PORT In the STORM

Just six months ago, risk managers may have heaved a collective sigh of relief. All signs indicated the hard market was drawing to a close and insurance prices were moderating. At the same time, the post-9/11 insurance turmoil, along with high-profile corporate scandals, had vaulted the risk management profession into the spotlight and given risk managers the stronger voice within organizations they had sought for so long.

Then, last October, that sigh of relief turned to a gasp of horror. With the announcement that New York Attorney General Eliot Spitzer’s investigation into broker compensation would not turn out to be a “tempest in an teapot” as previously thought, and that civil charges were being brought against at least one brokerage, with the potential for more, the commercial insurance industry was thrown into chaos.

As risk managers prepare to meet in Philadelphia this April for the annual Risk & Insurance Management Society (RIMS) Conference, the issue of broker compensation is far from resolved. Incoming RIMS president Ellen Vinck says there is no question the debate over contingent commissions will dominate the conference, both in the official educational sessions, and in the hallways. “That’s the issue that is defining our industry right now,” Vinck says.

In fact, RIMS has announced several “hot topic” sessions devoted to the issue, including a discussion of the “pros and cons” of risk managers opting into the US$850 million fund established by Marsh in its settlement with Attorney General Spitzer’s office over contingent commissions and alleged bid-rigging incidents.

There is also a great deal that remains to be decided in terms of how the industry, specifically insurers, will respond to calls for a change in industry practices. Risk managers, says Vinck, will be looking to insurers for answers. “What are they going to do?” If insurers are no longer paying certain commissions to brokers, and if commercial clients will be expected to pay directly for certain services, then does it not follow that premium reductions should be implemented to offset this? she wonders. “I’m saddened we haven’t had more commentary from the carriers on what they’re going to do.”

Another outcome Vinck hopes to see from the contingent commission debate is for RIMS’ “quality improvement process” (QIP) to move into more widespread use. The commission debate has given rise to discussion of overall service levels in the industry and of course, the issue of disclosure and transparency amongst brokers, insurers and commercial clients. Vinck says the QIP is a means of increasing the level of transparency in these relationships. “We have continually told our members they should be using the QIP process… if more people used the QIP process there wouldn’t be as many people upset as there are today,” she believes.

HARMONIZATION

One bright spot in the commission debacle has been RIMS’ ability to assert itself as the voice of risk managers. RIMS representatives have spoken at the federal level, to state legislators, and even to the National Association of Insurance Commissioners (NAIC) as it developed its “model” standards on broker conduct and compensation. In turn, the society has ensured one of its own board or executive committee (EC) members was in attendance at all chapter-level meetings on the compensation issue, to provide updates on RIMS activities around the issue and to reiterate RIMS’ position.

Janice Ochenkowski restated that position at hearings held by a U.S. Senate subcommittee late in 2004: “Broker compensation and placement agreements should be transparent, with all sources of compensation, direct and indirect, disclosed without client request.” At the time Ochenkowski noted RIMS would support a ban on contingent commissions as well, but stressed the key concern was to ensure whatever new rules were put in place were done so on a national level. Vinck echoes this position, noting “contingent commission are not illegal, they’ve been around a long time”, and RIMS would like to see the NAIC model, which stresses full disclosure, in place in all jurisdictions. “What we don’t want to see is 50 states doing 50 different things. That would be a disaster… What we don’t want to see is a dog’s breakfast of compensation [rules].”

RISING PROFILE

Contingent commissions are not the only big issue on RIMS’ radar screen in the coming year, however, and Vinck notes that when representatives head to Capitol Hill in June for “RIMS on the Hill”, they will also be addressing class action reform, medical malpractice liability, asbestos and the need to extend then Terrorism Risk Insurance Act (TRIA) program past 2005.

Vinck is well-suited to giving a united voice to risk managers. She says beyond the knowledge and skill sets required of all risk managers, the most important attribute anyone in her profession can have is “honesty and the ability to challenge”. “The risk manager has to be willing to challenge, you have to be willing to go in and ask tough questions and maybe be unpopular sometimes. You have to be willing to make the tough calls.” Within their own organizations, all risk managers must be both negotiators and communicators, to be non-threatening but assertive, in order to gain respect across the organization.

Vinck has been earning respect in a variety of roles with her organization, United States Marine Repair, Inc., since 1980. She has risen through the ranks from assistant to the treasurer, and now serves as vice president of risk management and benefits for the corporate entity which encompasses a family of shipyards on all three coasts and Hawaii. At the same time, Vinck has expanded her domain to include insurance buying, risk financing, loss control, workers’ compensation, claims, benefits, medical and safety.

Similarly she has risen through the ranks of RIMS, serving its San Diego chapter for 14 years, including as chapter president, and joining the RIMS board in 2000. Most recently, she was vice president of conference leading up to the San Diego conference in 2004, which set attendance records.

NEW STRUCTURE

It will be a very different RIMS board which Vinck oversees for the 2005-2006 term. In the past, the board had members from each RIMS chapter, making it “large, unwieldy and difficult to get anything accomplished”, she says. A more streamlined board will merge with the EC as of May 1, and through attrition will be pared down to about 15 members.

This new system of governance will more accurately reflect the fact that it is the board which ultimately holds accountability for the society’s operations. “This change was primarily driven by the desire to be ahead of the curve on corporate governance,” Vinck explains. She adds RIMS has actually been a leader in many respects – while corporate America has been plagued by scandal and mismanagement, RIMS has expanded both in terms of membership and internationally, while remaining financially sound.

Along with its new governance system, Vinck says the other major task of her term will be the launch of a new task force on enterprise risk management (ERM). “The task force hopefully will have a mandate at the conference that will provide a three to five year strategic plan,” she explains. With board member John Phelps as chair, the task force will set about designing tools for risk managers to assess and implement ERM within their organizations. Vinck recalls the first time she attended a seminar on ERM, when after hearing its principles she responded, “Isn’t that what everybody’s been doing?” Unfortunately, she adds, “In many organizations, that wasn’t what they’d been doing. So much of it [risk management] was just about insurance buying.”

With the work of the task force, she expects that will all change. “ERM will not just be a buzzword. It will evolve to be the accepted way of doing risk management in an organization.”

At the same time, RIMS will continue to expand its four key areas: membership,
conference, education and technology. In Canada, this includes the implementation of the RIMS Canada Council’s membership strategy which is almost complete. On the conference front, RIMS 2006 is bound for Hawaii and Vinck says this will allow strong participation from the Japan chapter which is “absolutely thriving” since its foundation in 2001. In terms of education, RIMS will hold another symposium this year, following on the success of the first such event last year in London, U.K. This year the symposium will likely be in November, taking place in Bermuda. And, Vinck adds, RIMS continues to develop its Risk Fellow (RF) designation, with many of the workshops thus far selling out and receiving “excellent” reviews, and, she hopes, quieting any concerns that the program was not working. “For all the people who think the Risk Fellow isn’t moving forward, it is, and it’s doing well,” Vinck concludes.