LETTER: Industry's conflicts unchanged in 40 years

TO THE EDITOR: Reading the May 7 Business Insurance editorial, plus reports from the recent New Orleans RIMS conference, I can only conclude that the three monkeys display an egregious form of obdurate obstinacy. For more than 40 years, insurance sellers, intermediaries and buyers have remained in self-denial about the inefficiencies and gross conflicts of interest they have allowed to continue. Every year, they insist on seeing, hearing and speaking "no evil."

First, your editorial challenges "risk managers" to "speak up to be heard." Is it possible this group is congenitally incapable of speaking up?

Second, a few outspoken souls during RIMS raised the issue of broker compensation, only to hear platitudes about "disclosure" and "transparency." No one suggested that all commissions are blatant conflicts of interest. Shouldn't a broker receive all its income from the client?

Third, I can't believe I'm still hearing about brokers generating investment income on premiums held before remitting them. Where is the buyers' backbone? Simply make out the premium checks to the insurers, not the intermediaries.

I'm frustrated, because many of us have criticized this conflict-ridden and inefficient system for more than 40 years. In a 1971 speech to the San Francisco RIMS Chapter, I suggested 10 steps to change the system. Here are four relating to the discussions in New Orleans:

c Substitute fees for commissions.

c Insist on direct meetings with underwriters.

c Pay insurance companies directly.

c Eliminate contingency commissions.

Thirty-six years after these words were written, the system remains locked in inefficiency and conflict of interest.

Felix Kloman

Lyme, Conn.

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