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CHICAGO-Faced with a continuing soft insurance market, many risk retention groups will face tough competition unless they expand their services to policyholders, a panel of experts suggests.
"If you're going to stay in today's marketplace and be stagnant and use the Risk Retention Act and just be a carrier, you're going to face tremendous competition," said William T. McPherson, an assistant vp at Commonwealth Risk Services in Philadelphia, which assists agents in designing insurance programs for clients.
"You all are flexible enough to say, 'Let's go out there and form a new product," urged Mr. McPherson, who spoke as part of a panel on Creating Global Growth in the Alternative Market at the National Risk Retention Assn.'s annual conference in Chicago last month.
"Growth for risk retention groups involves expanding the product line for members," said Patrick Sheehy, an associate with DP Mann Underwriting Agency in London. Mr. Sheehy added that the European markets are eager to provide reinsurance for risk retention groups.
Steven J. Nunn, a director at Ballantyne, McKean & Sullivan Ltd., a London-based reinsurance broker, said there are several reasons the London market views alternative markets as preferred risk categories.
Among other things, alternative markets tend to offer focused underwriting with a high level of professionalism, he said. Alternative market entities also are typically highly dependent on reinsurance, he said, which is seen as a plus in London because that leads to stable and long-term relationships.
Those relationships are viewed positively, Mr. Nunn said, usually involving the formation of personal bonds that last over several years.
While five to 10 years ago reinsurance support for risk retention groups was almost exclusively by U.S.-based reinsurers, today it's much more widely available from international markets, Mr. McPherson said.
Richard P. Marshall, a vp with Frontier Insurance Group in Rock Hill, N.Y., said that while a soft market has slowed the formation of new risk retention groups, that doesn't mean existing ones can't continue to grow.
If a risk retention group expands its product lines, it has more control over its members' insurance programs.
And continued consolidation among insurance companies and brokers will give policyholders fewer and fewer choices, according to Mr. Marshall.
Many policyholders will be scared by that decrease in choice, he predicted, driving them to risk retention groups.
Risk retention groups should look at providing workers compensation and property coverages to members, Mr. Marshall said, while Mr. McPherson said they could also look into providing life and health coverages.
While the federal Liability Risk Retention Act limits the groups to underwriting liability coverages for members, there are ways to expand beyond liability lines, the panelists suggested.
Mr. Marshall suggested a risk retention group could partner with a fully licensed insurer, purchase a licensed insurer or create its own agency to sell additional coverage lines.
The latter option, offering a source of fee-based income, could help provide a financial cushion when there is a "hiccup" in the risk retention group's financial performance, according to Mr. Marshall.
Mr. McPherson suggested that risk retention groups also could look to offshore captives to provide to members some of the coverages that risk retention groups are prohibited from offering by federal law.
"We are in a global market, and it is an opportunity for a risk retention group to expand beyond its horizons," Mr. McPherson pointed out.
The session was moderated by Gregory S. Katz, a senior associate with the law firm of Wilson, Elser, Moskowitz, Edelman & Dicker in New York.