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FMR Corp.'s three-year casualty insurance program is a time-saver for the company's risk management department and a cost-saver for the company, whose perpetual growth generates continuous increases in its loss exposure.

The program, which runs into next year, covers the general liability, automobile and workers compensation risks of the so-called corporate side of the highly diversified Boston-based company, which is better known as Fidelity Investments. It does not cover the mutual fund operations of Fidelity's FMR Co. subsidiary, which essentially does not face those types of risks, explained Judy Lindenmayer, vp-Fidelity insurance and risk management.

Primary limits of $1 million are written by CIGNA Corp. subsidiary Insurance Co. of North America, which did not move any of Fidelity's liabilities into CIGNA's runoff facility when CIGNA reorganized last year, according to Ms. Lindenmayer.

Fidelity is subject to deductibles of $100,000 per occurrence for general liability and auto losses and $250,000 for workers comp losses.

A per-accident deductible rather than a per-employee retention is an important term for Fidelity, because employees often travel together. A per-employee limit could subject Fidelity to paying hundreds of thousands of dollars more in deductibles if a Fidelity vehicle containing several employees injured a third party or damaged another's property in an accident.

Fidelity also would pay one workers comp deductible if more than one of the employees were injured in any kind of work-related accident.

The deductibles are covered by Fidelity's Bermuda-based captive, which reinsures up to $100,000 of them into a new pooling arrangement that generates significant third-party business as well as reduces loss variability for the captive (see story, page 102).

A layered umbrella program sits over the primary coverage. Five insurers write six layers of coverage. INA writes the top layer, and Chubb Corp. participates in two layers. Fireman's Fund Insurance Co.; National Union Fire Insurance Co. of Pittsburgh, Pa.; and Twin City Fire Insurance Co. also participate in the umbrella program.

Ms. Lindenmayer would not divulge coverage details.

Some flexibility by INA in how it rated Fidelity's exposures, as well as the multiyear policy period, have freed up some time in Ms. Lindenmayer's department.

For example, the workers comp rate is based on head count rather than payroll.

"If we we're doing this based on payroll, we'd ask the systems group for a printout of all the jobs and all the pay, including base, bonus and incentive pay by state. We'd get a thick report with job titles, but that wouldn't show if people were office workers" and therefore safer risks or involved in more risky work.

Even more problematic is estimating payroll. Because of Fidelity's continuous dramatic growth, "We could never find a way to estimate what next's year payroll would be," Ms. Lindenmayer said. Fidelity underestimated payroll by millions of dollars in the past even when it factored in 15% to 30% payroll increases.

But, before implementing the current casualty program, the risk management department still had to make those estimates, which required 10 to 12 days for a staffer to compile.

Now, an administrative assistant can retrieve a head count figure from the department's risk management information system in minutes, Ms. Lindenmayer said.

Automobile information also is available off the RMIS.

In addition, Fidelity's general liability coverage is rated based on square footage, rather than on revenues, on which rates more typically are based.

"Our revenues have no bearing on those kinds of losses, so we were searching for a way to have something meaningful" on which to base the rate, Ms. Lindenmayer explained.

A presumption that third parties will be coming onto the policyholder's property is built into general liability rates, but "so much of our business is done by phone or over the computer that we just don't have that kind of exposure."

Information on square footage soon will be available through the department's RMIS.

The multiyear policy period and a locked-in rate eliminate the need for the risk management department to gather this information every year.

In addition, the casualty insurers have agreed that Fidelity can grow substantially without having to pay additional premiums to cover the company's additional exposure.

Even given how rapidly Fidelity is growing, the agreed-upon growth rates for Fidelity's exposures are "set high enough that there is not a real good chance" the insurers can come back and boost premiums, said Tom Wronski, finance manager and the member of Ms. Lindenmayer's staff responsible for the casualty program.

Casualty loss allocation within Fidelity is relatively "simplistic," but that may change next year, Ms. Lindenmayer noted.

The general liability and workers comp deductibles that Fidelity pays are allocated to its operating entities based on head count. Those losses are so low that "we don't feel at this point we need an elaborate allocation system," Ms. Lindenmayer explained.

For example, Fidelity paid a total of $239,000 of workers comp deductibles in 1996.

Auto deductibles are allocated to the Fidelity entities that sustained losses.

And, as early as next year, Fidelity's operating entities may be held responsible for their individual general liability and workers comp losses.

"Our chairman has said he wants risk management tied to the compensation of business managers," Ms. Lindenmayer explained. One way to do that is to ensure that an entity's profitability takes into account its actual cost of claims.

In that case, "we have to revisit the ability of individual entities to pay the claims," Ms. Lindenmayer said. "We can't lose sight of the fact we have smaller companies that cannot withstand a $250,000 workers comp claim."

Those entities could receive a corporate subsidy if Fidelity decided to switch to such an allocation system, she said.

But, if workers comp claims continue to be as low as they have been-about $10 per employee-the cost of allocating losses precisely to the responsible entities would not be worthwhile, she said.

General liability losses also have been low. But, those could increase as Fidelity continues to grow, because more properties mean more third parties would be visiting Fidelity operations, Ms. Lindenmayer said.