QUAKE ONLY TIGHT COVERAGE IN MARKET, RISK MANAGERS SAY

Risk managers are wondering whether it's really the renewal season or just a recurring case of deja vu.

They are reporting very few changes in insurance price and availability as renewals are completed. Most buyers say there is little chance those conditions will change any time soon.

"I don't see any changes that will make it harden," said Jim Green, risk manager at Fort Worth, Texas-based footwear manufacturer Justin Industries Inc.

Risk managers pointed to earthquake coverage in California, Mexico and Japan as the only type of insurance that could be called "tight" in terms of available limits.

"The reinsurers are holding all the cards right now," dictating price to primary underwriters of earthquake insurance, said Mary Dopslaff, vp-risk management for Four M Corp., a manufacturer of cardboard and paper products in Valhalla, N.Y.

Those increases then have to be passed on to policyholders, and that trend should continue in 1997, she added.

Insurers would have to take a very big hit before they began to restrict capacity and raise prices in other areas, some risk managers think.

"Barring a huge catastrophe," insurers should remain "innovative and aggressive and seek more market share," said Edmund Greene, deputy treasurer-insurance at General Electric Co. in Fairfield, Conn.

He agrees with Ms. Dopslaff that capacity for earthquake risks remains tight in some areas. Continuing consolidation among insurance companies could be a trigger to firm the market, Mr. Greene speculated.

But it's "anybody's guess" when the number of companies would be winnowed to the point that the marketplace would become less competitive.

And insurers aren't facing any legislative changes that could lead to a market hardening, according to Stephen Scammell, senior consultant with Tillinghast Towers Perrin in Parsippany, N.J.

Mr. Scammell said there seem to be no threats on the horizon in Washington for buyers. "The laws that are dealing with insurance issues all remain favorable to policyholders."

Many risk managers are finding price breaks during this renewal period. "If anything, I think it's softening," said Mari Jo Hill, risk manager at SAS Institute Inc., a Cary, N.C.-based computer software company.

SAS recently completed casualty renewals for Prestonwood Country Club, a facility it owns in Cary.

"I don't know what it's like elsewhere, but workers comp is a very soft market in North Carolina," Ms. Hill said.

With some minor losses in 1996, the country club is inking renewals with Travelers/Aetna Property Casualty Corp. at essentially the same cost as last year.

The Travelers/Aetna merger didn't bring a lot of change to Prestonwood's workers comp program, she noted. Some policy wording was rewritten because "Travelers had a slightly different form" than that used by Aetna, which wrote the coverage for the previous three years, Ms. Hill said.

Travelers/Aetna also writes the country club's general liability and automobile liability coverage, which renewed at expiring limits, according to Ms. Hill.

Mr. Greene said General Electric's property and excess liability coverages renewed at prices 5% to 10% lower across the board.

Excess liability insurance coverage is more available this year because existing underwriters are adding capacity and new companies are entering the market, he said.

"The Europeans seem to be coming into the market in a bigger way," Mr. Greene remarked, pointing to Swiss Reinsurance Co. of Zurich, Switzerland, and Gerling-Konzern Allegemeine Versicherungs A.G. of Cologne, Germany, as two making inroads in the U.S. market.

Mr. Scammell pointed out that new products like the one dubbed "Beta" to provide excess limits for industrial companies are providing some competition for excess insurance underwriters. Additional capacity in such areas could put downward pressure on prices, he said.

The Beta program is being marketed by Swiss Reinsurance Co. and Alexander Capital Consultants and is expected to provide at least $300 million in excess property and liability limits to pharmaceutical, oil and gas, chemical, railroad and utility companies (BI, Jan. 8, 1996).

There is no pressure on Beckman Instruments Inc. in Fullerton, Calif., as the manufacturer of medical instruments faces upcoming casualty renewals, according to Roger Plotkin, corporate risk manager.

General liability, product liability and commercial automobile liability, coverages all written by St. Paul Cos. for a number of years, are expected to be renewed with the insurer, said Mr. Plotkin. "We will probably just roll that program over. It's been a very good relationship. The prices are reasonable."

Beckman Instruments' workers comp insurance is being renewed in a captive domiciled in Hawaii. "It's a good stable program with reasonable fixed costs," said Mr. Plotkin.

Several risk managers said they were able to buy additional coverage at expiring rates or close to that amount. Others are looking for new coverages in the competitive market.

"It's the right opportunity to do that," said Steve Hewitt, director of risk management for L.L. Bean Inc. in Freeport, Maine.

L.L. Bean's supply of fleecewear was disrupted by last year's fire at Malden Mills Industries Inc., Mr. Hewitt noted (BI, Dec. 18, 1995). To protect against that risk in the future, he is considering adding contingent business interruption coverage that would protect the company against such interruptions.

Contingency plans have to be in place for such risks, he emphasized, and risk managers have to "fold those into your risk management program."

Mr. Hewitt said his 1997 renewals were essentially unchanged from prior years. "I don't see any big changes," he added, and there "appears to be a good abundance of capacity out there."

SAS took advantage of cheap umbrella rates to double the limits on that coverage for the country club, Ms. Hill noted. The coverage, written to undisclosed limits, was purchased from Chubb Group.

Four M Corp. expects to bag higher excess liability limits at the same price when the insurance coverage is renewed at the end of this month, according to Ms. Dopslaff.

Multi-line and multi-year policies are indications that insurers are continuing to market aggressively and innovatively, said Mr. Greene of General Electric. He said General Electric declined to buy multi-line or multi-year coverages.

General Electric was able to put together a new program that consolidates coverage for directors and officers, errors and omissions, employment practices and other exposures. The coverage was purchased through a consortium of U.S., European and Bermuda-based insurers and provided the company with higher limits on each risk than were available if the coverages had been bought separately.

Payless Cashways Inc. renewed its property/casualty program with little change, signing on with the same insurers at the same limits, according to Peter Romano, corporate risk manager at the Kansas City, Mo., building materials company.

Payless found its coverage cheaper this year, with all property/casualty insurance costing about 7.5% less than at the last renewal, he noted. "This is the third or fourth year in a row we have had reductions."

Umbrella liability and difference-in-condition coverages showed the biggest decreases in cost, he said, each about 13% cheaper.

"We maintained the same limits, retentions and endorsements," he said of the renewal. "We didn't have to give up anything."

Payless took a look at purchasing employment practices liability insurance, "but we haven't made a real decision on it," Mr. Romano said. "As a stand-alone, it's still quite pricey."

"It was a smooth transition from expiring to renewal," he said. "Everything stayed consistent, and that's what we were looking for."

Mr. Romano said Payless likes long-term relationships with insurers.

"One of our objectives is to maintain a stable relationship with our carriers," he explained, which allows underwriters to better understand and evaluate the risk.

The Port of Seattle wrapped up property, airport liability, port liability and workers comp renewals at about the same overall.

There was a slight increase in the port's property insurance costs because waterfront development has resulted in higher values.

Although the values were up 6%, the rate for coverage did not increase.

Ms. Chappelle said marine and property insurers apparently weren't skittish about writing coverage along the waterfront despite the recent ramming of the Riverwalk in New Orleans by the M/V Bright Field (BI, Dec. 23/30, 1996).

Risk managers renewing D&O insurance policies say the coverage is getting a little cheaper in some cases.

"We were quite pleased with the way (renewals) went, particularly excess liability and D&O," said Gerald W. Wilkins, risk manager at Oklahoma Gas & Electric Co. in Oklahoma City.

"All the liability coverages were about 2% to 5% cheaper," he added.

Because D&O coverage was costing about 5% less at renewal, the utility was able to purchase the same limits and add entity coverage all at the expiring premium.

"More risk managers are considering entity coverage," Mr. Wilkins remarked. "We had considered it in the past and did decide to obtain it" at the renewal completed in December, he said.

Entity coverage is purchased as an addition to D&O coverage and covers claims against a company

arising out of actions of the directors and officers.

Mr. Wilkins said research indicates that in most cases corporations are also named in lawsuits against directors and officers. "Some say the courts in effect are granting entity coverage. But in my opinion you're rolling the dice when you put in the hands of the court what could be a long, protracted situation," Mr. Wilkins said.

Mr. Green of Justin Industries said he expects some broadening of coverage for directors and officers but "no increase in premium to go with it" when the coverage is renewed Feb. 1.

Workers comp, auto liability and general liability also renew Feb. 1 for Justin and Mr. Green expects smooth sailing.

The footwear maker's workers comp coverage is structured as a large deductible plan and "our loss picture has been excellent," he remarked.

"We don't expect any market-driven increases in auto or G.L.," he added. St. Paul Cos. writes those two coverages and the workers comp insurance for Justin.

Oklahoma Gas & Electric wasn't as fortunate on the property side as with casualty renewals.

"Property insurance was up because of our loss ratio," said Mr. Wilkins, a disappointment "in a market when you are hoping to hold the line or get a reduction. I anticipated there would be some increase and there was, but it wasn't horrendous."

The coverage formerly was written by Industrial Risk Insurers in Hartford, Conn.

Because IRI decided to stop writing coverage in the first $100 million layer for electric utilities, Oklahoma Gas & Electric had to put the program out for bid.

That layer now is written by a number of insurers, Mr. Wilkins noted.

While policyholders aren't making a lot of changes in the current market, they are demanding that intermediaries find the best deals and provide other services, according to Mr. Scammell.

With growing frequency, buyers are asking, "I pay this broker $1.5 million a year and what am I getting for it?" Mr. Scammell pointed out.

Because buyers are being asked by top management to substantiate their vendor costs, the pressure is on brokers to provide value, he said.

In addition, risk managers who have suffered staff reductions are turning to their brokers to do more work.