Content provided in partnership with

Financial Services Industry

AIRMIC 2005: offstage rumblings change the agenda; this year's conference of U.K. risk managers showed insurance buyers want brokers to come clean on remuneration

Risk & Insurance, August, 2005 by Graham Buck

Themes and agendas for the coming year are as popular with organizations in the U.K. as they are in the United States. However, events have a nasty habit of hijacking attention so that planned discussions suddenly veer off to focus on an issue such as terrorism.

This proved to be the case when the Association of Insurance and Risk Managers assembled at the British seaside town of Brighton in June. Its chairman for the past year, Andrew Cornish, stated at the outset that delegates would hear much about transparency in the wake of the Spitzer allegations.

Most Popular Articles in Business: Research and Markets : Tesco Plc - SWOT Framework Analysis; Do Us a Flavor - Ben & Jerry's Issues a Call for Euphoric New Flavors; eBay made easy: ready to start an eBay business? These 5 simple steps will ...; Katrina's lawsuit surge: a legal battle to force insurers to pay for flood ...; Wal-Mart's newest distribution center opened last month near the southwest ...; More »

Against a background of increasing opposition to further European integration, they also heard broadsides against Brussels and its plans to review the financial services industry, as well as proposed company audit reforms deemed even more onerous than Sarbanes-Oxley. Also high on the agenda were the changed ranking of issues that now preoccupy British risk managers and predictions on which are most likely to enter their radar over the next five years.

AIRMIC set up a task force last November to monitor whether broker business practices were changing voluntarily after Eliot Spitzer's assault on insurance brokers and carriers. The association wanted to avoid any "knee-jerk reaction," said Cornish. There have been improvements in recent months, but they have not gone far enough.

"We still need a system where only the buyer remunerates the broker," he said. "Brokers should automatically declare their earnings to customers rather than waiting to be asked, and all payments should be out in the open. We also need clarity and transparency from insurers on whether they still pay contingent commissions."

AIRMIC's members showed "almost unanimous" agreement for all aspects of remuneration being disclosed. Its survey reported more than one in three commercial insurance buyers said they were still unable to get details about their broker's remuneration. Nearly two-thirds believed that brokers should receive no payments at all from underwriters (nearly twice as many as held the view last November).

Cornish said his association is only ready to give the industry until the end of 2006 to complete the process of cleaning up its act voluntarily. If this deadline is not met, AIRMIC supports industry watchdog the Financial Services Authority taking the necessary action to make automatic notification compulsory. However, discussions have shown that the FSA prefers that the market devise its own solution. With Lloyd's of London CEO Nick Prettejohn, the Lloyd's Market Association and the International Underwriting Association also supporting AIRMIC's stance, the process of change is likely to accelerate over the next few months.

EUROPE'S SARBANES-OXLEY

Among key speakers at this year's conference was Sir John Digby Jones, director general of the Confederation of British Industry. He arrived in Brighton fresh from launching an attack on European Union plans to improve company audit standards and regulation--which the EU says are needed to revive investor confidence after several European corporate scandals.

As ever, the devil is in the detail. The proposals would see every listed company with an audit committee, which would have statutory responsibility for monitoring the effectiveness of its internal controls, audit and risk management. They would even require at least one member of the committee to be "competent" in accounting or auditing.

The CBI, backed by the Association of British Insurers, says United Kingdom companies already have problems in recruiting suitably qualified individuals for audit committees and that the plans would make an already difficult task impossible for some.

At Brighton, Sir Digby took a swipe at the "Old Europe" attitudes of both Brussels and French President Jacques Chirac that, he said, are blocking vital reforms and threatened Europe's ability to compete in the world economy.

"The European Union should be a workforce of 450 million people able to take on the world, yet Brussels is marching back to the 1970s," he declared.

There was praise for Britain's economic shift to focus on "value-added, quality products and services" rather than compete on price with China and India, which are better equipped to win such a contest. The country is also free of the structural problems and rigid labor markets that afflict its European neighbors, as well as the "current U.S. bout of isolation and protectionism."

However, Sir Digby also highlighted the need for the United Kingdom to develop a yet more highly skilled workforce.

"It's worrying that the world's fourth-largest economy has 3.5 million people who are functionally illiterate and unable to understand the simplest instruction manual--particularly when jobs for people who cannot read or write are likely to disappear," he warned.

Contrary to popular perceptions, the average illiterate is white and around 35 years old, he added. The country's education system has consistently failed since the 1960s, and although there is now a belated return to basics and vocational training, nearly one in three of the CBI's member companies has to spend money on remedial training for those joining the workforce upon leaving school at 16.

Financial Services Industry

AIRMIC 2005: offstage rumblings change the agenda; this year's conference of U.K. risk managers showed insurance buyers want brokers to come clean on remuneration

Risk & Insurance, August, 2005 by Graham Buck

Find Research Guides for:

Find Featured Titles for: Reference

Most Popular Articles in Business

Most Popular Publications in Business