During a RIMS broker panel, Marsh CEO Dan Glaser called the controversy over contingents “a bit of a red herring.”

“I don't think taking contingents is a litmus test on whether a broker has a conflict of interest,” he said. “Lots of other revenue streams could present a conflict. The solution is full disclosure.”

(You can read more about reaction from other brokers here: http://bit.ly/bJioPQ.)

He's right, but the best advice came from ACE Chair Evan Greenberg, who pointed out during another RIMS panel that ultimately “we have to look to the buyer. Either way, it's your money paying brokers. What form of broker compensation is your organization comfortable with?” (You can read more about insurer reaction here: http://bit.ly/9O0Eqz.)

Mr. Greenberg's point is right on target. Instead of fretting over whether brokers take contingents, or whether they fully disclose such compensation, why don't risk managers simply negotiate a service fee and be done with it? I asked that question at the press conference with RIMS leadership.

“Most sophisticated risk managers handle this well,” said RIMS President Terry Fleming. “They have service agreements, like the one I have with my broker, who we pay on a fee basis. They are prohibited from accepting commissions from carriers, and if the structure of a placement includes any commission, that must be fully disclosed and is deducted from the fee we owe, so there is no incentive to serve the carrier rather than the client.”

That makes perfect sense, and should be standard operating procedure for risk managers. But Mr. Fleming said smaller organizations “only have an insurance buyer on staff or a part-time risk manager who often doesn't know how to handle such situations. We want to educate them on how to manage broker compensation.”

Education is critical. RIMS is taking a stab at it, and it should certainly be part of any risk management designation program.

In the meantime, however, Mr. Fleming–director of the risk management division for Montgomery County, Md.–called on his fellow risk managers to “walk the talk. There are brokers out there who won't take contingents. I go with such a broker.” More should follow Terry's lead.

I personally think many buyers are afraid to do business with brokers on a fee basis. It's a lot of extra work–why not just let the insurance company take care of that? And how much is a broker worth, anyway? That's a question too few risk managers ask themselves, especially because most haven't a clue what their brokers are actually paid.

If a buyer truly wants to be free of any concerns over potential conflicts of interest, just negotiate a reasonable fee for services rendered, period. That way, risk managers will never have to lose any sleep over whether their broker is serving one too many masters.