RMs Can Control Destiny In Hard Market

Risk managers, according to Ms. Hahn, need "strong claims-handling in place, good loss control measures, and a disaster recovery plan because that will be key. When they can go to an insurance market and show that they are involved in controlling losses, thats the biggest means to their cost savings."

Risk managers should put together detailed, accurate submissions as well as be prepared to answer challenging questions, she continued. And whenever possible, "they should get their treasurer, CFO and senior management involved in knowing what is going on in the insurance marketplace."

Anton Schmitt, senior vice president with Marsh, explained that the situation has changed since the days of the soft market. "You could get a submission with the name of the insured, the loss record, and maybe the total insured values," he said. Today, however, underwriters want information "broken down into finite detail," he added.

This information includes an accurate schedule of locations, street addresses, ZIP codes, cities and states. Underwriters also want information broken down by real and personal property, and business interruption, and "they like it in an electronic format, so that they can upload it to their CAT modeling programs and monitor their exposures in various areas," he said.

During the soft market, he continued, loss control was not emphasized, but now underwriters want to see survey reports of major locations. "If you dont have them, they may go out and do their own surveys," Mr. Schmitt said, adding that underwriters also want to know about the responses to recommendations in survey reports.

For major losses, "they want to know what happened, and what you can do or what you are doing to prevent it from happening again." The key, he said, is getting complete information and starting as early as possible.

Mr. Schmitt added that underwriters are also concerned about:

Contingent business interruption exposure. Underwriters are looking for detailed information on suppliers and customers, as well as interdependencies within the client company itself, he said. "They want to understand where the money is going and what kinds of losses they can expect," he noted.

Disaster recovery plans. "Weve had a lot of questions about how our clients responded after the World Trade Center event, so now we see an acceleration of underwriters looking for disaster recovery plans and business continuity plans," he said.

Locations and whether theyre in flood zones. This is important to know because "it gives some flexibility when were doing the placement," he said. "You can understand where your exposures are, whether you want to buy the insurance or not, and whether you want to purchase federal flood insurance."

When considering a marketing strategy, Mr. Schmitt said risk managers should be aware that some deals that worked during the soft market might no longer be effective. "Now were restructuring programs to maximize the capital available in the market," he said. Risk managers should discuss alternative risk-transfer options with their broker prior to renewal, he added.

Another consideration at renewal time is whether any covenants or banking agreements exist that require certain levels of coverage, he noted. This is important because this information could determine placement of a program and the type of coverage needed, he emphasized.

"Also, understand your priorities," he said. Underwriters typically dont look at submissions until 30 days before the renewal date. "This doesnt give the buyer time to figure out different alternative options."

Its important, he said, to rank priorities such as price, limits or deductibles, "because you wont have much opportunity to explore other options when youre in that 30-day window."

Darlene Villoresi, a vice president with Marsh, reported that as of Jan. 1 in the casualty market, many quotes that had been issued were delayed, primarily due to uncompleted reinsurance renewals. "Many of our carriers were sending out conditional renewal notices, not because they didnt want to renew a piece of business, but because states required that carriers give notice prior to renewal if they were going to have significant changes." Changes that occurred were in the areas of program design, pricing and coverages, she noted.

"Dramatic increases" were evident for certain classes of business, Ms. Villoresi said, primarily in the chemical, pharmaceutical and trucking industries, "as well as any class of business that the insurance company saw as unprofitable."

Ms. Villoresi cited average rate increases for "good risks" as:

15-to-30 percent for general liability.

20-to-50 percent for workers compensation.

20-to-40 percent for auto liability.

In some cases, she said, Jan. 1, 2002, rates are double or triple what they were last year, particularly in workers comp for companies with employee concentrations of 100 or more per location. Workers' comp rates were already rising prior to Sept. 11 due to rising healthcare and medical costs, and unprofitable loss experience, she noted.

Insurers are collecting data from their policyholders, she explained, identifying catastrophic exposures for a specific account, as well as exposures among multiple insureds within a geographic area. This information will be used to help primary insurers and reinsurers identify their catastrophic exposures within a geographic area, she said.

What is the outlook for the rest of the year?

"Although there have been significant increases, weve seen a little pricing stability in December and January renewals," Mr. Schmitt said. "I expect that will continue at least through the end of the second quarter." A determining factor for the third and fourth quarters, he said, will be July 1 treaty renewals.

"We see new capacities coming into the marketplace, but we dont think that has any moderating effect on price increases," Mr. Schmitt said. "This is largely because its not a significant enough capacity, and its really only replacing some of the capacity lost following the World Trade Center [attack]."

Reproduced from National Underwriter Property & Casualty/Risk & Benefits Management Edition, February 18, 2002. Copyright 2002 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.

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