Engineers Gain Stature In Helping To Underwrite, Right-Price E&S Risks

In the complex world of excess and surplus insurance, savvy insurers rely on the assessments provided by risk control engineers to accurately underwrite the unique exposures of each customer's operations.

Some insurers see so much value in risk engineering that they have in-house engineers who can expedite response time to broker inquiries. By quickly analyzing a wide range of exposures, risk control engineers help underwriters and brokers secure the right coverage, the right policy terms and conditions, and the right price for customers with multifaceted operations.

With fact-based analysis, risk control engineers help underwriters better understand the exposures and controls on tougher, higher-risk accounts and on accounts with past serious sins.

Building on customer profiles provided by brokers, the engineers will review technical information and scrutinize operations to determine if a company's exposures are above, below or equal to industry standards.

Often in their review, risk control engineers will uncover an overlooked detail that helps reduce a company's risk exposure and secures an insurance policy whereas, without that detail, the company may have faced higher prices, more limited terms and conditions, or possibly no policy at all.

A good example of risk engineering in action involves a demolition company with a tight renewal deadline that was having a hard time getting insurance for the project.

With the deadline looming, the company's broker arranged a meeting with an insurer who had in-house risk engineering. Because the engineers were in the meeting and could discuss the company's exposures directly with the demolition experts, they were able to immediately provide input to the underwriter on the operations and the adequacy of controls in place.

In its meeting with the insurer's engineers, the demolition company had an opportunity to demonstrate to people with experience in their business that they could effectively manage key demolition exposures such as the structural stability, exposure to underground utilities and transport systems, hazardous materials, and pedestrians.

The result was a technically accurate, suitably financed insurance policy that was in force prior to the two-week deadline.

A large construction project in New York City provides another example of the value of risk engineering.

In need of a finalized quote for final presentation of contracts the following week, the construction firm required immediate review of a tough risk involving close-surrounding buildings, major excavations, pile driving, a variety of utilities, exposure to the Holland Tunnel and several hundred construction workers on site at various phases of the project.

Due to the risk engineer's familiarity with the construction industry in New York, within two days the underwriter had an accurate assessment of the controls contemplated, the type of foundations, the overall safety plan and jurisdiction, and an evaluation of the capabilities of the general contractor and several major subtrades. This information allowed the underwriter to provide a properly priced quote that included the necessary, but not the superfluous, terms and conditions on time for both the broker and the reinsurers.

Even for companies not facing such extreme deadlines, meeting with risk control engineering staff exposes products, processes and management systems to an outside viewpoint that can result in improved risk control.

In addition to helping underwriters quote business, risk control engineers offer customers an objective, outside point of view that can help tie operations together and ensure process uniformity across borders.

Take the example of a soap manufacturer with plants in several countries. Regardless of location, soap manufacturers must use hazardous raw materials and processes to produce the key ingredient used in everyday soaps. Therefore, these manufacturers must employ a high level of control to ensure that these risks are kept in check.

A risk engineering survey conducted at one of the soap manufacturer's North American plants confirmed that the proper controls were in place and the risks were well managed. However, when the engineers conducted a separate survey at the company's plant in Asia, the results revealed a very different picture. Several risk control shortcomings were identified including lack of maintenance, improper control systems and a fragmented management team.

Previously unaware of these issues, the manufacturer's new general manager worked closely with risk engineers to implement recommended improvements. The changes made to the Asian operation over the next several months resulted in a safer, more productive and more profitable operation that met the company's global risk standards.

Whether a company has a single or multiple locations, an annual review by risk control engineers can help keep operations in line with current risk control standards. This is especially important in the excess and surplus arena, where the constantly shifting definition of which industries are considered “E&S” means that risks which were acceptable last year may not be this year.

Beyond being a way to adapt to fluctuations in the E&S market, good risk control also gives companies a competitive advantage. Companies with better risk control have fewer losses, giving them more time to spend on growing the business rather than reacting to a problem.

John Dinsmore is vice president of global casualty risk control for Liberty International Underwriters. He is located in Toronto, Ont.