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Just when brokers thought commercial property/casualty rates couldn't get any lower. . .along come midyear renewals.

Commercial policies are being renewed with rate decreases anywhere from 10% to 30% on all lines of business, brokers report. Even coastal windstorm and earthquake coverages, whose rates have been firm in recent years, are being written more aggressively.

With the market so competitive, now is as good a time as ever for risk managers to ask for specific improvements in terms and conditions and lower rates on their insurance programs, brokers say.

It is a new day, noted Richard Hackenburg, chief executive officer of Willis Corroon Corp.'s Risk Management Services, based in Nashville, Tenn., and New York. "To try and use old epithets about describing soft vs. hard markets is a thing of the past. The old paradigms are gone."

"Right now insurers are being extraordinarily flexible to retain the business," Mr. Hackenburg said. "The competitive pressures out there are very significant."

Richard E. Simmons III, CEO of Hilb, Rogal & Hamilton Co. of Alabama in Birmingham, said he didn't think the market could get any softer, "but it seems insurers are trying desperately to hit their budgets and will do anything to bring premium in. The cycle seems to get even more vicious."

"It's more of the same bloody battle," agreed J. Patrick Gallagher, president and CEO of Arthur J. Gallagher & Co. in Itasca, Ill. "We have example after example of ludicrous pricing."

Mr. Gallagher said he used to think the soft market had become the standard market, but not anymore. "Some day, somebody has to pay these claims," he said.

Specifically, "we've had a couple of significant large accounts with very predictable workers comp loss pictures, and the market occasionally has come in significantly under that to pick up the account," he said.

J. Hyatt Brown, president and CEO of Poe & Brown Inc. in Daytona Beach, Fla., said: "Probably the only area we see any upward movement of pricing, truly, in the last year is in coastal windstorm coverage in the Southeast." However, with no major catastrophes in the past several years, "some companies are willing to write a little more aggressively" and are lowering deductibles and lowering prices for windstorm risks, he said.

"The rest is the same old game," Mr. Brown said. "In fact, if premiums are substantial, in many cases accounts are being written at 75% of the three-year average loss cost."

With such cheap rates in the standard market, brokers say some self-insured clients are switching back to first-dollar guaranteed cost programs or reducing their retention levels.

"For the first time, I've seen a significant number of self-insurers return to first-dollar coverage," Mr. Gallagher said. "They are not doing it to take a chance." Rather, someone is willing to step in and take over all the risk at a cheaper price, he noted. "Two years ago, I argued that this would never happen. I've been proved wrong."

"Workers comp is softer than I have ever seen it," said Mr. Simmons of HRH. As a result, several self-insured companies have been able to buy first-dollar guaranteed cost policies for their workers comp coverage for a price they cannot turn down.

"We have seen this on numerous accounts," he said. "We have a company that is on a large-deductible work comp plan, and he wants to look at a first-dollar guaranteed cost deal just because these insurance companies are willing to, in many instances, price these things at a level where premiums come in below the losses."

Many of Near North Insurance Brokerage Inc.'s upper-middle and smaller large accounts also are looking at returning to first-dollar guaranteed cost programs, especially for their workers comp programs, said Mike Mann, senior vp and marketing manager for the Chicago-based broker.

Today, "the cost of risk transfer is a lot more attractive than retaining risk." He admits, however, that risk managers that have been self-insuring have to change their mindset when going back to the standard market. "They have to give up direct control and give back all the responsibility to the insurance company."

Ruth Tave, managing director for Near North, added that many clients also are "reducing self-insured retentions because it is so cheap to buy insurance right now."

Not only are insurers offering cheaper prices to retain business, but they also are trying to come up with innovative solutions to meet risk managers' needs.

"Today, there is greater opportunity for insureds than ever before to get what they want out of the marketplace," said Larry Sorensen, executive vp-corporate marketing for Aon Risk Services Cos. Inc. in Chicago.

Insurers are very willing "to step up and deal to clients what they need," he said.

Holistic risk products and various capital market applications are some areas risk managers continue to inquire about, brokers say. But actual activity remains more smoke than fire.

Risk managers want to become knowledgeable about such tools as capital market applications, call spreads on the Chicago Board of Trade, surplus note issues and double and triple contracts that provide a different approach to handling a larger basket of risks than they have traditionally been responsible for managing, said Willis Corroon's Mr. Hackenburg.

Risk managers in large corporations are starting to look at these products seriously. "How much of them they are buying at the moment? I would say there have been very few. There is much more looking and acquiring knowledge and education than implementation," he said.

Lawrence L. Drake, head of the New Product Council for global brokering at J&H Marsh & McLennan Cos. Inc. in New York, predicts "there will be more multiyear programs that incorporate some form of risk financing like a basket aggregate or a profit recapture."

However, "we think these will be driven more by the buyer and broker who will do the program design and then go to the market, rather than by the insurers who develop products and then try to compete," he said.

Mr. Drake and Bob Peretti, head of J&H/M&M's Carrier Placement Advisory Unit for global brokering, said they have seen within the past six months heightened interest and demand for sophisticated risk assessment capabilities. This is occurring because there is more recognition that risk managers have to protect against many facets of losses, they say.

For example, if a manufacturer relies on a just-in-time supply system from his vendors-meaning companies do not keep large inventories and product is delivered exactly when it is needed-and is partnering with a limited number of these suppliers, then there is a substantial increase in interdependency risk. New technology also is creating new significant risks for manufacturing, distribution and operations, especially for global operations dependent on suppliers and relationships in new locations.

One of the challenges risk managers face is to identify the so-called non-traditional risks that were not viewed as insurable, Mr. Peretti said. And now the insurance market has more willingness and capacity to entertain those risks. But there still is a challenge for risk managers to try to identify, quantify and find a market to accept that risk.

While risk managers are looking to blend a variety of risks, one such combination-integrating workers comp programs with group medical programs-has yet to take hold, brokers say. The reason behind this has more to do with corporate politics than anything else, they contend.

"Risk managers are interested, but there is still a political division in their own company," noted Charlie Fiske, senior vp with Sedgwick Inc. in Memphis, Tenn. "Employee benefits is traditionally headed by human resources, which is out of the bailiwick of risk management. It's a little difficult to do right now."

Where brokers do see integration occurring and where it will occur more in the future is between insurers and other risk management service providers.

Several brokers referred to the recent alliance forged between Arkwright Mutual Insurance Co. and Liberty Mutual Group and the agreement between The St. Paul Cos. Inc. and Allendale Mutual Insurance Co. as examples.

Arkwright and Liberty Mutual have formed a strategic alliance to deliver broad property insurance and related risk management services to the commercial property insurance market (BI, June 16).

The agreement between The St. Paul and Allendale allows the two to pool capacity and supplement insurance capabilities on property coverage for large industrial companies.

"People are more cognizant that they can do things better with a partner if that partner can bring expertise," Mr. Gallagher said.

Mr. Fiske predicts that "by the year 2000, we'll see brokers and insurers align themselves together." So, for example, when a risk manager goes to its broker and asks for coverage from one particular insurer, that broker may have to tell its client to go to another broker more closely aligned with that particular insurer.

"Strategic alliances are one of the hot topics right now," Mr. Fiske said. And it will not be limited to just brokers and insurers. "I will not be surprised if we see accounting firms, banks, insurance companies and financial companies buying each other."

As for some of the hot products in the market this renewal period, brokers say employment practices liability insurance is on many risk managers' minds.

"We've been writing more of that within the last six months," said Mr. Brown of Poe & Brown. EPL coverage "is heating up because lots of employers are now seeing the need for coverage, and prices are coming down," he said.

Mr. Gallagher likens employment practices liability to an iceberg. "We're seeing just the tip right now. There's a lot more underneath."

It's the next major wave of everyone's concern, he said. "It's a very key area now and in the future."

Since the beginning of the year, new insurers have entered the EPL market, and many that have been in the market previously have broadened coverage and reduced prices (BI, June 9).

In addition to more EPL coverage options, risk managers seeking expanded environmental liability coverage should have no problem this renewal period.

"One hundred percent of our clients are getting expanded coverages," said Dave Dybdahl, managing director-environmental risk management services at Willis Corroon in Nashville.

Risk managers most often are expanding pollution-related coverage for non-owned disposal sites, transportation risks for owned vehicles and third-party contractors, and business interruption, Mr. Dybdahl said.

Potential losses arising from what has been dubbed the "Year 2000 Problem" is one new risk on clients' minds, brokers say.

There is speculation in the marketplace that underwriters may begin to exclude coverage for computers that go awry because the internal clock is programmed with a two-digit year and may be unable to distinguish between the years 1900 and 2000 (BI, June 16).

There is discussion concerning so-called millennium insurance and whether insurers will respond to the need, noted Duncan Ashurst, senior vp and account executive at Near North. "Everyone's scratching their heads."

A few millennium insurance products are currently available in the market.

Reliance National Insurance Co. is introducing a new product with J&H Marsh & McLennan Inc. to cover liability and business interruption for companies with losses associated with the Year 2000 computer problem.

Earlier this year, the Minet Group, now part of Aon Group Inc., and AIG Global Risks launched its Millennium Insurance Policy with limits up to $100 million. The custom-made policy protects against disrupted business or third-party lawsuits relating to computer system failure (BI, April 7).

One trend brokers see continuing during the rest of the year is brokerage consolidation.

It is not over, Willis Corroon's Mr. Hackenburg said. "Essentially, I think risk managers are looking to see how this whole thing boils out, and its fairly early yet."

Other brokers that have not been a part of the mega-merger deals say brokerage consolidation has been productive for them.

The reaction from all the brokerage consolidation has been "a real positive" for Near North, Ms. Tave said. "Clients that may not have had Near North as an alternative before now are looking at us as an option."

"The only effect from consolidation is that it has allowed us to become a more prominent player," Mr. Gallagher agreed. Risk managers are more willing "to hear and listen to our story."

"I've heard some risk managers say they don't like brokerage consolidation because it reduces their choice," Sedgwick's Mr. Fiske said.

Insurers also are talking about reducing the number of brokers they work with and partnering with brokers and agents that can commit large volumes.

"It is a very difficult time for the independent shops with no sizable volume with a major carrier," he said.