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WHAT IT TAKES TO 'WALK THE WALK' FOR CLIENTS

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AVENTURA, Fla. -- The roles of brokers, underwriters and other financial service providers are overlapping as they battle to provide increasingly complex services to increasingly sophisticated risk managers, two industry leaders agree.

"The 'Leave it to Beaver' world where everyone had a nice, white picket fence around their own yard and everyone knew where their yard ended" has changed, said Heidi Hutter, chairman, chief executive officer and president of Swiss Reinsurance America Corp. in New York. "Those fences are coming down."

The largest insurance brokers are no longer just in the brokerage business but are in "a broad range of service businesses," noted Patrick G. Ryan, chairman, CEO and president of Aon Corp. in Chicago.

Ms. Hutter and Mr. Ryan delivered keynote addresses at the 7th World Captive and Alternative Risk Financing Forum in Aventura, Fla., late last month.

Like risk managers themselves, service providers need to take an all-encompassing view of buyers' needs -- from loss control to coping with balance sheet risks -- and possible solutions from self-insurance to capital markets products, the two executives said.

This "holistic" view of risk has generated a lot of discussion without always changing the way business is done, Ms. Hutter observed, "People are still talking the talk but not walking the walk," she said.

Still, reinsurers have to deal with heightened expectations on a number of fronts, she added.

Reinsurer shareholders, for example, are demanding greater returns from an industry that has traditionally underperformed other segments of the market. Regulators expect greater financial security while they also try to ensure availability and affordability of coverage, and rating agencies have pushed for higher levels of reinsurer capitalization, she said.

Reinsurers' clients also have higher expectations than in earlier years, when the "risk transfer food chain" consisted of a policyholder buying insurance, the insurer ceding reinsurance and the reinsurer buying retrocessional coverage, assisted by brokers at each step, she said.

"This really is a thing of the past, certainly for commercial lines business," Ms. Hutter said.

Commercial clients, such as corporations with captives, now expect:

Comprehensive knowledge of the clients' exposures, financial structure, shareholder expectations and short- and long-term corporate goals.

Responsiveness. "When you have a problem to solve, you need it solved quickly," she said. "The answer you get sooner is better than the answer you get later."

"I think the insurance industry for a long time almost took pride in being slow and deliberate," Ms. Hutter said.

Financial strength. "There was a time when you could get a cash advance on your Visa and set up an insurance company," she joked. High levels of capital are now a requirement for doing business.

Professional advice, including strong technical expertise in risk management, underwriting and claims handling, as well as creative product development and presence in a broad array of domiciles.

Clear communication. "Very often, we tend to heap jargon words into our communication," she noted.

Accessible staff with decision-making authority. "The days of dealing with someone who went to the home office to get a decision I think are behind us," she said, explaining that clients shouldn't be in the position of having deals they've negotiated overruled by a "faceless committee" at an insurer's or reinsurer's headquarters.

Good examples of the changed face of risk management, Ms. Hutter noted, are Union Carbide Corp. and Honeywell Inc., which have negotiated sophisticated multiyear programs spanning multiple lines of coverage. In Honeywell's case, the program packaged foreign exchange risk with property, liability and directors and officers coverage (BI, Oct. 20; Feb. 26, 1996).

Brokers, likewise, must have a deeper understanding of clients' exposures and their impact on clients' earnings and balance sheets, said Aon's Mr. Ryan.

The "complete insurance broker" must be able to identify and define risks and find the most efficient way of dealing with them, whether it be insurance, reinsurance, captive coverage, capital markets products or other alternative financing vehicles, he observed.

Brokers are also called on to provide an array of non-brokerage services, including administrative, claims and information management, actuarial support and engineering and loss control services.

To do this, "the complete broker must have an owned network of offices with a common culture" and "superior intellectual capabilities," with experts in different product lines who can be brought in on a given project anywhere in the world, he said.

Like insurers and reinsurers, brokers now must be strongly capitalized themselves, he added.

"We are in a service business. Mistakes get made," Mr. Ryan observed, noting that brokers can be held liable for those mistakes and that their exposure has grown as their business has become more complex. "In today's world, the broker can become the insurer quite quickly because of mistakes made.

"The days of thinly capitalized brokers are over. Brokers today need a lot of capital," he said.

Brokers should see themselves as advocates for their clients, doing as much for clients as possible in negotiating over policy wording, exclusions and pricing.

Mr. Ryan added, though, that advocacy doesn't mean taking advantage of insurers: "There's no future for the client, the broker or anyone if you force a product into the market that's going to create a loss on one side," he said.

He conceded that the array of services available to large and middle-market clients may not be available to small commercial clients with less than $50,000 in annual premiums.

Products for these clients, he said, tend to be more commoditized.

Both Mr. Ryan and Ms. Hutter also urged risk managers who are dissatisfied with the level of service they receive to "speak up."

"Let us know," Mr. Ryan said, adding that Aon solicits comments as part of a stewardship review process.

"The burden shouldn't be on the client to tell us we screwed up," he said.

A new breed of financially sophisticated risk manager is adapting well to the changing marketplace, Mr. Ryan added.

"Many are already seizing the opportunity to play a much larger role in their corporations" than just buying insurance, he said. "There will be some who don't get it or do not want to get it, and unfortunately they will fall by the wayside."

The session was moderated by Kathryn J. McIntyre, publisher and editorial director of Business Insurance.