Risk Managers Seek Progress

Risk managers “aren’t happy” with the insurance placement process or the product and, after a decade of talking about the problem, it’s time for “some solid change and improvement,” according to the outgoing president of the Risk & Insurance Management Society (RIMS) Ellen Vinck.

“We, as the risk management community, need to actively play a leadership role in requiring definitive performance expectations that will improve the quality in the insurance placement process,” Vinck said.

Her inspired call to action met with roaring applause at the RIMS Annual Membership Meeting breakfast, held in April at the 2006 RIMS’ Conference in Honolulu.

Vinck, vice president of risk management at BAE Systems Ship Repair Inc., told the crowd of risk managers that, in order to improve standards, they must call on insurers and brokers to use the Quality Improvement Process as a framework to improve the placement of product.

“RIMS advocates the open and honest dialogue between all parties in the insurance transaction,” Vinck said. “We recognize the difficulties all parties face given the recent scrutiny of the business practice model, and we appreciate changes that have been made as a result, but we are not there yet.”

Vinck’s supported her argument with detailed results of the RIMS’ 2006 Quality Survey.

CONTINGENT COMMISSIONS

Vinck said the survey results suggest risk managers have gained enough muscle through purchasing power to influence a change in the product placement process.

According to the survey results there is a dire need for improvement in the level of service required as a result of regulatory investigations. A majority of the survey’s 630 respondents reported that neither their broker nor insurance carrier offered any service improvements.

Vinck said the “straw that should be breaking the camel’s back” is that a “whopping” 82% of risk managers reported neither a change nor a reduction in premiums as a result of the cessation of contingent commissions. She proceeded to ask pointed questions of the insurance and brokerage CEOs seated onstage at the April 25 RIMS Tuesday Leadership Panel Luncheon.

When questioned on the issue, the entire panel of CEOs stated they no longer pay or receive contingent commissions, which is something risk managers these days like to hear. Unsatisfied, however, Vinck countered that risk managers are not receiving a corresponding reduction in their premiums, despite the fact that their brokers are no longer receiving contingent payments. “I also feel that there’s a pot of money that hasn’t come back to the insureds,” Vinck said.

Such a “pot of gold” does not exist, according to panel members such as J. Patrick Gallagher, the president and CEO of Arthur J. Gallagher & Co. He said risk managers representing large commercial clients did not play any part in contingent commission practices.

Panelists tried to steer clear of Vinck’s focus on contingent commissions. March Inc. chair and CEO Brian Storms said the issue was no longer the source of consumer concerns. Marsh’s clients, he said, have all but “moved beyond this issue” because they understand the isolated nature of the scandal and recognize that restitution has been made. “I think that I can speak for the other members of the industry as well where I think it’s less of an issue today,” Storms said.

Following the clash of words, a show of hands indicated most panel representatives and all but a handful of the audience did in fact agree with Storms.

Shifting the discussion towards transparency and integrity, panel member Gregory Case, president and CEO of Aon Corp., challenged Storms’ statement. Case said contingent commissions will remain an industry concern for a long time, adding the issue will be addressed only when integrity and transparency guide daily business practices. “Transparency is a fantastic thing,” Case said. “It is a wonderful catalyst that raises the bar and allows us to focus on value.”

The panel generally agreed that any infringement of integrity would be dealt with severely. Gallagher offered the harshest consequences of all: “If you do something that breaches the integrity of our organization, I will kill you,” he said.

Storms said he realized the importance of maintaining industry integrity. Clarifying his earlier statements, Storms said he didn’t want to suggest the issue was behind the industry as a whole; his comments were more indicative of the situation at Marsh, he said. The issues of integrity, value, pricing and transparency in the industry as a whole, he said, still have “a lot of legs” to them.

Storms appeared to agree with Cases statement that “our focus as an institution has to be around value that we give you (risk managers) and the price we charge.” However, the results of the 2006 RIMS Quality Survey, which Vinck revealed at the membership meeting a day before the panel discussion, indicated many other areas of the insurance purchasing process require attention and improvement.

NO TIME TO ARGUE

Foremost among the concerns revealed in the survey is the “apparent inability of the insurance community to provide insurance quotes 30 days prior to expiration,” Vinck reported at the RIMS Honolulu membership meeting. Receiving a quote within this timeframe did not happen for almost 60% of the risk managers surveyed, she observed. In fact, 10% reported they received their quotes three weeks after expiration, while a “whopping 26%” reported they saw their quotes two weeks after. Twenty-four percent of respondents said their quotes were delivered one week out or less.

These results reveal what Vinck describes as “a failing report card” for the insurance industry.

Problems with timely delivery do not end there, Vinck added. The survey results show most risk managers are not receiving their paid-for policies within the anticipated 30-day period. “Only 5% (of respondents) report getting a policy within 30 days of binding,” she said. In fact, the survey shows the vast majority of risk managers wait between 90 and 120 days to get the product for which they paid.

“The litigation following the attacks of the World Trade Center proved to us all something that we really already knew,” Vinck said. “The insurance policy placement is many times secured with written documentation, but more so with verbal communication and a handshake.”

The policy placement practice is precarious and must be revamped, Vinck said. “The timely issuance of the insurance product is critical and just cannot take this long,” she said to the sounds of thunderous applause.

Vinck, raising concerns at the broker and insurer executive luncheon panel, met with resistance when she referred to documentation as a solid practice in insurance purchasing, certainty and delivery.

American Insurance Group Inc. president and CEO Martin Sullivan disagreed with Vinck on this point, describing the documentation process as inefficient due to the huge amount of documentation required. “Do we even need all the documentation that we generate?” he wondered.

Panel member Shivan Subramaniam, chair and CEO of FM Global, offered a different solution: he suggested the industry should eradicate the use of binders in order to expedite the process.

However, even if the industry implements these suggestions to improve the process and they work, risk managers remain concerned about what they see as the industry’s seeming inability to deliver an accurate policy.

Vinck told the audience attending the membership meeting, for example, that the RIMS’ survey showed an unacceptable 53% of respondents declared dissatisfaction with both the quality and accuracy of policies once they had been issued.

MEETING FACE-TO-FACE

CEOs on the broker and insurer panel, including ACE INA chair Brian Dowd and Integro Group CEO Roger Egan, offered little in the way of answers to fellow panelist Vinck’s questions.

So, the question remains: where do risk manag ers go from here? What can risk managers do to ensure their brokers and insurers are providing them with the best service and product?

Following the feisty luncheon panel, Vinck and RIMS president Michael Liebowitz further explained how risk managers might approach the problem.

Liebowitz, director of risk management for Bridgeport Hospital & Healthcare Services Inc., said communicating face-to-face with brokers and other service providers is essential in the road to quality enhancement.

“I believe the markets can respond if you inform your broker and underwriters through meetings that you should be having,” Liebowitz said. He said service improvements he experienced often followed such face-to-face meetings.

Liebowitz said that during his last renewal, he approached his broker and requested that all his quotes be delivered 30 days prior to expiration. He also asked for all of his policies to be delivered 30 days after policy issuance. From there, Liebowitz said he told his broker that if this service demand was not met he demaned the broker provide him an explanation why not.

The request proved to be successful: Liebowitz said the result of this face-to-face meeting with his broker was that 100% of his quotes and 75% of his policies were delivered within the 30-day timeframe.