SPITZER REFORMS WERE 'OVERDUE'

Many in the industry were privately conceding that reform was overdue in the insurance market and Spitzer focused accurately on the areas that warranted attention. It has been the manner of the change that has shocked the market and caused opposition, he told Aon Captive Services Group's annual client conference in Athens last month.

"Spitzer has responded to trends and to a general direction; he is a populist. He is a result, not a cause of what is happening," he said.

However Riddell did say as a general point that the method of regulation by legislation faced dangers, in that poorly thought-through, or hurried measures could produce bad regulation.

He also warned risk managers that the effect of the Spitzer reforms would reach them as well. "People have assumed that this would affect brokers and carriers, but the effects will reach further than that," he said.

Polling the conference audience, Riddell asked whether they felt commission disclosure had been adequate pre-Spitzer. 72% said that it was not. Asked if they thought that malpractice had been widespread, 7% said widely prevalent, 38% said it was not unusual, 28% said it was unusual and 24% very rare.

Asked about the improvements for insurance buyers as a result of Spitzer, 6% said there had been a significant improvement, 39% said some improvement, 50% said a limited improvement, and 5% said no improvement.

A necessary good

Roger Gillett, president of ACE Risk Management International, one of the largest providers of fronting services, told conference delegates that fronting should be seen as a necessary good, rather than a necessary evil by its captive insurance clients. Gillett called for greater dialogue between captives and fronting companies, to encourage better working relationships.

"I think that captive clients often think we are expensive and do not really want their business. In fact, neither is true," he said.

"As in all areas of business, if we understand each other better, we will work together better. Even on pricing, I think that if clients understood how we structured our business, it would be less of a bone of contention.

We are not entering short term relationships," said Gillett. "Rather, they are long term partnerships, and we should all stop seeing each other as reluctant suitors."

As an example Gillett said that captives often resent the collateral demands that they have to provide to fronting companies. He said that these were necessary for regulatory, security and rating agency reasons.