Insurance buyers in the United States find there are good reasons for covering their European exposures with local insurers.

In a hardening property/casualty marketplace that has limited the amount of capacity U.S. insurers are willing to offer, many risk managers must look overseas to fill out insurance programs covering European exposures, insurance industry sources say.

Risk managers increasingly are looking to European insurers to provide capacity to cover risks there, confirmed Richard S. Betterley, the president of Betterley Risk Consultants Inc. in Sterling, Mass. "It's a global insurance market, and they are looking everywhere," Mr. Betterley said of buyers.

Alfred Tobin, managing director at Aon Risk Services in New York, agreed that many buyers have to use European insurers because U.S. insurers do not have the capacity to handle the largest property risks. "For large property risks, there's no way to get it done competitively without the European companies," Mr. Tobin said.

Mr. Betterley and other industry sources say there are several reasons that policyholders choose European insurers rather than have U.S. insurers provide the coverage for overseas risks. Local knowledge is a key factor, he said.

Some buyers prefer European insurers because they can provide "services on the ground locally that are better attuned to local needs," he explained. "A risk manager may think that the local services are more effective."

Loss control and claims administration are among the services that some buyers prefer to have local insurers handle, Mr. Betterley noted. "They have people who are accustomed to working in that (geographic) area" and can be particularly helpful in claims and loss control matters, he said.

Charles Salek, vp-group function, risk and insurance management at ABB Group in Stamford, Conn., said the Zurich, Switzerland-based engineering services company uses European insurers partly because "we ourselves are a European company, and they are operating in the same neighborhood as we are."

Mr. Salek said better claims administration is reason to use those insurers. "We tend to do business with large, financially strong European insurers, particularly those from Germany and Switzerland. They have strong balance sheets, and we also feel they are very fair when it comes to the claims settlement process."

Among the European insurers ABB uses are Zurich Financial Services Group and Swiss Reinsurance Co.

Mr. Salek said European insurers typically are set up so that there is a "close linkage between the underwriter who writes the policy and the claims guy." That keeps administrative hassles to a minimum, he explained, whereas often "there is a Chinese wall in the U.S. between the claims department and the underwriting department."

Mr. Tobin said that European insurers often have "more analytical tools (than U.S. insurers) and they use that in their underwriting." Underwriters are "more efficient, more technical in their underwriting approach," than are many of their U.S. counterparts, he said.

Insurance buyers that choose not to use European underwriters for overseas risks typically have in place coverage arrangements similar to those of Marriott International Inc., the Bethesda, Md.-based hotel chain.

"We have a controlled master program that insures both domestic and international exposures to the extent that we can do so legally," explained Hector Mastrapa, senior director-insurance at Marriott. "So we don't go to the European market to place specific coverage."

The underwriter on the master program can arrange local coverage if European regulations require it, Mr. Mastrapa said.

Of the U.S. companies that are seeking coverage in Europe, most are looking for high limits of property insurance, Mr. Tobin said. "That clearly seems to be the case post-Sept. 11," he said, and European insurers "have a large appetite for large well-risk-managed property accounts." He said that a conservative estimate of property coverage available in Europe would range from $250 million to $500 million on a per-account basis.

That doesn't mean, though, that European insurers are willing to take all risks that are presented to them, Mr. Tobin said. Most European insurers "do not want to write everything in Europe," he noted.

Brokers need to know what insurers are interested in and match those needs with buyers, Mr. Tobin explained. "It's about doing your homework" before trying to pair policyholders with insurers, he emphasized. "If it's the right risk, they will bring a lot to the table, generally in reasonable terms," he said of European insurers. "I think U.S. markets tend to put out less capacity and are more generalists, for the most part."

Praxair Inc. found European insurers to be more flexible with terms and conditions than were U.S. insurers when the company was forced to find coverage to replace a fronted program that ended, said Richard M. Inserra, assistant treasurer and director of risk management for the Danbury, Conn.-based producer of specialty gases for chemical companies and other industries.

A global insurance program provides coverage for Praxair's property risks in several European countries and sits above $5 million to $10 million of underlying insurance. Although the underlying insurance was covered by Praxair's Bermuda captive in a fronting arrangement, Praxair currently uses local insurers in Europe for that part of the program, Mr. Inserra said.

He said the company finally settled on local insurers after "getting onerous terms and conditions" from U.S. insurers. Plans call for returning to a fronting arrangement when the coverage renews Nov. 1, Mr. Inserra pointed out.

There are also less-complicated reasons for using a European insurer, according to Mr. Betterley. There's nothing wrong with keeping the business in your own backyard, he said of policyholders with exposures in Europe.

"There's always, buy locally because it's good for business," he suggested. "That's more of a nonbusiness reason, but it's a good-neighbor reason" and one he hears from clients who buy coverage overseas, Mr. Betterley said.