RMs Want Fewer Lawsuits, Lower Premiums, StrongerInsurers

Risk management challenges in 2004 include dealing withlitigation, with a still hard insurance market in some areas, andthe need to monitor insurer solvency, according to a cross-sectionof risk managers from several industries.

Tort reform is on the mind of Roger Andrews, director of riskmanagement for Cynthiana, Ky.-based E.D. Bullard Company, amanufacturer of personal protective equipment. Mr. Andrews wants tosee further limitations placed on forum shopping, class actions andrecruitment of plaintiffs by personal injury law firms.

“We are a relatively small company, yet we are involved inthousands of product liability suits, which consume about 90percent of my time,” said Mr. Andrews. He added that Bullard getsdismissed from these cases about 75 percent of the time, but stillhas to incur defense costs.

“For instance, we were named in a few hundred asbestos cases inCalifornia, Illinois and Michigan, but never had to pay anything,”Mr. Andrews noted. Nevertheless, the exposure remains, and Mr.Andrews said that he will continue to closely monitor the role thatmanufacturers will have to play in the asbestos reforms beingconsidered by Congress.

Mr. Andrews cited as an additional challenge the reining in ofpremium increases for directors and officers liability insurance.“Even as a private company, our premium went up about 15 percent. Ihavent noticed any softening,” he said.

Also on Mr. Andrews list of important industry-wide riskmanagement issues in 2004 is monitoring insurer and reinsurersolvency. He noted that “the market seems ripe for moreconsolidation,” given recent rating downgrades.

As a risk manager in California, it comes as no surprise thatEllen Vinck thinks a lot about workers compensation. Ms. Vinck,vice president of risk management for United States Marine RepairInc. in San Diego, noted that the companys workers comp premium forits clerical employees alone went from $20,000 to $200,000 in avery short period of time. Ms. Vinck added that she “supportsArnie” and is hopeful that the new governor, Arnold Schwarzenegger,will “terminate” some of the states workers comp woes in 2004.

Insurer solvency is also a concern of Ms. Vinck, after beingburned by the failures of Reliance and Legion. “I joke withunderwriters that they should provide me with surety bondsguaranteeing that they will pay, instead of the other wayaround.”

“The best Christmas present,” Ms. Vinck continued, “would betort reform, such as an asbestos fund. Attorneys keep naming ourcompany in asbestos suits; it must be one of the names in theircomputers,” stated Ms. Vinck. “They name every contractor thatworked on the job, and it costs money to get out of these suits.This kind of unnecessary litigation really beats you down.”

Sheila Small, assistant treasurer of risk management for VerizonCommunications Inc. in New York, sees burgeoning litigation of alltypes as one of the new years key challenges.

“People sue for everything now,” Ms. Small said regretfully. “Ipredict that due to the volume of lawsuits, risk managers willbecome more involved in litigation-related negotiations, such as inD&O matters. Even with Sarbanes-Oxley rules in place for abouta year now, almost every day it seems another company isinvestigated or indicted.”

Premiums in the property insurance market also continue toconcern Ms. Small, given Verizons many locations in largemetropolitan areas. Although Ms. Small refuses to use the word“softening” to describe the current market, she said she hasnoticed some “stabilizing.”

Verizon received smaller increases during last years propertyrenewal, and Ms. Small hopes that trend will continue. But if itdoesnt, she indicated that making greater use of Verizons Vermontcaptive insurer, which already writes some of the companys propertyrisks, is an option.

For health care sector risk manager Sanford Bragman, thesnowballing turmoil in the medical malpractice market is a majorconcern. Mr. Bragman, senior risk management advisor for TenetHealth System in Dallas, pointed out that there is a shortage ofacceptable malpractice coverage options for doctors at Tenethospitals, due to the recent troubles of many of thephysician-owned carriers.

“Some physicians that work in our hospitals are insured bySCPIE, which was recently downgraded by A.M. Best,” Mr. Bragmansaid. “We also had med mal availability problems when PHICO wentunder,” he added. “But the catch is if you go with a better-ratedcompany, there will be significantly higher premiums.” So makingcertain that physicians who treat patients at Tenet hospitals carrymalpractice insurance with a stable insurer has become a challengefor him.

If you are a public sector risk manager in California, theanticipated effects of proposed budget cuts take center stage.Deborah Luthi, director of risk management services for theUniversity of California at Davis, is already busy determining howthose cuts will affect the university.

“There will be difficult decisions regarding employees,” shenoted, implying that layoffs may be necessary. She is thereforebracing for the possibility of an increase in employment-relatedlawsuits.

Ms. Luthi also pointed out that high workers compensation costscontinue to be a problem in California, despite recent reforms tothe system. She also mentioned maintaining campus security as arisk management hot button, in light of budget cuts and theterrorism exposure.

Continuing price hardness in the insurance market is viewed asthe primary risk management challenge by David Holland, vicepresident of treasury for San Jose, Calif.-based Cisco SystemsInc.

“This [the hard market] has to reverse itself. We are at a pointnow where we see some premiums coming down,” Mr. Holland noted.“D&O has seemed to run its course. Hopefully it will soften upeven furtherand the property market also.”

“Companies will look for alternatives, such as placing morebusiness in captives, if there are no significant premiumreductions or further increases,” predicted Mr. Holland. He statedthat Cisco has a Bermuda-based captive insurer, but it is “nothighly active” right now, although that could change if the marketdoes not reverse course.

True to his technology orientation, Mr. Holland sees as anotherchallenge increasing the degree of online collaboration forinsurance-related transactions. “Insurance is still toopaper-based,” he said. “We want to make greater use of the Internetto manage our risks.”

Insurer financial solvency is on the mind of Bill Chapin,director of facilities and risk management for the Diocese ofRockville Centre in Long Island, N.Y. “There are fewer and fewercarriers out there with high ratings,” he noted. “The carriers thatare strong are starting to charge for their financial strength inthe form of higher premiums,” he added.

Mr. Chapin also views insurers tendency to “pare down coverages”by adding more exclusions to policies as cause for concern. Forinstance, terrorism was excluded from the Dioceses propertycoverage and had to be bought back for a 10 percent additionalcharge. “I am hoping for a moderation in policy terms andconditions, in addition to rates.”

Also important to Mr. Chapin, given the nature of the Diocesesoperations, is errors and omissions coverage for clergy, teachersand other employees that render services or deal with parishionersor the public. “All churches are fraught with E&O issues now.There are charges out there all the time,” he said.

Reproduced from National Underwriter Property &Casualty/Risk & Benefits Management Edition, January 23, 2004.Copyright 2004 by The National Underwriter Company in the serialpublication. All rights reserved.Copyright in this article as anindependent work may be held by the author.