Magazine article Risk Management

The Voice of Experience: Ralph Jones Joined Arch Insurance Group as President and Chief Executive Officer on July 1, 2003

Magazine article Risk Management

The Voice of Experience: Ralph Jones Joined Arch Insurance Group as President and Chief Executive Officer on July 1, 2003

Article excerpt

He is responsible for the management and oversight of Arch's insurance operation, Arch Insurance Group, a division of Arch Capital Group Ltd., which provides a wide range of property, casualty and specialty insurance for businesses and professional firms.

Prior to his role at Arch, Jones was CEO of Chubb Specialty Insurance, a strategic business unit within the Chubb Group of Insurance Companies that specializes in directors' and officers' liability, professional liability, and other specialty coverages for corporations and financial institutions. Jones is also a member of the Board of Overseers at St. John's University School of Risk Management as well as a director of the Council of Insurance Company Executives.

Jones recently spoke with Risk Management Magazine on the state of risk assessment today, regulatory scrutiny and insurance brokers, terrorism risk and the need to balance risk against reward.

Risk Management Magazine: Financial instability, terrorism, corporate governance, international competition ... all are major issues on the minds of corporate executives today, many of whom are being made aware of them for the first time. The insurance industry, on the other hand, has great expertise in dealing with these, as well as many other topics of executive concern. As the leader of not only a major corporation but a prominent insurer as well, what is your outlook on the risks and challenges facing corporate executives today, especially those tasked with risk management?

Ralph Jones: It is clear to me that risk managers have taken on a broader role over the past few years as business leaders learn to cope with terrorism worries, increased regulatory scrutiny and corporate governance issues such as the rising demands created by the Sarbanes-Oxley legislation. Every public company is now dealing with hundreds of SOX meetings and the grueling process of testing control procedures in triplicate in what has become a huge, Byzantine effort.

Some call it the "Full Employment Act for Accountants and Accounting Firms." While the process will undoubtedly uncover new risk areas that were previously unforeseen, it will also put risk managers in a position to have to know the issues and be able to articulate them to other constituents. This is key. Now more than ever, risk managers need to know the issues and make sure they are involved. It is certainly an additional management burden and risk managers are right in the middle of this, as well as other breaking issues.

The issue regarding brokerage contingency fees and conflict of interest is becoming a major issue with risk managers. How serious of a problem is this, especially considering that contingency fees have been an accepted industry practice for so many years? What should risk managers be paying particular attention to as the contingency fee situation continues to unfold? What should insurers be paying attention to? And most of all, what should brokers be paying attention to?

A great example of regulatory scrutiny in the property/casualty industry has hit the brokerage side with a public relations torpedo in the name of contingent commission agreements, or PSA's [Placement Service Agreements]. While "profit sharing plans" offered by insurers to their agents have been a longstanding incentive method used by insurers to attract business, the brokerage contingency fees paid by insurers to the big brokers have called into question a broker's ability to give independent advice. This, of course, has been given heightened attention due to [New York Attorney General] Elliot Spitzer's investigation of the issue. To me, it is an issue of transparency, not one of propriety. While it is a sensitive issue for many people, I question why Spitzer is really doing this. What industry do you know of where a powerful distributor channel does not leverage its position with suppliers? Do you think Wal-Mart does not get incentives from manufacturers to get their products in to their stores? …

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