What were the hot topics at the RIMS 2005 April conference in Philadelphia? Lee Coppack sums up the key issues

The man running the firm at the centre of the storm over broker remuneration made an unqualified apology to corporate insurance buyers at the annual conference of the Risk and Insurance Management Society (RIMS), though without explaining how the practices that brought down the wrath of New York attorney general Eliot Spitzer on them became common and accepted.

To be fair to Michael Cherkasky, president and CEO of Marsh, his involvement with the company and with insurance broking is new. When appointed to the top job in Marsh in October 2004, he had been running the investigations and risk consulting company Kroll, which Marsh only acquired a few months previously. Before Kroll, Cherkasky had been chief of the investigations division of the New York County District Attorney's Office where one of his staff was a young Eliot Spitzer.

At the RIMS 2005 conference, he and Pat Ryan, the chairman and CEO of the second largest broker Aon, joined the president of the International Federation of Risk Management Associations (IFRIMA) and former RIMS president, Susan Meltzer, and the incoming RMS president, Ellen Vinck, to discuss the next steps in the broker-client relationship.

About 2,000 people gathered in the Philadelphia conference centre heard Cherkasky say that insurance is essentially a simple industry, and the role of the broker is to provide the insurance buyer with consultancy on how to transfer risk and access to the mechanisms for risk transfer.

However, a third element is essential and that is trust, without which the first two could not be accomplished. "At Marsh, we stumbled and we stumbled badly. We are sorry. Absolutely sorry. It won't happen again," he said.

Ryan admitted that in retrospect the policy that only required brokers to disclose total payments from insurers had been a mistake. Today, 'the very appearance of conflict of interest has become unacceptable.' Aon, like Marsh and Willis, has renounced contingent commissions. "We are excited about the new models," says Ryan. "Transparency will allow buyers to know the real costs of insurance and reveal the true value of the broker."

Neither Cherkasky nor Ryan touched on the reasons why such practices had become so significant to brokers' earnings, nor, in terms of corporate governance, how quoted brokers will balance the inherent tensions between stock market pressures for consistently growing returns and acting as agents for the insurance buyer.

Susan Meltzer was clear that the broking community had had a chance to avoid its current problems, but had failed to do so. In 1998/9, under pressure from RIMS, brokers had agreed to be more transparent. In many cases, it had not happened and neither risk managers nor regulators had followed through. "For many years there was an aura of secrecy around these payments. There is no reason why brokers' ancillary income should not be disclosed on a client by client basis. There is no reason why insurers should not disclose reinsurance commission paid to the broker. Risk managers were routinely refused this information."

Meltzer warned the brokers that no one service model suits every account.

Each risk manager should be able to define the services required from the broker and be prepared to pay full value for those services. The brokers, she said, should listen to their clients.

More brokers

This was not the only time that RIMS considered the issue of broker remuneration; it was the predominant theme of the conference, replacing the state of the insurance market as risk managers' public preoccupation.

The opening keynote speaker had been another broker, Willis chairman and CEO, Joe Plumeri. An electrifying speaker, Plumeri called for 'a new world order of insurance' to revolutionise the industry and a new business model based on client advocacy, transparency and innovation. He got an ovation; the RIMS daily report for the following day called it 'The Joe Show'.

A hot topic session covered 'Broker Contingency Fees ... What You Should Know', and a further session behind closed doors gave risk managers who placed insurance through Marsh between 2001 and 2004 the opportunity to discuss the $850m settlement agreed by Marsh to compensate clients.

Conspicuous by their absence in the discussion were risk carriers. One who did break cover was the chairman of Lloyd's, Lord Levene. He used an address to business leaders, just before RIMS, to outline his four point plan to restore confidence in the insurance industry. He called on it to:

- eliminate conflicts of interest and increase transparency
- work with regulators to develop and require ethical principles of behaviour
- communicate better with the outside world
- work with directors and senior managers to demonstrate that managing risk is critical to good corporate governance.

Levene said that the reputation of the financial services sector has become tarnished. "The very business of financial services is based on trust, and we can no longer be in doubt that governance and proper conduct must take their place at the top of the agenda," he concluded.

By contrast, an overwhelming majority of Lloyd's underwriters - 84% - believe that pricing is the main issue currently on insurance buyers' minds, according to the results of an independent survey of 102 underwriters released at RIMS. Only 4% said issues raised by Eliot Spitzer's investigations loom large in the minds of the risk manager.

This perception of buyers' priorities may go some way to explain the frustration with risk managers that was expressed by Susan Meltzer and Ellen Vinck. They thought they were not pressing hard enough for greater openness from brokers. Ellen Vinck said risk managers must push the brokers to fulfil their current promises of transparency. "It is incumbent upon us, and no one else but us, to see that this happens," she said.

Pulling up SOX

Two RIMS sessions were specifically devoted to the directors' and officers' insurance implications of the Sarbanes-Oxley Act (SOX), another topic of importance to many risks managers.

The vast majority of those responding to the survey, carried out by London broker Miller, indicated that Sarbanes-Oxley and D&O were the top risk concerns in their boardrooms. Over half the risk managers also said their role was changing as a result of supporting the board in the implementation of section 404 of Sarbanes-Oxley, although a surprisingly high proportion - 33% - found no difference.

One question posed was whether risk managers were investigating new risks as a result of section 404. The largest number - 42% - said no, but 37% identified further areas to cover, with no consensus as to what these specific risks are.

The survey report commented that there was anecdotal evidence to suggest that, while some of those taking part believe that the full effects of Sarbanes-Oxley have yet to be felt, others think the reaction to it has been exaggerated. What is undoubted is that corporate governance issues are dominating boardroom concerns about risk; next come operational risks.

There is also heightened awareness of supply chain and outsourcing risks for growing enterprises.

For many people, compliance with Sarbanes-Oxley, corporate governance and enterprise risk management (ERM) have become conflated, yet the law does not make ERM obligatory. It concentrates on internal controls only for financial reporting and disclosure, explained Martin Mayer, risk manager for office furniture manufacturer, Steelcase, Inc.

In their presentation on Sarbanes-Oxley and ERM, Peter Reed, director of internal audit for Steelcase, and Tony Sullivan, senior vice president of Willis and risk consultant for the firm, suggested instead that Sarbanes-Oxley is "one step in an evolutionary process tending toward regulatory requirement for comprehensive, coordinated management of risk across the entire enterprise."

Shortly after the conference, RIMS and the Penn Rhoads Institute (PRi) launched a new online course, Understanding Corporate Governance in a Sarbanes-Oxley Environment. The programme examines the foundations of the law governing business relationships, in addition to the responsibilities and liabilities of directors, officers and management.

Terrorism debate

The subject of a special hot topic session was the future of the Terrorism Risk Insurance Act (TRIA), though terrorism as a risk did not feature as a major item on the RIMS programme. Congressional debate about renewal of TRIA is likely to run up to the wire, which leaves risk managers worrying whether their workers' compensation and property/casualty insurers will carry on underwriting terrorism coverage after 31 December 2005.

Signed into law in November 2002, the TRIA guaranteed availability of cover for foreign sponsored acts of terrorism by creating a mandatory reinsurance mechanism for domestic insurance companies. RIMS has called on Congress to extend TRIA for a further two years, arguing that it meets the needs of a significant portion of the risk management community.

The terrorist threat to the US itself remains unchanged from last year at a level described as 'elevated', or half way between the lowest and most severe ratings in Aon's third annual terrorism risk map. The map, which was published at the conference, indicates that far right groups, Islamic extremists and other religious groups, and violent single interest groups are the greatest threats to US territory. However, the map shows that businesses need to be aware of threats to their operations and personnel abroad, even in so-called safer countries.

Next year in Hawaii

RIMS is on a different scale from any other risk management conference.

In addition to an attendance this year estimated at more than 10,000, including risk managers, service providers and exhibitors, its exhibition encompasses hundreds of stands ranging from neat, two-person booths to large architectural concoctions from the leading brokers and insurers.

Just a month after the Philadelphia conference, RIMS had already called for programme suggestion forms for the 2006 conference and exhibition, which is being held in Honolulu, Hawaii. RIMS is particularly looking for sessions that address goals important to the risk management community, such as the evolving role of the risk manager, advancing risk management as a profession and helping members meet new governance and compliance requirements.

Some ideas suggested by RIMS and RIMS members include risk modelling and risk management best practices, CFO/CEO views on risk management, enterprise risk management (ERM), creating an effective risk management report, Sarbanes-Oxley and beyond, current D&O market conditions and perspectives from senior executives on the insurance market.

- Lee Coppack is a writer on risk management and insurance and is editor of StrategicRisk's sister publication, Catastrophe Risk Management.


The International Federation of Risk and Insurance Management Associations (IFRIMA) has released a position paper regarding the role of the broker from the perspective of risk managers.

The document explains that the level of involvement of the broker may vary greatly from company to company. For larger accounts, the management of the broker relationship is structured like an outsourced activity, and requires personal attention and tailoring of services. Some insurance-purchasing organisations may have an internal risk management function and some may not, which can affect the level of involvement by the broker.

IFRIMA's position is that the business model established by brokers and insurers has not provided for flexibility in the difference between providing brokerage services for small, medium, and large accounts.

"In 2004, the IFRIMA board of directors determined that it would publish a white paper defining the role of the broker with respect to risk management accounts," said IFRIMA president, and assistant vice president of risk management at Sun Life Financial in Ontario, Canada, Susan Meltzer. "The insurance brokerage and industry investigations subsequently made this topic even more compelling for our position, which is based on the premise that the role of the broker is primarily an outsourced activity, providing additional resources to the risk management department in those areas for which it is not cost-effective for a risk manager to undertake such activities internally."

According to the document, posted on www.ifrima.org, the activities of the broker include conducting the following roles. - ADVISORY - The insurance broker can provide the internal risk manager with information that assists the risk manager in determining the risk transfer strategy for his or her organisation.

- TRANSACTIONAL - In order to efficiently access the worldwide insurance markets, many commercial insurance buyers utilise the services of insurance brokers, including expertise in marketing. This should include the development of comprehensive, effective underwriting submissions, identifying potential insurance partners and designing and organising presentations by clients.

- SERVICING AND ADMINISTRATION - Once the insurance policy is placed, regardless of the extent of involvement of the broker in such placement, a significant amount of servicing and administration work remains to be done, and continues from the inception of the policy through to its expiration.

This can include checking of policy wordings, premium payments administration, issuing of certificates and routine claims administration, among other activities. These services should be clearly listed in a comprehensive servicing agreement.

"This paper is being issued at the height of a very active period for IFRIMA, which is positioning itself more and more as an active partner in the global risk management arena," said Maurizio Castelli, chairman of IFRIMA and group risk manager for Pirelli SpA in Milan. "In the past three years, IFRIMA has supported global risk management conferences in South Africa and in Bermuda, and future conferences are planned for Portugal and Hawaii within the year. This white paper was proceeded by the Enterprise Risk Management position paper issued last year. These activities reinforce IFRIMA's leading role."

The paper was approved at the IFRIMA board of directors' meeting on April 20, 2005, in Philadelphia. The next IFRIMA conference will be held in conjunction with the FERMA conference in Lisbon in October 2-5, 2005.

This white paper will be discussed at one of the sessions. The next RIMS annual conference and exhibition, April 23-27, 2006, in Honolulu, Hawaii, has been designated an IFRIMA conference. IFRIMA does not intend to offer a risk management standard, but instead a best practices/guideline document.


RIMS has added two new tools to its Quality Improvement Process (QIP): the Claims Service Provider and Risk Manager Partnership Tool, and the Safety and Loss Control Service Provider and Risk Manager Partnership Tool. "Uniquely in the risk and insurance industry, the RIMS Quality Improvement Process does not just provide guidelines to performance expectation; it provides hands-on tools that risk managers can customise to fit their needs," says Jeff Vernor, chair of the RIMS Quality Advisory Council.

Developed by RIMS to elevate the level of quality in the delivery of insurance and related services, the QIP is comprised of two key components: Guidelines for Performance Expectations and QIP Learning Resources. The former is used by risk managers and industry partners to improve communication, develop performance expectations agreements and evaluate the performance under those agreements. The latter includes a practical Quality Tool Set, comprising sample templates and worksheets that include examples of both actual performance metrics and sample metrics developed by RIMS. Each containing 39 guidelines designed to facilitate communication, clarification and measurement of performance expectations, the new QIP tools provide sample metrics designed to provide a framework for the user to choose guidelines and develop associated metrics important to his or her organisation.

The QIP tools can be downloaded for free on the RIMS web site at www.RIMS.org/quality.