Market Still Rational Overall, Buyers Say

Even under the best of circumstances, Mr. Ewing–the former president of the Risk and Insurance Management Society–would have had his work cut out for him, because in June Harrah's acquired Caesars Entertainment, where Mr. Ewing previously was employed, requiring integration of two insurance and risk management programs.

Shortly after the acquisition, however, Hurricanes Katrina and Rita hit the Gulf Coast region, causing heavy damage to some of Harrah's casinos located on the Mississippi Gulf Coast, Lake Charles and in New Orleans.

Harrah's risk management staff is "in a unique situation where we're combining the two major entities' policies," Mr. Ewing noted. "We'd also combined certain coverages, but as you can imagine, property is the biggest"–especially in light of the hurricanes.

Combining the two entities' policies involved merging "two different deductibles, two different limits, and different coverage terms and conditions," he said. "So trying to get those together during this period of somewhat uncertainty is something we believe is going to be a challenge."

Mr. Ewing said he conferred with the London market two weeks ago. "The feeling that I find from the European and London carriers is that we have a pretty good idea of what our losses may be." However, he noted, "the risk models they put together didn't come through 100 percent based on Katrina and Rita." By next June, when the final numbers are in, "there will be a much clearer picture on what that total loss will be," he added.

Mr. Ewing noted that other issues, such as riots in France and uncertainty over the renewal of the Terrorism Risk Insurance Act, are adding up to a "melting pot of various factors that are going to begin to drive the marketplace in 2006."

He added that even risk managers of organizations not affected by the hurricanes or other disasters will begin to realize that "we are in a global marketplace. So there will be pain felt by my risk management colleagues on their property renewals, even though they may have a pretty pristine and clear loss history."

Mr. Ewing advised risk managers renewing property coverages to be "as quick as possible to get as much information to the broker and underwriting community, and make it as accurate as possible." He also emphasized "face time" with the insurer and broker. "Sitting across the table will add a lot of value to the process."

He noted that risk managers also need to "tell their story" to underwriters about what they are doing in areas such as engineering and loss prevention. "Obviously, you can't hold Mother Nature back," he said. "But make sure the underwriters have a comfort level with the things you can begin to protect, like fire and loss prevention issues."

He emphasized that this renewal process is "a marathon, not a sprint." Management should be warned that "we're looking longer term in regards to this and we're going to take a hit this year, but eventually, as it does in most property renewals, it will even itself out three-to-five years from now."

Michael Liebowitz, vice president of the New York-based RIMS and director of risk management for Bridgeport Hospital and Healthcare Services Inc. in Bridgeport, Conn., had a much more positive experience. "I just finished my renewals Oct. 1 and I can only say very good things," he noted. "This is one of my best renewal periods in recent memory–I would probably say since at least 2000."

He added, however, "I was talking with some of my colleagues the other day, and they're not saying such good things."

Mr. Liebowitz said that on Oct. 1, he renewed the company's coverage for property, directors and officers, fiduciary liability, excess workers' compensation, auto and garage keepers, and aviation (for a company helicopter-pad). Prices for all renewals, he noted, were "either down or flat." Property coverage, he explained, was down 18 percent; excess comp was down 5 percent ("in a market where it's going up"); auto was down; fiduciary was flat; and crime covering theft of accounts receivable was also flat.

He added that some smaller programs renewing on Oct. 1, including travel accident and kidnap and ransom, also were flat. In addition, not only was there no erosion of policy limits, but in some instances, he said, he was able to maintain the policy limits and still reduce retentions.

One program–malpractice–will not be renewed until Jan. 1, "but we have an indication where the premium is going. Unfortunately, it is going in the other direction than these," he said.

Achieving such a successful outcome, Mr. Liebowitz said, took careful planning. During the renewal process, which began in June, parameters were put into place. These included a request for copies of all communications between underwriters and brokers, including e-mails, and setting an early September deadline for submission proposals.

Mr. Liebowitz, who has maintained the same broker throughout the investigations of New York Attorney General Eliot Spitzer, said he was pleased that the renewal process was fully transparent. "We knew all the numbers going in; we had very good results and reception from the marketplace," he said.

After Sept. 11, 2001, underwriters began requiring much more information from risk managers. That now has "become the status quo," he noted, although requirements don't seem to have increased. In fact, he said, "they even backed off a little in their underwriting requirements. With D&O, for example, I found some of the markets to be more flexible than in previous years."

Mr. Liebowitz acknowledged, however, that some risk managers are seeing "a complete tightening of the market–flat to increases across the lines–where I saw some huge takedowns, mainly in property."

He added that "the market is now being cautious. The yellow light is up and they are cautious on how they're writing."

Daria Cirish, president of the Connecticut Valley chapter of RIMS and director of insurance and risk management for the State of Connecticut, in Hartford, also reported a positive renewal because of previously locked-in pricing.

Ms. Cirish said the state recently renewed its properties, valued at more than $10 billion, and "did not experience any significant spikes in premium. It was good for us, based on the natural disasters."

The next large line that comes up for renewal is liability, at the end of December. So far, she said, "I'm hearing from underwriters that it should be fairly flat to a slight increase." She said she has maintained the same broker and has a good relationship with the underwriter.

Alicia Junta, vice president of New Jersey RIMS and associate director, risk management services, for Hoffmann-La Roche Inc., a pharmaceutical company in Nutley, N.J., said the company has been preparing for Jan. 1 renewals in workers' comp and auto.

"I'm hoping flat," she said, noting the company has a contract with the carrier that includes fees going forward. "I know some people are expecting decreases in those lines, but I'm not concerned. We've been pretty stable for the last couple of years."

She noted the company has maintained the same broker and the arrangement is "working out" for them.

William Young, president of the central Pennsylvania RIMS chapter and risk manager of D&E Communications Inc., a communications provider in Ephrata, Pa., said although the company renewed most lines in July and August, he is "concerned because I'm budgeting right now for next year." He added, however, that "we've been experiencing decreases over the last couple of years. Even D&O has seen some relief."

General liability and commercial auto stayed relatively flat, he said, adding that "we have a large fleet, and over the last couple of years we've managed that better than we had been," which had a positive impact on pricing.

The company, he added, has also maintained the same regional brokerage firm. "We asked a major broker to quote, but it didn't work out," Mr. Young explained. "They wanted to control all the markets, and that didn't seem right. I don't know if they do that with every prospect, but it seemed heavy-handed."

Mr. Young noted that he has concerns about "all the natural disasters we've had and the impact on property pricing." Of all the lines of coverage, he added, property had seen the largest decreases.

Flag: Premium Trends

Head: Bigger Buyers Get Bigger Cuts

Caption:

Maintaining a trend that has played out all year, the biggest accounts enjoyed the highest average premium reduction last month, reflecting greater market leverage and risk management expertise.

"We are in a global marketplace, so there will be pain felt by my risk management colleagues on their property renewals, even though they may have a pretty pristine and clear loss history."

Lance Ewing, V.P. of Risk Management

Harrah's Entertainment Inc.