Legacies of the 1980s hard liability insurance market include the formations of ACE Ltd. and XL Group P.L.C., risk retention groups, captives and pools, as well as buyers increasing their self-insured retentions, experts say.

In fact, they say much of the premiums that left the market never returned, permanently transforming the industry.

Other outgrowths of the period included greater recognition of the risk management profession's value by corporate executives and improved professionalism across all segments of the industry, experts say.

“The creation of ACE and XL was a direct result of the hard market of the mid-'80s,” said Hugo Crawley, chairman of London-based BMS Group Ltd. “Lots of the excess liability business that used to be placed historically in London—not just Lloyd's—went to ACE and XL and left the London market.”

“The growth of the (catastrophe) reinsurers in Bermuda was a direct consequence of ACE and XL,” said Steven K. Bolland, president of New York-based reinsurance intermediary Gill & Roeser Inc. “Investors said, "Wow, maybe we could take the problem in the casualty market and apply it to the cat market,' and it worked very well.”

Observers also point to the growth of self-insurance—whether through self-insured retentions, captives, mutual insurers or risk retention groups, which were authorized by the Liability Risk Retention Act of 1986—as another result of the 1980s hard market.

The liability crisis “was a huge boon to the alternative markets, and many companies never came back,” said Albert J. Beer, assistant professor at the School of Risk Management and Actuarial Science at St. John's University in New York. They discovered they could manage their own loss exposures, and “the effect on their bottom line was much better than if they were just buying insurance.”

According to some estimates, about half of the commercial market is self-insured today, compared with “less than 20%” in the 1970s, Mr. Beer said.

“The commercial casualty market has forever lost a large segment of the market,” said Tom Vance, risk manager for the city of Anaheim, Calif., who in 1986 helped form the San Francisco-based Authority for California Cities Excess Liability pool, which still operates today.

Municipal pools, although in existence previously, really developed during that period to replace commercial insurance as a result of the dearth of capacity during the liability crisis, Mr. Vance said.

“It really marked a sea change through the country in the way particularly local governments financed their risk, and it was a monumental change.” Today, “the vast majority of public entities are in some form of pool,” Mr. Vance said.

Risk retention groups, which got their start with LRRA in 1986, were another outgrowth of the period. Today, more than 250 RRGs, which provide a wide range of liability coverages to policyholder owners, are operating.  Unlike traditional captives, RRGs can operate in any state after meeting the licensing requirements of one state.

Another legacy of the liability crisis was the Fairfax, Va.-based Public Entity Risk Institute. Antitrust litigation filed in 1988 by 20 state attorneys general against 32 industry defendants, which was spurred by the liability crisis, finally settled in 1994. The settlement called for less industry influence on the Insurance Services Office Inc. and provided funding for PERI.

The liability crisis also increased the industry's professionalism, experts said.

Rees Fletcher, president and CEO of ACE Bermuda Insurance Ltd., a unit of ACE Ltd., said among other effects, underwriting discipline generally has improved since then.

No U.S. broker at the time had an actuary on staff, whereas today, they have “armies” of them, said John R. Berger, CEO of reinsurance at Bermuda-based Alterra Capital Holdings Ltd.

“It was a real watershed time for us in the risk management world,” said Rick Betterley, president of Betterley Risk Consultants Inc. in Sterling, Mass. “It created much-needed visibility” for the risk management profession and “really changed it,” he said. There also was recognition of the “importance of the risk management role in an organization, and an understanding that the insurance industry was a less reliable source of balance sheet protection than many senior executives had thought” in terms of availability and stability, he said.

Furthermore, “I think that the brokers became significantly more professional following that event,” at least in part because of the liability crisis, Mr. Betterley said. For big risks today, brokers will buy multiple policies, with each “taking some percentage share” of the account, he said.

Mark Charron, a principal and national actuarial and insurance solutions leader for Deloitte Consulting L.L.P. in Hartford, Conn., said: “The combination of huge costs and lack of availability propelled the whole risk management topic” to corporate board rooms, which “previously hadn't really focused on this part of their operations. So to me it was a silver lining that came out of the mid-'80s crisis, frankly,” he said.

“It improved the risk management industry both at the buyer level, the risk manager level and also at the broker level.” Furthermore, skills learned at the time “became embedded in the day-to-day workings of risk managers and continue to this day,” Mr. Charron said.

Before the liability insurance crisis, corporate buyers “were just going about the business of buying insurance,” said Jeanne Griffith, San Francisco-based casualty practice leader for Marsh Inc. Now, they look much closer at what risk “really means to them and specifically how to finance it.”