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Making sure the market does the right thing
It is not often that the risk management and insurance buying community is publicly criticized.
This is because it is in very few people's interests to have a go at the holders of the purse strings, in any field of economic endeavor.
It was, therefore, refreshing when, during the early summer, John Tiner, head of the United Kingdom's Financial Services Authority, chose to use his keynote speech at the Association of Risk and Insurance Managers conference to lambast the U.K. risk management community for failing to do the right thing.
His reason for this seemingly unprovoked attack was the inability of the U.K. and wider risk management community to exercise its collective buying power and force brokers and insurers to sort out commission disclosure and to a lesser extent contract certainty.
Mr. Tiner has a point.
It is an absolute disgrace that it took the dramatically staged efforts of an ambitious New York attorney general to force the U.K. and wider European risk community to rethink the way it transacts business.
This commentator recalls a senior broker standing up at AIRMIC almost 10 years ago to call upon the industry to put a stop to contingent commissions and the like. Lots of sage nodding of heads followed, but no action.
Shame on buyers, intermediaries, risk carriers and the regulators themselves for not acting upon this "industry norm" much earlier.
But that is history, and today we have a bandwagon that needs to be leapt upon, not least by those who set the speed limits and the parking rules in the first place.
A couple of weeks ago Mr. Tiner stepped up the pressure by revealing that the apparent inability of the buyers, brokers and insurers to even approach some form of market solution would make the mandatory regulatory solution all the more likely.
During last week's Federation of European Risk Managenent Associations' conference in Brussels, the FSA's John King ramped up the pressure a little bit more.
"In recent years, standards of corporate governance and financial controls for European, U.S. and U.K. corporations have advanced beyond recognition and shareholders have high expectations of what these will deliver. Yet the full agreement of insurance terms appears to have qualified for an exemption from this basic check and balance," he said.
So what does the risk management community have to say about all of this and what will be the buyers' response?
Unfortunately, judging by the response of risk managers from all over Europe at FERMA last week, not a great deal.
Most seem to feel that they have already gone as far as they can and that there is nothing they can do about all those small to medium-sized brokers and insurance buyers who just aren't interested or simply don't get it.
It looks increasingly like the FSA will be forced to introduce another swathe of rules that everyone will be moaning about in 12-months' time, which in itself is evidence of a market failure.