The Spitzer Effect on Business Insurance

Even though abuses surrounding contingent commissions are being resolved, risk managers are scrutinizing information from their broker about coverage and costs.

The $850 million settlement between New York state attorney general Eliot Spitzer and Marsh & McLennan Cos. Inc. was the first step in resolving the insurance brokerage scandal, but it will not be the last. The investigations continue, and some individuals could face criminal charges. How the fallout from the scandal will affect insurance brokers' relationship with their clients has yet to be determined. Many brokers have already sworn off the contingent commissions that were at the heart of this scandal. But will that be enough? From Donald G. Barger Jr.'s perspective, the answer is yes. Barger, the senior vice president and CFO of Yellow Roadway Corp., a transportation services company based in Overland Park, Kan., sees the situation as a test case for companies' vendor relationships in the Sarbanes-Oxley era.

At Yellow Roadway, "The insurance brokerage issue will have a marginal impact on the way we do business," he says. "The bigger impact involves the need to set the tone at the top in business dealings, including those with customers and vendors. The tone at the top determines how we, as a company, operate and establishes expectations for the ethical behavior of vendors and customers."

Barger expects Yellow Roadway's procurement professionals to communicate the company's legal and ethical concerns and expectations with all its vendors. When it comes to insurance purchasing, those discussions focus on verifying pricing transparency, clarifying contingency relationships and learning how the insurance market works. "Our relationship with our broker is good, so we don't expect negative or defensive responses to these types of questions," says Barger. "The fact that we are not afraid to ask difficult questions will help our broker relationship over the long term."