RMs Main Worry: Finding Top Rated Carrier

By Daniel Hays

NU Online News Service, March 4, 1:02 p.m. EST?Finding insurers with adequate financial strength is the top concern of risk managers, according to the latest research of the Risk and Insurance Management Society.

The 2003 RIMS Benchmark Survey also found moderating rates with "cause to hope for flat or even declining rates in many lines within the next 12 to 18 months." RIMs reported a soaring use of captive insurers to provide coverage.

RIMs found it likely that risk managers will "never again" be up against the extreme difficulties they faced securing insurance during the 1980s. It cited the Bermuda market's ability to rapidly secure capital and form new insurance and reinsurance firms to take advantage of rising prices and hard markets.

"For the insurance industry, it probably means shorter and more anemic hard market cycles," the report said.

Currently however, risk managers have grave concerns about market security after the spate of rating agency insurer downgrades. This is a bigger risk manager worry than terrorism, the report said.

"There is capacity, but the number of qualified insurers is diminishing," an unidentified survey respondent quoted in the report noted. Chronic underreserving by insurers for asbestos and environmental claims means commercial insurance buyers will see lower prices ahead, "but only from comparatively less secure sources."

Nearly 40 percent of respondents in the survey reported they now have, or place business with, a captive or risk retention group.

Within this alternative risk marketplace, there has been exceptional growth in rent-a-captive arrangements and segregated cell accounts, which permit smaller companies to have the advantages of a captive without the expense of forming one, the report noted.

The report said that the depth and duration of the coming soft market will depend on interest rates and catastrophe losses, but key will be insurers' actions on inadequate reserves. Reserve strengthening that creates a reduction in industry surplus "could quickly curtail a softening market," the report found.

While premium prices soften for many lines, buyers on insurance in two insurance sectors--medical malpractice and fiduciary liability--can expect to see rate increases for the next two or three years, the report said. It also noted continuing problems with workers' compensation insurance.

The survey was conducted by Advisen Ltd., which like RIMS is based in New York. The full results will be available next week.

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RMs Main Worry: Finding Top Rated Carrier

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