Fashionistas exist not only on the Paris runways and in thepages of Vogue; even risk management has its fashionistas. Forexample, it is fashionable to say that risk managers who are“merely” insurance buyers will quickly become professionaldinosaurs. Maybe so.

In the real world, however, not every risk manager spends hisspare time setting up captives or dabbling in enterprise riskmanagement. (Enterprise risk management sounds like something thatmight be practiced on Star Trek. CPCU exam question: If crewmembers tease Dr. Spock about his pointy ears, is Captain Kirkliable under his employment practice liability policy?)

Despite the fashion commentary, the truth remains that crunchtime for many risk managers is renewal time. This is a big reasonwhy they were hired. It is the time to prove their worth and earntheir pay.

Effective planning and management of insurance renewals can makethe difference between getting needed coverage or not, or obtainingfinancial protection on favorable price terms. At renewal, riskmanagers want enough time to weigh coverage proposals fromincumbent insurers. Having these quotes well in advance of renewaldates is the key to negotiating the best deal and exploring otheroptions.

Fighting Time Lags

Many risk managers become increasingly concerned about the timelags that they experience on renewal quotes. The problem is that,by the time they get a quote from an incumbent insurer, the renewaldate is imminent. If the renewal quote is unattractive, little timeis left for risk managers to scramble about, get competing bids,and fully explore other options.

Before the market hardened, many risk managers reported thatthey got quotes two to four weeks before expiration, as quotes aregood for only 30 days. Now, however, they often see them three toeight business days before policy expiration dates, with littletime for negotiation or review of options. “Take it or leave it”deals abound, unfortunately.

Certainly, some accounts require more specialized attention thanothers. However, no risk manager can thoroughly review coverageproposals, request changes, make reasonable decisions, andcommunicate to executive management in just a few days before therenewal date. Theoretically, this might be possible, but it isundesirable from a procedural standpoint. One tip is to try andextend renewal dates in advance if it looks as if you are beingbacked into a corner.

The types of accounts that can consistently get proposals (withanalysis and recommendations) 30 days in advance are likely to beprogram business and middle-market parochial accounts. If riskmanagers have any of the following issues, however, they may notget timely proposals:

• National insurer with home office or centralizedauthority.
• Renewal coinciding with busy reinsurance season (Jan. 1 or July1) or before an underwriting industry meeting (CPCU or PLUSconvention).
• Programs requiring large or global capacity, such asearthquake, business interruption, contingent businessinterruption, specialized product liability, and internationalnetwork.
• Pinched capacity from incumbent markets, requiring new insurersor disruption in claims-made continuity.
• Normal dynamics in business operations, such as plant closings,changes in financial conditions, mergers and acquisitions, materialuninsured or insured litigation, and concentration ofemployees.
• Changes in the external risk environment for specificindustries (Elliot Spitzer's investigation into mutual fundtrading, laddering claims, etc.).

This is just a sampling. Renewals are almost like fencingmatches, with underwriters requesting minutiae (e.g., number ofemployees on each floor for each building, plus construction andoccupancy data for all owned and non-owned structures).

The risk manager's job is to give underwriters what they need,but not necessarily everything that they want. This is a balancingact on a tightrope. Be candid without going overboard. After this,if you can get quotes 30 days before the renewal date, congratulateyourself on a great job.

Nearly all quotes have caveats, however: if any material changesoccur between the proposal and binding, insurers can modify orwithdraw them. Insurers will exercise this right. This is not apurely theoretical concern. Some brokers and risk managers haveseen national insurers withdraw $10 million-plus workers'compensation premium quote two days before binding. The reasongiven was that they had changed their minds on providing unlimitedworkers' compensation. Making a tender for another firm or assetalso could affect insurers' decisions.

Therefore, if your firm is loss-free, has strong financials,needs only standard market capacity, has no specialized coverages,has great internal cooperation in providing you with underwritingdata, and works with insurers who are not compensating for fiveyears of deficits, you have a better chance of receiving proposalswithin 30 days of your upcoming renewal. This is more fantasy thanreality, however.

Maximize Broker Influence

Risk managers may want to spend time making sure that they havereceived the best coverage terms (factoring in price and coverage)or checking that their companies have no transactions that willtrouble their insurers.

Talk to your broker. Some insurers issue quotes to brokers atleast 30 days before expiration. Brokers sometimes hold quotesuntil five to seven days (or less) before expiration. Put thekibosh on this. Require that brokers present quotes so that youhave a reasonable time frame to review them (at least 15 days). Ifthe broker is afraid to present until just before renewal, maybeyou need a new broker.

Set standards for receiving quotes. If the carrier or brokercannot meet those standards, find another. When you choose aninsurance broker, make it clear what your service standards are andthat you are dead serious in enforcing them. Put the standards inwriting and communicate them to your current broker, or to anybroker candidates if you are considering making a change. Craft thestandards in such a way as to provide extensive lead times formaking decisions and avoiding eleventh-hour fire drills.

It is the risk manager's responsibility to set standards. If youlet the carrier or broker show up seven days before renewal, youget what you deserve. Establish a calendar, diary, or ticklersystem that tracks all upcoming renewal dates and flags yourattention well in advance. Put it on your e-mail calendar. Getworking on renewals with lots of lead time so that there will be noinformation gaps in your application. This reduces or eliminatesthe need for further back-and-forth communication between the riskmanager, broker, and insurer. It also saves time.

Renew the Broker?

Another aspect of the renewal process meriting consideration isthe brokerage relationship. This is a good time to validate thebroker's compensation system. Pose various questions to your brokerbefore renewal time approaches. These include: “Do you get anycontingent income or override commission from any of the insurancecarriers with whom I have coverage? Do you receive any income frommanagement placement agreements? Do you receive any kind of feeincome other than the usual commission?

Admittedly, these are awkward questions. Nevertheless, theyshould be understandable in the wake of recent legal actions takenby the New York State Attorney General's office. No insurancebroker should be surprised or offended by risk managers' posingsuch questions. Any time is an appropriate time to do so, but itmight make sense to raise these issues at renewal.

In fact, this also may be an appropriate time to assess theperformance of your incumbent insurance broker. Do not stay withthe same insurance broker through inertia or habit, any more thanyou should stay with the same insurance company just because“that's who we have always used.” Your insurance company shouldearn your business through competitive pricing and excellentservice. The renewal date is an ideal time to step back, reflect,and take stock of your insurance company's performance. Likewise,it is an opportunity to assess your insurance broker'sperformance.

The rewards from a well managed renewal process are morecompetitive prices, savings in the insurance program, improvedservice, and a general stress-free feeling. Providing ample leadtimes and doing homework is a recipe for stacking the deck in yourfavor and managing the renewal process in a way that works to youradvantage.

Admittedly, there is no one single renewal in the risk manager'scalendar year. In fact, it is possible that renewal dates will bestaggered, calling for similar procedures. After a while, the riskmanager should have a template or process to use for managingrenewals, whether it pertains to earthquake coverage, generalliability insurance, or directors' and officers' liabilityplacement. Regardless of the line of coverage, however, advancelead time and careful planning are crucial.

So why be a slave to fashion, or to risk managementfashionistas? (Don't look to me for fashion advice, though. My wifesays that my idea of fashion is black socks and sandals withBermuda shorts.) The basic blocking and tackling of risk managementinclude a core area of insurance renewal management. Screw that upand no one will care much if you can set up a whiz-bang captive onthe Isle of Guernsey. Handle it flawlessly and you may always be instyle as an effective risk manager.

Kevin Quinley, CPCU, is senior vice president for MedmarcInsurance Group in Chantilly, Va. He can be reached [email protected].