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Question: How are the brokerage scandals redefining the role of the broker?

Joseph Plumeri: There is a revolution going on in the brokerage industry–not an evolution. This unrest is coming from an industry that frankly hasn't defined who the client is and hasn't dealt with these clients in a transparent way. The back office of brokerages should be their front office, in terms of transparency around claims paying and policy issuance. The broker is responsible for this transparency. That is what client advocacy is all about. I think we brokers and our clients have to sit down with insurance carriers and figure out how interests [of clients] can best be served and move on from there.

Gregory Case: The reason I accepted the CEO role here is the tremendous opportunity to help clients. The reaction of the industry over the past year [to the scandals] has been important, and I think that transparency and client advocacy are quite critical. But they're the ante. If you're proposing to be an advocate now, then what were you before? Our focus is on value-added services, advice and execution. The events of the past year have reinforced how important our clients are to us. When I talk to them, they tell me their risk needs are changing and becoming more complex. It all comes back to our core value, not just fundamental brokering [placement of insurance] but how we understand clients' risks and help mitigate them. To be effective, we must be absolutely pristine on compliance and transparency, but we really need to be world class on quantifying and mitigating risk.

Michael Cherkasky: The traditional role of the broker is to be a trusted advisor, someone with the content and the skill sets to make sure that clients understand their different opportunities to transfer risk and have access to the marketplace in appropriate ways. That has not changed. Obviously, we are making sure that we work only for the benefit of one party, meaning the customer. The scandals have reinforced the need [for] 99.9% purity in that regard, and we're making sure we do that in a very transparent way.

Question: Do you expect client fees to rise with the elimination of contingent commissions? And, if not, how will you make up for the lost income from the discontinued commissions?

Case: It isn't about recouping fees; it's about providing real value-added services. To the extent we provide technical capabilities and [insurance] design and placement capabilities, we add value in ways that our clients will understand and want to pay for. This compensation will be fair and will go up, especially as clients' risk mitigation needs and challenges increase and we help solve them. On the other hand, where we are not adding value our compensation should go down. I like that bet. It puts the onus exactly where it belongs–on us to provide value.

Cherkasky: Incrementally, there may be some small adjustments, but we can't disappoint our clients about our trustworthiness and then turn around and raise our fees. Overwhelmingly, there needs to be a reapportionment of who is paying what, making sure that to the extent contingent commissions are not being paid and are essentially being kept by the underwriters, that they are forwarded to the client with maybe a small percentage given back to the broker. For us at Marsh, we must demonstrate value and be more efficient, dealing only with clients that understand our value and are profitable. Consequently, we are being more disciplined about exiting unprofitable accounts and reducing the number of people servicing those accounts.

Plumeri: Client fees will rise only if clients get what they pay for. This has nothing to do with us wanting to make up for lost contingent commissions. Fees should only rise because we provide the value that people want to pay for. I see client advocacy, consulting and service as important [as placement of insurance and price]. If we do these well, we'll get paid for it.

Question: While the three of you have rejected the use of contingent commissions, many smaller brokers have not. Should there be one standard for the brokerage industry or is that not important?

Cherkasky: Contingent commissions are not appropriate in the year 2005. They create the appearance of a conflict where the broker may have an interest in steering business one way or the other. Therefore, it is not appropriate for brokers to take these commissions–certainly not for Marsh. But, we will not say it is inappropriate for everyone to accept them. If there is a situation where the [insurance] business is so commoditized that there isn't much subjectivity in it, it might be appropriate, such as in an agency arrangement. [The contentiousness around] contingents will motivate many midsized and small brokers to adjust their models toward an agency type of agreement or consider no longer holding themselves out as having a sole obligation to the client. But, I don't believe regulation [prohibiting contingent commissions] is the answer.

Case: The form of payment isn't as important as having transparency. That said, is it logical for some brokers to have contingent commissions, and others not? No. Do I believe the current disparity [in income arrangements] creates an uneven playing field? Yes. But the issue ultimately is about transparency. An outright ban is not required to have transparency.

Plumeri: Contingent commissions definitely should be abolished industry-wide. Clients should know who you represent–them or insurers. As for smaller brokers, they will just need to run their businesses more efficiently. We took $100 million plus out of Willis's P&L by abandoning contingents, and we're a public company. But we are disciplined in the way we spend money and understand we have to make difficult choices sometimes.

Question: Given the recent scrutiny of finite insurance and self-insured workers compensation strategies, do you anticipate further examination of other alternative risk transfer (ART) concepts, such as captives?

Case: I believe that the process of developing new, innovative risk solutions to help clients improve their performance is important to continue. We owe it to ourselves to make sure that these solutions completely meet the test of integrity and viability. ART products provide a level of creativity, and most of them are viable solutions that meet a high level of integrity. If there are viable ways to help our clients understand their risks better and improve their performance, it is worth it to navigate these waters.

Plumeri: If you are doing things the right way, you should be comfortable about being scrutinized. I tell my people all the time, "Before you make a decision or do anything, will you want to read about it tomorrow in the newspaper?" Companies should be investigating their own practices to feel comfortable they are doing the right things if scrutinized. As for the ART market, I think we should always be innovative and creative, obviously staying within the confines of legality. But, we should not stifle our creative instincts because in the past someone tried to be creative and it didn't turn out well. If that were the case no bridge would ever be built.

Cherkasky: The ability to do finite programs does have a place. It is not a huge market and I would expect it will continue, despite the fact that apparently some people have gotten it wrong on an episodic basis. As for captives, I don't think anyone should raise a quizzical eyebrow any more now than in the past. There is nothing inherently wrong with them, and they can be very productive. These products have a future, even with a blemish or two.

Question: What is the most important issue confronting the insurance industry today?

Cherkasky: No question, it has to be restoring trust. If there is consistently bad publicity in any industry and the appearance that an industry or its leaders are shady or corrupt, then that industry has a problem. The restoration of trust with our clients is critical. To restore it, we must not sit back and say we're doing things this way today because that's the way we did them yesterday. We have to understand there are anachronistic aspects of our industry. We must not be resistant to change.

Plumeri: Integrity and trust, because the whole industry is under attack. The industry's reputation has been tarnished. To repair it, it boils down to our behavior and our clients' comfort over time that we are acting in their best interests.

Case: Helping our clients succeed by improving their performance now and sustaining it in the future. Our ability to do that is our opportunity and our risk.

Question: Would federal regulation of the insurance industry provide a fairer and less costly regulatory framework than state regulation?

Plumeri: I'm in favor of the optional federal charter, [which would provide multi-state insurers with the choice of either federal or state regulation of certain practices.] We must find a way to streamline the inefficiencies in the insurance business. We must comply with more than 50 different [sets of] rules and regulations. From a logical point of view, it is easier to conduct business [with one regulator than many]. And if it is easier to do that, then our clients' best interests are served.

Case: Whatever the promise for simplification and less cost, I always struggle with more regulation. While the federal charter offers promise, there is also value in the states' controlling [regulation], since they understand their local interests better. State regulation brings with it complications, but I'm not prepared to go on record and say we need a federal charter tomorrow. The parameters of good regulation are in place right now. It is up to us to live up to them and act with integrity and with the best intentions on behalf of our clients.

Cherkasky: I'm against the optional federal charter. There are times when uniform practices provided by federal regulation are required for interstate aspects of commerce, but this is not one of them. I don't need someone to tell the industry that contingent commissions are improper. I believe they're improper, but I don't think regulators need to tell us–buyers need to tell us. Let the marketplace handle it. What we need is what we've got–greater transparency and a more educated and active buyer of insurance.

Question: As companies get a better grip on building an accurate risk profile, what role do you see for the broker?

Case: The more insight and sophistication clients have, the more opportunity you have to provide options for them to improve their business. We have tremendous respect for our clients and their capabilities. The more sophisticated they get about risk, the more opportunity for us to develop a value-added solution that improves their income statement and strengthens their balance sheet. The only reason to fear [clients becoming more risk savvy] is if we all figured out risk completely, which isn't going to happen. The world continues to change and become more complex.

Cherkasky: As companies develop a more broad-based understanding and assessment of their risks, we offer the ability to provide a broad-based risk mitigation solution on a global basis. That is what we will be focused on, and I believe this is where the industry must go. Claims advocacy, risk assessment and mitigation tools have become more important as solutions to companies. This is what our clients want. Risk transference is just a piece of it.

Plumeri: The broker is essential. If I didn't think so, I wouldn't have this job. Nor would I be as excited and passionate about what I do. Insurance is the DNA of capitalism and we brokers are the gatekeepers. We represent the interests and advocacy of the client. We are a very important link between a client and an insurance carrier. I don't think clients necessarily have the ability, time and wherewithal, or the systems and knowledge we have, to do what we do. In a world fraught with risk, when companies are really putting their arms around their balance sheets, brokers are even more valuable. Indeed, I don't know of a time when brokers have ever been as valuable as they are at this moment.