Terry Fleming, soon to be president of RIMS, tells StrategicRISK what his intentions are for the worlds biggest risk association

Next year RIMS will commemorate its 60th year. To celebrate that fact StrategicRISK spoke to Terry Fleming, who will take over the roal of president in January.

Fleming, who is also director of the division of risk management at Montgomery County, Maryland, explained the banking crisis has shined a light on risk management. “The human side of risk management was overlooked and that led to the financial crisis. Greed and an over-reliance on computer models pushed risk managers aside.”

Ultimately, he argued, the crisis will be a good thing for risk management, because it will emerge stronger as a result. “There’s more opportunity for risk managers to be part of the C-suite, to report to the board of directors,” he said, adding: “There is some legislation brewing in Congress that will require financial companies at least to establish a risk committee reporting directly to the board of directors.”

The existence of a risk committee does not guarantee that a firm is actually managing its risks appropriately. Both Lehman and Bear Stearns had risk committees that met reasonably frequently in the run up to their collapse. Nevertheless, Fleming thinks these developments are a step in the right direction. “The legislators are putting some teeth into the new regulations so that there are duties for the directors to perform once the committee has reported to them,” he said.

Main aim

One of RIMS’ main roles is to lobby industry and government on behalf of its members—it is particularly active on the thorny issue of broker remuneration. Recent and worrying developments in this area have alarmed the association.

In early November the state of Illinois lifted restrictions on Arthur J Gallagher accepting contingency fees—money paid to the broker based on the volume of business it delivers to an insurer.

Following the Spitzer inquiry in 2004, Aon, Marsh and Willis (sometimes referred to as the ‘big three’) agreed to stop accepting these secretive fees. Meanwhile other mid-sized and larger brokers continued to accept them and the big three complained that this created an uneven playing field. Now Fleming fears contingent commission’s are on their way back in.

New York’s insurance regulator has proposed a rule change, which buyers think could spring the handcuffs that prevent the big brokers from accepting contingents. “Once the New York Insurance Department implements this proposed regulation the Attorney General will lift restrictions for the big three and we’ll be back to square one,” noted Fleming.

The New York State Insurance Department Proposed Regulation no.194 on Producer Compensation Transparency does not require brokers to immediately tell how much they expect to get from carriers unless asked by a client.

Insurance buyers said the revision weakens consumer protection. “Our primary position is that we support a prohibition of contingency fees,” added Fleming. “If that’s not going to happen we call for transparency without having to ask.”

RIMS seems set to be disappointed—it could be that brokers start accepting contingent commissions very soon. “The writing is on the wall,” sighed Fleming. “We are going to be right back in the same position several years down the road when someone else gets caught being a little too greedy.”

The association is also lobbying hard for the introduction of the Optional Federal Charter, which means insurers in the States could choose to sign up to be supervised by a federal insurance regulator. The US is currently one of the only countries where insurance is regulated at a local level, which makes it difficult for insurers to offer their services nationally because of all the different rules.

Other targets

Other goals that Fleming has set himself for his presidency include pushing forward with RIMS’ international strategy, to offer its products and services in other parts of the world where US companies have international operations, such as Russia, China, India and South America.

“There are risk management associations in some of these areas and we are going to try and play with them in developing some of these opportunities,” explained Fleming. “We hope to develop conferences, other educational offerings and maybe even some chapters in other countries.”

Fleming would also like to encourage more peer-to-peer networking and benchmarking within the association. “We have a wealth of knowledge in our membership and I think we don’t share and develop that enough,” he said.

He recounted the tale of a fortuitous encounter with another RIMS member, who was able to steer him in the direction of a different insurance product that saved his company a fortune. “We were ready to pay $1.3m for E&O cover. I managed to get it for $300,000,” he said.

RIMS is also developing a student outreach programme to try to encourage younger people to get into risk management when they leave college or university. Currently most risk management students go on to pursue careers as insurers or brokers. Fleming hopes to break that cycle and get his foot in the door earlier with graduating students.

The average age of a RIMS member is 47. “It would be good to try to lower that,” grinned Fleming.