Soft Market Can Turn Hard Quickly, RMs Warned

Risk managers need to remain vigilant about controlling their losses because, while coverage may be cheap now, a notable loss event can change prices quickly, an insurance broker advised.

In Aon Corp.'s continuing series of Web seminars on the insurance industry, executives from Aon discussed "Minimizing Casualty Cost of Risk" to advance ideas on how risk managers can control the insurance costs they face.

Jim Miraval, director of Aon Commercial Risk Group, said the current soft market is one of the best marketplaces for purchasing insurance because of notable declines in rates and respectable investment returns.

However, he cautioned that while it is a soft market it remains "a volatile one," and "I believe we are only one event away from a hard market."

The hardening would be limited to affected lines, and those lines would not suffer increases as sharp as the declines witnessed recently, he added.

While the market is soft, that is no excuse to forget about controlling losses, he continued. Allowing losses to get out of control will "come back to haunt you" when the market cycle begins to shift in the hard direction again, he warned.

He advised buyers that to better cover existing risks they should look to purchase limits and coverages they abandoned during the hard market.

He said insurance buyers need to take the initiative and think about risk in terms of what they don't know or have not thought of happening, then determine how best to prepare for those events that could take place.

Mr. Miraval said that 30-to-40 percent of a client's risk portfolio is not insurable, and it is up to the broker and insured to work together and determine what to do and the best way of doing it.

In the area of workers' compensation, Bill Baxter, director of Global Risk Consulting, said costs per employees are continuing to increase primarily because of increased medical costs, which now account for 59 percent of workers' comp expenses, up from 48 percent just 10 years ago.

He said the best ways to control these increases are pharmaceutical and back-to-work programs that reduce costs. He said a pharmaceutical program can reduce spending by as much as 50 percent. A back-to-work program can save $10 for every $1 invested.

Carol Murphy, managing director of Aon Brokerage Group Casualty, noted that clients should focus on maintaining close relationships with their carriers and making sure they have actuarially sound information that achieves good results and puts the insured in a better negotiating position come renewal time.

A replay of the Web seminar is available at www.aon.com/webseminars.