Flag: Carriers Warned Cut Rates Or Face More Self-Insurance, Telecom Buyers Say
Commercial insurance buyers in the telecommunications and electronics sectors have given the world's insurers an ultimatum either cut premiums and offer needed coverages, or risk seeing more exposures self-insured outside the traditional insurance market.
Insurance purchasers at the JLT Telecommunications and Electronics Forum in Lugano, Switzerland warned that the trend would accelerate if they couldn't get the coverages they need. They also said there was continued distrust of the financial health of some insurers.
The warning by risk managers "comes in the wake of both the collapse and financial down-grades of insurers, coupled with sharp rises and restrictions in the amount of coverage they are willing to provide," a statement released by the Forum's organizers noted. "In particular, the cost of premiums for directors and officers coverage has risen dramatically following the scandals at Enron, Worldcom."
"In recent years, many global businesses have sought to find insurance solutions outside the traditional market to cover potential liabilities," the Forum's organizers noted. "These include alternative risk transfer or the convergence of insurance and the capital markets, the use of captive insurers and protected-cell companies."
Beau Rowell, director of insurance and risk finance of Nokia, was quoted by the Forum's organizers as stating that: "Ultimately, there are not too many insurers left, and many of them have really poor balance sheets."
He added that buyers should "look at this as we would at a bank. You would not do business with a bank that has a bad balance sheet. Therefore, why would you do business with an insurance company with a bad balance sheet? It is a counter-party risk to us."
Jules Maher, group insurance and risk financing manager at Telecom New Zealand, said his company had already started to retain more risk as they had become more confident of what the risks were and how they could be managed. He noted that insurance has become an issue for his board of directors.
"Unless we see a return to more reasonable pricing rates, the board is likely to take a much harder look at the alternatives," he said. "Senior managers are well disposed to retaining higher levels of insurance risk and considering alternative risk financing arrangements."
Nick Wild, managing director at JLT Risk Solutions Ltd. in Guernsey, said the current hard market has provoked a rush in the formation of new protected-cell companies. Since the inception of legislation authorizing such formations in 1997, $2 billion of assets has been invested in protected-cell structures, demonstrating the world-wide appetite for self-financing of risk, he said.
Reproduced from National Underwriter Edition, June 18, 2004. Copyright 2004 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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