency-fee scandal suggests that said advice might have been less than objective.
To make sure that the balance between buyer and seller tilts back toward corporate purchasers, CFOs would do well to take a fresh look at the jobs their risk managers are doing — especially in light of their relationships with brokers. Finance chiefs, who must sign off on their companies' financials under the Sarbanes-Oxley Act, need their risk managers to have an unobstructed view of the coverage they're buying and the terms on which it's bought in order to know how well corporate assets are being protected. "Does my risk manager have a view of the market that's independent of the information the broker provides?" is a question a prudent senior executive might well ask.
Apparently anticipating such questions, the three top executives of the big brokers were selling transparency at the RIMS conference as if it were a hot new product. Acknowledging that brokers would have to prove their worth anew, Michael Cherkasky, president and chief executive officer of Marsh, offered to provide "real-time information that will help you make decisions." Joe Plumeri, chairman and CEO of Willis Group Holdings, the brokerage's parent company, spoke of going beyond disclosure of brokers' compensation to reveal details about their role and how they plan to make good on what they've promised.
For his part, Patrick Ryan, Aon's chairman and CEO, suggested that buyers would be held accountable for the information they get from brokers and insurers. "You, as risk managers, should never put yourself in a position," he said, "that you can't answer [questions about] what it is you're paying for."
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