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The new year has started off as a happy one indeed for many risk managers who wrapped up their renewals at year-end.
That is because they found only slight, if any, increases in many property/casualty rates and in most cases were able to negotiate flat or reduced rates.
In addition, insurers didn't haggle much over terms and conditions at renewals, risk managers reported.
Many risk managers said they were content to renew coverages at 1995 limits, sometimes increasing deductibles and retentions to save costs, and most think they got off to a good start with 1996 renewals.
"We just went through a property/casualty renewal Dec. 1 which was a non-event," said Linda M. Young, vp insurance and risk manager for CoreStates Financial Corp. in Philadelphia. "The market seemed to be pretty stable, which was interesting because we did anticipate some increases on the catastrophe side."
Liability coverage costs were "significantly less" for Perdue Farms Inc. in Salisbury, Md., according to Ron Fisher, director of risk management. He said the poultry processor increased its self-insured retention rather than insuring that exposure through a joint captive, as in the past, and also purchased an undisclosed amount of coverage above the retention.
While it's hard to pinpoint exact savings because of the increased retention, Mr. Fisher believes Perdue Farms shaved a total of about 15% off its automobile liability, general liability and workers compensation costs at year-end.
"There were no give-backs on terms and conditions," said Mr. Fisher, who noted there were even some slight improvements in that area.
The Port of Seattle was able to pocket savings of around $300,000 when it tied up renewals on property, marine liability and automobile liability coverages, according to Rita Mae Chappelle, risk administrator.
Loss control and an adequate retention are partly responsible for keeping costs down, she explained.
The port's marine liability coverage is inexpensive, she explained, because the port self-insures up to $100,000 per incident. "Most of our losses are under that."
The cost of directors and officers liability insurance fell for CoreStates Financial, according to Ms. Young.
Ms. Young said she was aware before the renewal season began that D&O costs were dropping and broader coverage terms were available for organizations smaller than CoreStates. "We are fairly large-$23 billion in assets-so we weren't expecting that much of a reduction. But we had a fairly favorable renewal. There seems to be increased capacity for financial institutions."
Ms. Young said it is not easy for financial institutions to do a "full-blown kind of marketing" of their programs because the hard market of the mid-1980s got rid of all but about 10 or 15 insurers that focus on companies like hers.
However, she added, there is an increase in capacity among those insurers, and CoreStates does "periodically market our account because we have several carriers who have pieces of our program."
Still, Ms. Young stresses long-term relationships with insurers, saying such partnerships served her company well in the mid-1980s when coverage was expensive and hard to find.
And, she said that falling rates are not always the best news. Recent competition has given her a sense of deja vu of the period just before "the market completely fell apart" in the 1980s. "While you love to see premiums come down and down and down, you start to see the flip side of it, and maybe having stable rates and funding levels is a whole lot safer and a whole lot easier to budget for."
While "that memory kind of comes back," Ms. Young doesn't predict a drastic market hardening is on the horizon.
"Status quo," a term used by Keith Kovash, manager of risk management and benefits at The Montana Power Co. in Butte, Mont., seemed to be the catch phrase for many risk managers during this renewal season.
Property and liability coverages were renewed at the same rates, limits and terms as the previous year, Mr. Kovash said.
The biggest change for Montana Power was in its dealings with its broker, Rollins Hudig Hall Group Inc., Mr. Kovash pointed out. "We've moved to a total fee-for-service with our broker."
The move is part of an overall effort by the utility to identify and reap added value from providers. "We are holding all our service providers to a higher standard," Mr. Kovash noted. RHH understands that aim and has cooperated with Montana Power's efforts, he said.
"It was pretty much status quo for us" when renewing global property coverages but for one significant exception, said Don Spurlock, manager of risk financing at Monsanto Co. in St. Louis.
He explained that Monsanto "spun off a business to a joint venture and sold another business," which helped bring the parent company's overall property risk financing costs down.
"I would say they were certainly in the higher risk category in terms of Monsanto's property risk profile," Mr. Spurlock said of the two businesses that represented around $1.5 billion of insurable property risk. "That represented 15% or so of Monsanto's total insurable risk and our premium reduction was a little bit more than that."
"We were pleased that our key insurers that we consider our partners in this recognized the reduction in our risk profile and that was reflected in our renewal more than anything else," according to Mr. Spurlock.
Payless Cashways Inc., a Kansas City, Mo.-based building materials retailer, renewed its property/casualty coverages with a slight increase in property costs that was more than offset by falling premiums in workers compensation and other casualty lines, said Peter Romano, risk manager.
Payless reduced its overall cost for coverage by 11%, he said.
"We put it out to market briefly, but our current insurer was very competitive," said Mr. Romano. "They came up with a program that no one could match."
Terms and conditions were unchanged on Payless' coverages, as were retentions and limits on primary and excess policies.
The Gillette Co. saw slight increases in property insurance costs, but not "anything that I would consider to be significant," said Tom Welgoss, manager of corporate insurance at the Boston-based company. "Basically we offset that increase by deciding to take a higher deductible."
Mr. Welgoss said Gillette's higher property insurance costs probably reflected "the overall operating results of our particular insurer, not market conditions, and it might be a result of our own loss experience."
"I wouldn't say it's a reflection of the overall market," he said.
Ms. Chappelle said the Port of Seattle restructured its property program to eliminate a number of sublimits. "We brought them all up to one limit."
And, she added, the port purchased contingent business interruption coverage for the first time this year.
Risk managers say finding affordable coverage for earthquake exposures is still a shaky proposition.
Gillette has found that rates for the coverage continue to be expensive in California. "The high cost of earthquake insurance continues to plague us since we do have some operations in that state," said Mr. Welgoss. "The limits are there, but it's a question of whether you want to pay a high premium for limits you might not need." Mr. Welgoss said he believes underwriters are "concerned about losses in high-risk areas and are requiring premiums that reflect those exposures."
Gillette, he added, is paying greater attention to those exposures and is working with insurers to reduce those risks. "If we can sufficiently reduce that exposure, perhaps in the future we might decide to self-insure a greater portion of that risk instead of paying that high cost."
There's still pressure on insurance rates for international earthquake risks as well, according to Gary E. Bird, director of risk management at Phelps-Dodge Corp. in Phoenix. The mining and manufacturing company has operations in quake-prone areas of South America.
Mr. Bird said Phelps-Dodge was able to keep costs down for catastrophe coverage by increasing retentions for those exposures.
Phelps-Dodge renewed all its international and domestic property coverages for 55 locations with the same insurers and at the same limits, said Mr. Bird. "Prices were flat, generally speaking."
The company's international and domestic property programs are led by Allianz Insurance Group, American International Group Inc. units, Swiss Reinsurance Group and CIGNA Corp.
Mr. Bird said each Phelps-Dodge operation has property coverage of more than $250 million.
Terms and conditions remained practically unchanged, Mr. Bird reported. "We used pretty much the same form."
He said Phelps-Dodge moved its renewals to year-end from July 1 in order to coordinate the process with the end of its fiscal year.
Aside from earthquakes, windstorms are another potential catastrophe that make insurers nervous.
Ms. Young of CoreStates said she found prices up for coverage in windstorm-prone areas like the New Jersey shore and other stretches of the East Coast. Overseas, windstorm exposures in Taiwan and Tokyo saw rate increases. "It was very select-and for us very minor-because our offices there are very small."
Overall, risk managers are finding themselves in a fairly predictable insurance market.
"The general environment seems to be very stable," said Mr. Welgoss. "Of course a lot of changes are taking place with regard to insurers in terms of their own financial condition, and there's a lot of restructuring taking place. With the assistance of our brokers, we need to continue monitoring those changes that are taking place."
Some risk managers are getting used to new relationships with insurers in the wake of several mergers that have taken place during the past two years.
Ms. Young said CoreStates is dealing with such a change because of the merger of CNA Insurance Cos. and Continental Insurance Cos.
"Our renewal was right at the point of the merger last year so our renewal this year will be handled by a different office and different people. So we'll get our first experience with the restructuring," she said.
Risk managers looking ahead to renewals refer to the property market as the biggest uncertainty on the horizon.
"I'm kind of keeping an eye on the property market," said Daniel J. Pliszka, director of insurance and risk management for Charlotte, N.C., Mecklenberg County and the Charlotte/Mecklenberg school system.
Large property losses, including the fire at Malden Mills Industries Inc., could cause rates to rise, he suggested. A fire destroyed the major manufacturing facility at the Lawrence, Mass., textile mill (BI, Dec. 18, 1995).
"As I understand it, just about every reinsurer took a hit on that thing," said Mr. Pliszka. "So I would expect that's going to do something."
"It's a similar situation to what has existed for a while," said William J. Kelly, senior vp at J.P. Morgan & Co. in New York. "The only problematic coverage has been property catastrophe."
Mr. Kelly said most of J.P. Morgan's renewals are springtime dates. "I try to avoid the year-end. It's a little too exciting."
Other risk managers agree that year-end is the wrong time to schedule renewals.
"Underwriters have so many issues to deal with, and on the back of all that they're negotiating reinsurance treaties," said Debra Schramm, director of risk management at Consolidated Freightways Inc. in Portland, Ore.
Her company has moved renewals to summer and fall, she noted.
By the time underwriters finish negotiating their reinsurance treaties and can start to address year-end renewals, a client can find itself in "an 11th-hour kind of situation," Ms. Schramm said.
"We just made a conscious decision to try and get away from all that."
'While you love to see premiums come down and down and down...maybe having stable rates and funding levels is a whole lot safer,' says CoreStates' Linda M. Young.