Risk Managers Call For Underwriting Stability

Mr. Schmitt complained that risk managers get less choice, less capacity, lower limits, higher self-retentions, less coverage or no coverage at all, at the same time that premiums are increasing massively.

The two European risk managers, Mr. Lingham and Mr. Schmitt, cited the security of insurers and reinsurers as one of their main worries.

"I think this is probably one of the biggest issues that we face at this time," said Mr. Lingham. Mr. Schmitt said he needs companies that are willing and able to pay catastrophic claims, rather than high frequency, low severity claims. "The question is, who is left? There are not a lot of players left."

The risk managers all wanted their companies to be treated individually, according to their unique claims experience.

Mr. Casey said he would like to see long-term relationships with underwriters who will look "at companies as discrete and unique exposures" instead of being one of a group of companies in one particular discipline.

During hard markets, underwriters tend "to categorize classes of business where they need more money, across the board, and then overlay on top of that the companys own unique experience," Mr. Casey said.

"It would be nice to see the carriers look at companies in terms of how we measure and evaluate and treat our own risk," so some value can be obtained out of the way a risk manager and a company handles its exposures, he said.

"We never really get the opportunity to be singled out as a unique exposure based on what we do and how we handle risk," he said.

Speaking in the same vein, Mr. Schmitt said he wants to see a relationship between price and performance. He said he didnt expect cheap coverage. "We are looking for reliability."

Capacity is shrinking, getting very expensive or even is not available in certain lines, even for good risks such as Adidas, he said.

Mr. Lingham said risk managers find it a challenge when an insurance companys culture changes. "It often tends to change like the wind. One month, theyre going down a particular direction and are extremely interested in a particular type of business," he said. "You go back six months later and theyve decided, in fact, thats not for them any longer. Thats a real problem."

Another problem area for the risk managers involves the standards of service in the industry.

Mr. Casey said he would like insurers to "give us value for money."

"As the deductibles increase and co-insurance increases, what we buy at the end of the day are the services and the ancillary support that keep our programs going, many of which are supported by captives," he said.

"It would be nice to get paperwork, policies, endorsements, communications, issued on a timely basis," he said, noting that its a challenge to get insurance policy endorsements within the same year the policy is issued.

He also said, "The value of fronting is one area of the insurance world, that, in my opinion, although global programs have been around for a long time, the level of service is mediocre at best and abysmal at worst," he said.

"In the claims area, with the exception of some of the shorter-tail exposures, the whole claims servicing issue has always been a problem," he added. He said he would like to see more claims support, "as opposed to something you continuously have to negotiate."

Nevertheless, the risk managers said that any long-term partnership has to be a two-way street, with risk managers also playing their part.

"Partnership means that we support the insurers, so if they have losses and theyre paid losses, they should have some time to recover these losses," said Mr. Schmitt.

Mr. Lingham said there has to be an understanding that profitability is vital for both buyers and sellers of insurance.

"From my point of view, the market that is no longer there is not the market that I want to deal with," Mr. Lingham contended. "I think we have to accept that just as my shareholders demand a return on their investment within my organization, the same applies to insurers and reinsurers," he continued.

"If we wish to have them help us finance our risks, then it is vital they make some money," he said. However, he emphasized, "their return should not be any greater than the return that my own organization would look for on an investment."

Mr. Lingham said transparency is a vital component of partnership. "In my experience, the more open you are with them, the stronger the relationship. If you have a problem within your organization, then disclose it, but give a course of action youre taking to deal with that," he said.

This creates a much stronger negotiating position than if the underwriter finds out several months later about this problem and then decides to revoke the cover, he said.

Reproduced from National Underwriter Edition, April 28, 2003. Copyright 2003 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.