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'NEVER HAVE BUYERS HAD IT BETTER'

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Life doesn't get much better for risk managers than during this renewal period, according to brokerage executives.

The abundance of capacity in the marketplace continues to depress prices in all lines of insurance, leaving insurers and brokers battling to keep the business of increasingly sophisticated buyers.

Creative approaches to meeting buyers' needs and customized products and services are the name of the game this renewal period, say brokers who increasingly recognize that just offering traditional insurance placement services will sound their death knell in this soft market.

"From the buyer's perspective, it hasn't been much better than this," noted Bob Peretti, managing director and head of global broking casualty for J&H Marsh & McLennan Inc. in New York.

Patrick G. Ryan, chairman and chief executive officer of Aon Group Inc. in Chicago, agrees. "Never have buyers had it better," he said.

Not only are prices at "historical lows" and the industry is developing more creative solutions but clients also are "buying from much better-capitalized insurers," said Mr. Ryan, referring to recent consolidations.

"The last time we had very, very low prices, they were buying from a lot of companies that were in financial trouble," he noted. Today, clients are getting wonderful terms and conditions "from ever better-capitalized companies."

Overall, brokers say prices for all lines and for all geographic regions are dropping in the neighborhood of 10% to 30% this renewal period.

While it is not a free fall, "it's about as close as it can get," said Joel Cavaness, president of International Special Risks Services Inc. and Risk Placement Services Inc., both wholly owned subsidiaries of Arthur J. Gallagher Co. in Itasca, Ill.

Brokers are running scared in fear of losing renewals, he said.

John Kelly, chairman and CEO of Willis Corroon New York Tri-State Region in New York, said he is "seeing still-drastic price-cutting on renewals in just about all the major lines."

J. Hyatt Brown, chairman, chief executive officer and president of Poe & Brown in Daytona Beach, Fla., said the two areas with biggest rate drops he's seen are directors and officers liability, and property in Southeast coastal areas, with rates down 20% to 25% for those two lines compared with a year ago.

"Everyone is cutting their rates to get more premium," he said. All insurers are doing it, he said, unless "they want to give up market share."

"It's unrelenting in how soft the market is," added Rob Meyers, a managing director with J&H Marsh & McLennan in New York. The market "continually challenges us to raise our expectations of what's possible" with rates and coverages.

For a while last year, brokers benefited from increases in coastal property rates, noted Frank C. Witthun, president and CEO of Acordia Inc. in Indianapolis. But, he said, "that's even gotten to where everyone has turned the other way now and forgotten the hurricanes and earthquakes in California. The capacity in the marketplace continues to be beyond the need of the buyers. I don't see that changing."

In addition to lower prices, brokers say risk managers also can obtain larger limits on their property/casualty policies.

The biggest story so far this year has been the overabundance of capacity and the ability to place "substantial-limit deals with one carrier," whereas in the past it required two or three insurers, Mr. Cavaness said.

He noted that it is now common to place a $100 million property policy with one insurer. Last year the limits available from a single company were typically in the $25 million to $30 million range. In addition, casualty coverage limits are up to $50 million to $75 million, a large increase from previous years, he said.

Mr. Kelly said Willis Corroon is building property/casualty insurance programs with $100 million blocks of coverage, whereas in the past the blocks were smaller.

Because prices are so low and capacity so plentiful, brokers are changing the way they have historically conducted business.

"We are finding more and more examples where the customer is coming to us not for the transactional side of the business but coming to us for ideas, innovation and solutions to problems that they have, where maybe there's a transactional solution or maybe there is an alternative way of dealing with risk," said Mr. Kelly.

If the broker's role were to remain transactional, the broker "probably couldn't survive in the market because of prices being much less than even a few years ago," said Charles Fiske, senior vp at Sedgwick Inc. in Memphis, Tenn.

One way the distribution system is changing is through technology, Mr. Fiske continued. Brokers are investing millions of dollars to deliver information to risk managers faster and more efficiently.

At a minimum, brokers today need a complete system that enables their people to gather outside information, wrap it around a segmented class of business and offer that information to clients. Examples of such information include news about insurance products and services, international situations or financial products and services, he said.

"Brokers are stepping up to the plate very well," Mr. Fiske said.

In addition to technology demands, risk managers are looking for creative and customized products and services to meet their specific needs.

Brokers say integrated risk programs, employment practices liability insurance and coverage for the Year 2000 computer bug are a few of the hot topics on risk managers' minds at midyear.

Integrated risk programs -- multiyear, multi-line products with a single self-insured retention -- are one product that employers, especially U.S.-based global companies, are demanding more often today, said Lawrence Drake, managing director with J&H Marsh & McLennan in New York.

"That's where the global clients are heading in the next two to three years," he said, predicting integrated products will become more comprehensive, encompassing more lines, such as political risks, debt risks and currency fluctuation.

Mr. Drake also said he has seen the availability of limits up to $1 billion for integrated products, which is more than double the limits available a year ago.

Sedgwick's Mr. Fiske agreed such products will increase in popularity and predicted that 50% of the products brokers will sell in 2000 are not around today.

More risk managers also are looking into purchasing employment practices liability coverage, brokers say. At least two brokers, Sedgwick and J&H Marsh & McLennan, are responding to this demand by developing comprehensive EPL programs (see story, page 14).

Meanwhile, buyers are seeking clarification on whether their liability insurance policies cover risks associated with the so-called millennium bug.

"We're on the verge of underwriters each coming out with their explicit position on that issue," said Mr. Kelly of Willis Corroon. Some of the insurers are seeking to underwrite the issue and are in the process of gathering data from clients regarding their exposures.

Insurers are "tailoring their coverages to either completely exclude the exposure or narrowing down the scope of the coverage," Mr. Kelly said.

The customary practice in insurance is to not provide coverage for a risk that cannot be quantified, said Mr. Cavaness of International Special Risks Services. Because the Year 2000 impact is still unknown, it's hard for insurers to cover, he said. Partly as a result, many insurers are putting Year 2000 exclusions in existing products. "You see a lot of that today," Mr. Cavaness said.

The growing popularity of exclusions for Year 2000 exposures is the "cause celebre of property insurance right now," agreed Mr. Meyers of J&H Marsh & McLennan.

At least one broker is staying out of the Year 2000 market all together.

"We are not developing any product for the Year 2000 problem and are not actively pushing any product out on the market, because we don't think underwriters know how to underwrite that," said Mr. Fiske of Sedgwick.

"At the end of the day, who's going to decide who caused it and whether it should be insurable?" Mr. Fiske asked.

When it is all said and done, the millennium bug "could be the biggest financial disaster in our history, or it could be just a little poof," he said.

In addition to questions about Year 2000 coverage, brokers say there have also been increased discussions with risk managers in regard to divulging the amount of contingent commissions that brokers receive from insurers based on their accounts.

For the most part, brokers say it is difficult to break out commissions made on an individual risk when they receive incentives from insurers based on the total volume placed or on the profitability of the total book of business.

However, they say that if a risk manager asks, they will divulge what incentive information they can.

Willis Corroon's position is to "disclose to our customers our major sources of income from their account," Mr. Kelly said.

He added that he thinks the issue has been blown out of proportion. Generally, the contingent and profit-sharing agreements are geared to commercial accounts and the major risk management accounts are excluded from lots of the agreements, he said.

Mr. Fiske said Sedgwick is receiving more inquiries into incentive commission arrangements made with insurers. He echoed the sentiment that it is hard to break out specific commissions but said Sedgwick, when asked, will disclose any incentive commission arrangements it has with insurers.

"In the majority of the cases, you're not going to figure it out," Acordia's Mr. Witthun said about incentives from one client's individual account. "We might have a book of business in the millions and millions of premiums in a market," he said, asking, "And as to (that client's) piece of that pie?"

Mr. Witthun added, though, that, when asked, Acordia will "absolutely" divulge what information it can on incentives. "I think that unless we do what is in the best interest for the client, and not the best interest for the insurer, we will very soon not have that client," he said.