IRMI Update—Issue #108
An E-mail Newsletter for Risk and Insurance Professionals
ISSN: 1530-7948
March 8, 2005
In This Issue
Colleague,
Dennis Julien, vice president of insurance and risk management for AMCORE
Financial Inc., makes a great case for having risk managers report to the chief
operating officer instead of the CFO, controller, general counsel, or other
vice president. Every vice president in the organization has at least a sliver
of responsibility for risk management and could make an argument that the function
should report to him/her. The problem is he/she will not have sufficient suasion
with other departments to do the job right.
Risk issues cut across each and every silo in the organization. Other than
the COO, no one in the organization is charged with a sufficiently broad view
of either the organization or the authority to get things done. No vice president
is ever welcome to trespass/poach on another vice president's authority and
this is the main reason risk managers are dragged into turf wars. Unfortunately,
when risk managers report to a vice president, the information provided to the
COO is usually filtered and risk management information rarely makes it to the
most senior levels without spin. These problems are more easily avoided when
the risk manager or chief risk officer reports directly to the COO.
Of course, it is human nature to have a desire to report to the highest possible
level in an organization. However, Mr. Julien's rationale is sound and is not
vanity or ego driven. What do you think? Have you seen instances where risk
management in an organization was facilitated or hindered by the level of the
risk manager? Certainly, organizations differ, but do you think that, in general,
there is an optimal reporting structure? [See reader comments].
On another note, I'm pleased to announce that Kate Westover will be conducting
another round of captive seminars for IRMI in April and May. "The Captive Choice"
will give you practical advice on how to choose between your alternative risk
transfer options with a focus on single parent, group, and cell captives. Ms.
Westover is a wonderful presenter with the knowledge and experience to truly
enlighten you. She'll be assisted by David R. Monday, a tax partner in the PricewaterhouseCoopers
insurance industry practice. If you (or your clients) have been wrestling with
the captive choice, this seminar is for you.
Thank you for subscribing to IRMI Update.
Have a great day.
Jack
Jack P. Gibson, CPCU, ARM
President
IRMI
Four Ways To Cut Your WC Costs—After handling
or administering workers compensation (WC) files in a large number of states,
I have created a list of four secrets to cutting your WC costs that will work
in any state with any carrier or third-party administrator (TPA). They are:
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File First Reports of Injury ASAP—The setting for the rest of a WC claim
happens in the first 72 hours. If the insurer/TPA does not have the first
report within the first 24 hours, my statistics show a 400 percent increase
in file payments.
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Develop a Medical Treatment Network—This is the most crucial part of
a WC claim. It is imperative for an employer to know the doctor who will
treat employees post-injury and, even more importantly, know the surgeon
(orthopedic or neuro) that the first level physician will refer employees
to for the more serious injuries. Studies have shown that even if the employee
has the right to choose the physician, s/he will usually treat with the
one designated by the employer. Knowing your medical network will reduce
payouts on the file by 75 percent.
-
Establish a Return-to-Work (RTW) Program—If there is no RTW program in
place for modified duties, the increase on the file expenditures are usually
400 percent more than if a RTW program is in place.
-
Treat Employees with Respect—Treating an employee with respect and kindness,
and communicating his/her rights under the workers compensation act will
make it much less likely s/he will seek legal representation. One effective
loss reduction technique is to send the employee a get-well card by e-mail.
Almost everyone has an e-mail address. Web sites such as www.hallmark.com and www.americangreetings.com even have cards for free. Keeping in contact with the injured employee allows
an employer to keep updated on the status of the medical treatment and possible
RTW issues.
By: James Moore
J&L Risk Mgmt. Consultants, Inc.
Raleigh, NC
www.cutcompcosts.com
Suggest a Risk Tip. Send us a practical tip (less than 300 words) for identifying and managing risks,
buying insurance, managing claims, or filling gaps in insurance coverages. Submit your tips. We'll
acknowledge your contribution as we did for James.
There are now 637 risk management and insurance articles on IRMI.com. Below
you'll find summaries of some recent additions with links to the articles.
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Due Diligence Is
a Risk Manager's Best Friend—David Nicastro discusses recent
security episodes that illustrate the importance of due diligence not only
as a pre-hiring regimen, but also as an ongoing risk management tool.
-
How To Pick a Mediator,
2005—Jeff Kichaven provides 10 questions, and some likely responses,
to help you select the mediators best able to get the job done.
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D&O Litigation Trends
in 2005—Too many forces are aligned against directors and officers
to suggest that the frequency and severity of claims will soon decrease,
despite SOx. John Black and David Burrowes explain.
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Combating Rental
Equipment Theft—David Shillingford looks at why rental equipment
is at greater risk of theft, the historical low recovery rates, and recent
advances the rental industry is using to turn this trend around.
-
Plugging Liability
Insurance Gaps with the Personal Umbrella Policy—While most people
buy an umbrella policy for its excess coverage, including defense costs,
it has far greater value as a risk management tool. Jack Hungelmann explains.
We have recently updated IRMI Online to include the latest issues of our
newsletters, The Risk Report, Captive Insurance Company Reports, and Strategic RM, as well as supplements to
a number of the reference manuals. See a summary of all the new stuff with direct links into the publications.
We still have a few seats left in the Dallas and Orlando Tech-eRisk 2005
seminars. This program will hone your expertise on how to insure and contractually
transfer technology and cyber risks for your company or clients. This is an
intensive workshop delivered by two leading experts in technology risk and insurance,
and it will help you manage the risks for brick and mortar companies as well
as technology companies. For more information or to register, go to our seminars
section.
In IRMI Update 107, Jack Gibson discussed
the apparent demise of contingency commissions and asked readers what changes
they expected as a result. Below are a few of the responses received.
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I do not think contingent commissions are going away, but do agree there
is a pending sea change in agent/broker compensation as respects disclosure.
We researched the issue, and without getting into tremendous detail, here
is what we came up with regarding the general positions of our constituencies:
- Clients & Prospects. In general, personal lines and small commercial
clients are indifferent to the issue and do not have a problem with
agents and brokers accepting these payments. Risk managers of very large
accounts are concerned mostly with disclosure, but many do have an issue
with the nature of these payments. Additionally, these companies are
generally getting pressure from senior management and/or boards to assure
that they have done their due diligence on the issue. Finally, middle
market clients ($15,000-75,000 in account income) have tremendous variation
in both their level of interest and their position on this issue.
- Competitors. Virtually no agents and brokers have taken a position
that they will not accept contingencies under any circumstances except
for the four institutional competitors.
- Regulators. The vast majority of regulators that have commented
on this issue have stated that they believe contingency agreements (payments)
are fine. Again, where regulators have demonstrated concerns, they're
focused on disclosure.
- Insurance carriers have almost universally taken the position that
contingency income arrangements will continue. They have specifically
taken the position with agencies/brokers that decide not to accept contingent
income that they do not have the flexibility to adjust front-end revenue
(retail commission) for commercial property & casualty business. As
for health and welfare clients, the majority of these payments are "5500
reportable," but we do generally have the flexibility to adjust our
retail commissions (which is also 5500 reportable).
In summary, we believe this is much more of a transparency and disclosure
issue than it is an absolute position issue. ... Agents/brokers should be
able to keep contingent income on personal lines, small commercial, middle
market commercial, affinity group commercial programs, and small health
and welfare accounts if they provide full transparent disclosure.
Allow any client to be excluded from contingent income plans who requests
same.
—Kavin Smith, Partner & Director of Brokerage Operations,
Palmer & Cay, Savannah, GA
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We have had only one or two customers ask us about contingency commissions.
I don't mind telling them the truth. If anything positive comes out of this,
it might be to level the playing field for small agencies. After all, everyone
knows the large brokers get richer agreements than small agents and brokers.
The large agents get better underwriters, more exceptions, and larger contingencies.
Leveling the playing field may not be a bad idea.
—Tammy Lesueur, Marketing, Bancorp Insurance, La
Pine, OR
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I disagree that contingencies will go away. Conversations we have had
with our carriers indicate they will continue this type compensation, however,
some with modifications. None have said they will discontinue. When we deliver
our proposals, clients pick us based on price and service. Never has commission
or optional compensation come into the decision to do business with us.
When we deliver the best product with a competitive price, the client is
happy. Marsh was bid rigging, and compensation was not the cause of the
problem. That would be ethics, and our customers know that. Let the regulators
and AGs address the real problem.
—Richard Heckle, Chairman, Dean, Heckle & Hill, Inc.,
Matthews, NC
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Your article is a great lead-in to possible events that could be coming
our way in the industry, and we should start to take an interest before
it becomes too late.
—Anthony Dale, Director of Commissions, RKIB, Houston
-
The national carriers use these commitment agreements to leverage the
large agencies for new business—to hit volume goals. The field production
people and marketing people will have to look for other avenues to produce
their regular flow of business. That may mean more attention to the smaller
agencies which the carriers have been reducing "Time invested."
—Bob Fancher, Director Property Casualty, RMSCO Inc.,
Liverpool, NY
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