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Big brokers getting bigger is the biggest news story of 1997, according to many risk managers.
"The big story is consolidation," said Arnold L. Davenport, vp-risk management for Bethesda, Md.-based Marriott International Inc., echoing the opinion of other risk managers.
Other issues noted include the increasingly important role of the risk manager, the growth of non-traditional programs and the Year 2000 computer problem.
Despite the overwhelming agreement on the importance of consolidation, opinions varied on its long-term effect.
Greg Turk, director of risk management and employee benefits at Electrolux Corp. in Atlanta, said many risk managers "have a lot of fear and trepidation about consolidation."
Bruce Evancho, manager-corporate insurance and risk management for E.I. du Pont de Nemours & Co., of Wilmington, Del., also said he's unsure of consolidation's impact on policyholders.
Consolidation is a double-edged sword, he said. The economies of scale of a large organization could benefit the policyholder. On the other hand, consolidation may concentrate too much power in the hands of a few players. To date, "it weighs more to the positive side than the negative side," he said.
So far, noted Mark DeLillo, vp-risk management at Celotex Corp. in Tampa, Fla.: "There have been no negative signs. I guess that is a positive sign in itself."
Broker consolidation has not affected Fidelity, said Judy Lindenmayer, vp-Fidelity insurance and risk management for FMR Corp. in Boston, better known as Fidelity Investments. It hurts some risk managers, however, who want a relationship with more than one broker, she said.
Mr. Turk of Electrolux said: "I'm not overly concerned about it. I think there will always be the big brokers, middle-tier and small-tier brokers. But that's the big story."
Microsoft Corp. and other policyholders, however, "have experienced a loss of focus on the part of service providers," because of consolidation, said Scott Lange, director of risk management for Redmond, Wash.-based Microsoft. This is a short-term problem, however, and in a year "we will finally start to see some of the benefits" of consolidation, he added.
Although Marsh & McLennan Cos. Inc.'s purchase of Johnson & Higgins has been "seamless" to Arnold Garcia, manager-risk management and safety for Coltec Industries Inc. in Charlotte, N.C., he is concerned that these "superbrokers" might not offer the same level of service to policyholders as in the past.
With practically no alternative broker, these policyholders may have to accept the poor service, he said. This problem would be especially acute with smaller accounts that the big brokers don't see worthy of first-rate service, Mr. Garcia said.
That could, however, present the opportunity for regional brokers to grab clients by providing a high level of service, he said.
Continuing consolidation of brokers and insurers will make headlines in 1998, Mr. Turk of Electrolux suggested.
"I think '98 will be the year when we can begin to determine the impact of consolidation," said Mr. DeLillo of Celotex. "There will be some indications whether the efficiencies we have been promised will be delivered."
He said mergers among insurers, brokers and financial institutions likely will continue in 1998, though not at the same pace as this year.
But, said Marriott's Mr. Davenport, "I don't know how much more consolidation in the broker field there is left out there," with many of the major players already aligned through mergers.
Another 1997 story drew the attention and opinions of risk managers: the soft market.
Much of the commercial market will remain soft in 1998, but the California workers compensation market should start firming, predicted Earl H. Sherman, director of risk management at Ralph's Grocery Co. in Los Angeles.
"Prices are firming up as the (comp insurers) are buying each other, and they're going to close the market off."
He looks for a "minimal increase in mid-1998 and then a strong hardening in 1999." To avoid that increase, Ralph's will stick with its self-insured workers comp program, he added.
Microsoft's Mr. Lange expects the soft market for most coverages to continue.
"Who's going to raise prices and get away with it?" he asked. "There is a lot of excess capacity out there."
Mr. Davenport agrees. "The market is still declining," and that isn't likely to change soon, the Marriott risk manager said. In fact, most are wondering "where the bottom is," he noted.
"I think I've given up on predicting what's going to happen next," Mr. Davenport added. "I'm not sure what it's going to take to change it."
But Ms. Lindenmayer predicts rates may have bottomed out. "I don't see how the market can continue to soften," she said. "And if it does, I think the whole industry is in trouble."
While everyone has been talking about broker consolidation, some risk managers said other newsworthy issues surpassed broker consolidation in importance.
Microsoft's Mr. Lange said the year's biggest story was the continued evolution of the risk manager's role within an organization. "It will affect the entire profession and all risk managers," he said.
The changes include senior executives' increased expectations of risk managers. Also, top management has been paying closer attention to risk management issues.
"We're on the road to a fundamental shift as to how risk management is viewed in organizations," he said.
To survive, risk managers must know the business of their employers and try to identify different types of risks, he said. It's important for risk managers to stop thinking only about "insurance-relevant areas," Mr. Lange said. "It's going beyond this and thinking about how the non-insurable risk affects the overall organization."
Mr. Lange said this shift forces risk managers to adapt to their role. If they don't adapt, "their time may be limited," he said.
"It's Darwinian," he added. "It's survival of the fittest."
He expects this trend to continue into 1998. "We're not going back on this one," he said.
Ms. Lindenmayer of Fidelity said besides consolidation, another big story of 1997 was insurers' "willingness to listen to more non-traditional types of lines."
More insurers now look to write financial risk, operating risk and "a broader spectrum of business risks" than in the past, she added.
Insurers previously have responded to risk managers' demands for non-traditional coverage, Ms. Lindenmayer said. But in the second half of 1997, she said, insurers have taken the lead by developing products to meet those needs.
Du Pont's Mr. Evancho shares that view. One result of the soft market is that insurers are more interested in creative deals, he said, particularly with excess liability.
"Up until this year, there was a hesitancy with insurers to use unconventional approaches," he said.
These unconventional approaches include multiyear, single aggregate products. In the past, insurers talked about such tailored products, but "this year was the first one where I really saw evidence of that," Mr. Evancho said.
Earl D. Varney, risk manager for The Vanguard Group of Investment Cos. in Malvern, Pa., said, "The whole Year 2000 issue and the insurance around that has been a very big issue for me."
Mr. Varney is recommending that Vanguard purchase an insurance product that would protect the company from losses related to the potential computer problem.
"We haven't decided to buy that coverage, but I'm trying to press the organization to go in that direction," he said earlier this month.