The merger mania that has struck corporate America in recent years is giving risk management a good name.

Because of the enduring soft market and the many innovative risk transfer options available today, it's possible to arrange insurance coverage to remove potentially devastating liabilities from the balance sheets of acquisition targets, making them more attractive to buyers.

Risk managers and their consultants can even add value to a deal by consolidating existing insurance programs into a single global program, according to Michael Marcon, executive vp of Aon Risk Services in San Francisco.

"Obviously, every dollar of savings that we can generate on behalf of the buyer goes toward increasing the return on the investment that they're making," he said.

Participating in a merger transaction also can elevate a risk manager's visibility.

For example, after Aon Risk Services conducted due diligence studies in connection with the proposed merger of Hillside, Ill.-based Bekins Van Lines and London-based LEP International Worldwide in 1996, the broker "sat down and talked with our executive staff and said, 'You're really going to need a full-time risk manager to oversee the process,' " recounted Michael Rogers, now director of risk management for the newly formed entity, Geo Logistics.

"As far as the merger itself, I really didn't have a whole lot of direct contact," he recalled. "But now that I'm in the position I'm in, I do have that visibility. Any potential acquisitions that we're looking at, I am involved in the due diligence process."

Historically, however, most risk managers aren't brought into merger negotiations until they're nearly completed.

"Very few risk managers have been involved in the process, to the detriment of the process," observed Aon's Mr. Marcon.

"Most CFOs delegate authority for insurance decisions to their risk managers. That's why they have them. Yet most CFOs don't incorporate their risk managers into the decision-making process."

But that may be changing: Today, investment banks, law firms and accounting firms are increasingly suggesting that their clients involved in mergers and acquisitions seek risk management expertise in early stages of the deals.

"The more deals that occur and the more complex they become, the greater the need to include the insurance professionals in the process," Mr. Marcon said.

"I think in general, there is an increasing awareness that the insurance industry is very capable and potentially quite competent at helping identify risk in M&A situations, as well as treating that risk," observed James M. Enelow, co-chair of the global M&A practice for J&H Marsh & McLennan Inc. in New York.

"What we have found is that with the increase in the specialty insurers and reinsurers and the continuing significant capacity in the marketplace, there is no shortage of opportunities to structure a creative insurance program that meets a specific client's needs," agreed Aon's Mr. Marcon.

Both Mr. Enelow and Mr. Marcon pointed to examples of how insurance was used to facilitate recent transactions.

In one deal, insurance was used to remove a significant contingent product liability from the balance sheet of a company being acquired, recounted Mr. Enelow, who declined to identify the company for confidentiality reasons.

The liability "was enough for them to walk from the deal if not for an ability to create an insurance treatment that basically boxed those liabilities. What we did was create a one-time, historic, occurrence contract that also covered punitive damages, the cost of which was built into the M&A transaction," he said.

But sometimes a pre-merger liability analysis can nix a deal.

A transaction involving a medical company that provided physician assistants to life insurers was derailed when it was learned that the company had a side contract with a major weight-loss clinic that was dispensing the now-banned diet drug combination Fen-Phen, Mr. Marcon recalled.

"We reviewed the contracts and found out that the paramedical firm was providing full indemnification for any malpractice and, as a result of that, caused a significant uninsured exposure," he said. "The buyer concluded that it did not make sense to move forward with the transaction because the potential liability was too great. . .and there wasn't enough insurance available to cover their potential upside liability."

Risk managers and consultants engaged in pre-merger due diligence usually focus on two specific areas:

* The liabilities accrued on the balance sheet.

* A coverage analysis to determine whether there are any gaps and whether a restructuring of the insurance program will save money.

Such was the case with the Bekins-LEP merger.

Bekins had an insurance program that covered mostly auto liability exposures stemming from its U.S. transportation business. LEP's coverage was a mix of marine cargo placements written locally in the countries in which it operated, Mr. Rogers explained.

"Aon came in and basically touted the benefits of having a global program, which would be everything but the Americas," he said.

"Basically what it did was create a lot of synergy savings. You've got larger buying power, and you're able to spread the risk out among a lot of countries so if you've got one country that historically is a very good performer, that will offset the poor performers," Mr. Rogers explained. "Then on 4/1/98 when we decided to go to a complete global program. . .once again, more synergy savings were realized."

Mr. Rogers estimated the worldwide global program shaved approximately 15% to 20% off the prior year's premiums for the separate U.S. and international insurance programs.

The workers compensation exposures were similarly consolidated at the excess level with a difference-in-conditions/difference-in-liabilities policy.

"We have locally admitted policies in most of the countries. . . .On top of that, we have a DIC/DIL policy for work comp which will cover all the subtle nuances in each of the countries and make a kind of global workers compensation program that lays on top of all of these local policies," Mr. Rogers explained. "It also encompasses all of our auto liability."

Based on his experience, Mr. Rogers offers this advice to other risk managers involved in mergers and acquisitions: "Seek professional assistance."

Consultants know the "ins and outs" of mergers and "they'll probably know things that you never thought of," he said.

"We used them pretty heavily for policy analysis, and they did come up with several instances in some of the countries where we thought we were insured and found out we were not. Unfortunately, I'm not fluent in all of the different languages," Mr. Rogers said.