In an address to the UK’s Financial Services Authority (FSA) at its Annual Insurance Sector Conference (AISC), Willis Chairman and CEO Joe Plumeri strongly embraced the financial regulator’s announcement that it would implement a more “principles-based” approach to general insurance regulation (See IJ web site March 21).
“Principles are values you hold that are non-negotiable. You should know what the right thing to do is and do it with a passion,” Plumeri stated. “Otherwise we spend more time mechanically following the rules by making sure the boxes are checked and the forms filled out and not really acting in the best interest of our clients.”
Plumeri reviewed the contingent commission controversy, making the distinction that placing business with a certain carrier – which might not be the best one for a given client – was wrong, and has been greatly curtailed. He noted that Willis had been the first large broker to do so. He said the problem had not been confined to the U.S., but that “regulators worldwide” understood why contingent commissions and related payment schemes, created potential conflicts of interest.
“It’s too bad that not everyone in our industry understands that,” Plumeri continued. “How can we be true advocates for our clients and make sure their business is placed appropriately and their claims are paid if at the same time we are getting ‘extra’ payments, beyond the agreed upon commission.” He equated acting in the “best interests” of a broker’s client with the need to assure transparency in insurance transactions.
On another front Plumeri stated that, although he is “not one for more regulation,” he would “welcome an Optional Federal Charter in the US just as we have the FSA here in the UK. Imagine not one rules-based regulator, but having to work with 50 different rules-based systems!” He backed off a bit by indicating that federal regulation was “a topic for another day.”
Plumeri emphasized that “regulators need to recognize that it is entirely consistent to point the way and give guidance and recognize that how one company reaches the goal may not be right for another company. A lack of flexibility or different interpretation of best practices will lead us back to a rules-based approach. This means that even with the best of intentions, you can easily wind up spending more time getting the templates right rather than taking care of your clients.”
By implication Plumeri called Sarbanes-Oxley an “unfortunate consequence of misguided regulation,” indicating that the financial reporting law sometimes “stifles corporate creativity.”
Plumeri noted that the legislation “was passed during a very emotional time when the high profile misdeeds of a few bad CEOs caused a great many stock holders to lose money.” However, he added, in their zeal to “protect the investing public” legislators have passed regulations that amount “to a yoke around the necks of CEOs and CFOs.” While some “provisions have already been rescinded,” others have been kept in place and may be necessary. However, if the result of applying the regulations “is that companies are afraid to invest or take a risk to drive forward, then the rule has won out over the principle.”
Plumeri indicated that the FSA’s implementation of principle-based regulation “should be adapted by regulators worldwide. It should not matter where you are doing business – or who you are partnering with. Clients should be able to expect the same from us whether we are doing business with them in London, Lisbon or Los Angeles.”
The full text of Plumeri’s address is available at: www.willis.com.
Editor’s note:
Joe Plumeri is a forceful and at times eloquent spokesman for the insurance industry. As a broker with two main centers – New York and London – it’s not surprising that Willis’ Chairman was chosen to address the FSA, which does after all keep the U.S. market – and U.S. regulations – in mind in formulating its own rules.
However, even before it took on the task of regulating the insurance industry in January 2005, the FSA consistently backed the idea of “Principles” rather than “Rules.” Its decision to drop some of the more specific disclosure rules on general insurance is therefore entirely consistent with this approach, and does not represent any significant departure from its regulatory framework.
As far as Sarbanes-Oxley (a.k.a.: the Accountants and Auditors Retirement Fund Enhancement Act) is concerned: yes, it’s burdensome. But, according to several research reports almost 10 percent of listed U.S. companies filed restated earnings reports following its passage, most recently General Motors. As a result, investors now have better information on the true financial health of the companies they invest in than they did before. Maybe the changes SOX has wrought are permanent and its strictures won’t be needed in the future, but for the moment it’s too early to tell.
Topics USA Legislation
Was this article valuable?
Here are more articles you may enjoy.
California Sees Two More Property Insurers Withdraw From Market 
Wildfires Are Upending Some of the Safest Bets on Wall Street 
Coral Gables, Florida Tops Beverly Hills as Ritziest Home Market in US 
Cargo Owners in Baltimore Disaster Face ‘General Average’ Loss Sharing, MSC Says 
