REWARDS PROPOSED FOR BETTER MARINE RISKS

Marine insurers that offer financial incentives and become familiar with their policyholders' operations will help lower claims, an executive with a marine transportation company says.

"So here's my challenge to marine insurers: get to know your client," said A. "Gus" Elmer, president of SeaRiver Maritime Inc., a Houston-based unit of Exxon Corp.

Mr. Elmer, speaking at the Houston Marine Insurance Seminar last week, challenged insurers to take a close and continuous interest in their marine clients' operations.

"I believe you should actively inspect the operational capabilities of the management and the crews of the vessels that you insure," he advised. "Spend some time to observe the crew at work on a vessel. This may be a short-term cost, but I believe that it will pay dividends in the long run."

And to encourage policyholders, underwriters should offer some financial rewards, Mr. Elmer said. "Be creative in developing individual incentives."

For example, he suggested that insurers "develop one premium which rewards a lower frequency of small claims and another premium for catastrophic events."

Insurers also should make cash awards to policyholders that turn in "excellent claims experiences," he said.

"I know the marine industry is steeped in history and tradition," Mr. Elmer said. "But let's try and think outside the box."

Insurers that write onshore risks have a highly protected risk category, he pointed out. "Why not a similar category for marine? In other words, establish a lower premium for higher-quality operations who meet exceptional standards of certification."

One measure of exceptional standards could be the American Bureau of Shipping's Condition Assessment Program, Mr. Elmer said. The program provides a rigorous inspection of ships and is attentive to ship owners' and operators' commitment to maintenance, he explained.

Reports by the bureau spell out any deficiencies, and "you can address them directly," Mr. Elmer noted.

He said SeaRiver is working with the ABS to begin reviewing its vessels. SeaRiver owns ocean-going tankers, inland towboats, barges and harbor tugs that provide services to Exxon and other companies.

Mr. Elmer noted that the ABS inspections are carried out every three years.

"Trust me," he said, "they're not free." He added that insurers could help mitigate the high inspection costs by lowering premiums for policyholders that submit to the inspections.

There's a payoff for these kinds of efforts, Mr. Elmer told his audience. "Does risk management pay? You bet it does. And it pays for all parties involved."

Exxon has some experience with the costs related to maritime accidents. It formed SeaRiver as part of a 1993 reorganization as the successor to Exxon Shipping Co., the Exxon unit that owned the Valdez when it spilled 11 million gallons of crude oil off Alaska.

"The tragic and regrettable spill of 1989 was inconsistent" with an excellent safety record established by Exxon Shipping, Mr. Elmer remarked. "Nevertheless, the severity of the event was such that an intense self-examination was undertaken."

The result of that effort has been a "companywide approach to risk management and safety which we believe has produced unequaled safety performance" by a U.S. company, Mr. Elmer stated.

He said the company's commitment to safety isn't cheap. "SeaRiver expects to, and does, incur costs in order to achieve best-of-industry safety performance."

But, Mr. Elmer added, "we also believe that there are offsetting cost benefits that accrue to us because of our safety record," which helps SeaRiver remain competitive in its market. "We believe safety is not a net cost but a competitive advantage. For SeaRiver, safety is the wellspring for all company performance."

Mr. Elmer pointed to several ways that SeaRiver's attention to safety and maintenance has paid off for the company. They include:

* No spills this year. "We have not spilled one ounce of cargo" in 1998, Mr. Elmer said.

* Equipment is in its best-ever operating condition.

* Morale is high among personnel. Mr. Elmer said the company enjoys excellent relations with union and non-union seafarers.

* Overhead costs are down 33% over the past five years.

* The number of accidents and claims handled by the medical and law departments at SeaRiver has dropped dramatically.

* The number of satisfied customers who provide SeaRiver with repeat business has risen.

Mr. Elmer noted that SeaRiver's clients are not charged to finance SeaRiver's safety effort. "The fact of the matter is that you have to accept the industry market rate for hire to get the business. Yes, some key customers will and do evaluate the bids for their business considering not only the rate you might offer but also your quality as a transportation company.

"But in most cases, what gets you the business the second and subsequent times around is your performance the first time you were the successful bidder. If you delivered on time, had no contamination, your equipment performed well, your crews looked and acted professional and your charter hire was competitive," the likelihood of repeat business is increased, he said.