Runoffs no walk in the park, but planning smoothes path

Risk managers who find themselves dealing with a runoff insurer are seldom happy about it, but there are steps they can take to minimize their problems, say observers.

The first thing to keep in mind is to be proactive, observers say.

"The risk manager has to be much more involved than he is traditionally," said Dale Renner, Aon Corp.'s Philadelphia-based managing director of national casualty claims.

"It's like moving up from Risk Management 101 to a 500-level course. You're going to be much more intense," Mr. Renner said.

A proactive approach helped Fleetwood Enterprises Inc. in its negotiations of workers compensation claims with Kemper Insurance Cos. after the Long Grove, Ill.-based insurer was placed in runoff, said Bill McMahon, risk management director at the Riverside, Calif.-based manufacturer.

"We worked aggressively" with the claims manager to identify claims that could be settled, Mr. McMahon said.

"You have to be aware that it's the squeaky wheel that gets the grease," said Arthur Pritzker, managing director at Chicago-based Mesirow Financial Corp. "You have to stay all over them, basically."

Risk managers may also want to consider policy buybacks, according to observers (see related story).

But do not delay taking action, experts say. If it appears that an insurer is at risk of failing, risk managers should act sooner rather than later to try and get claims paid, said Bruce C. Shulan, managing director at the Stamford, Conn.-based Princeton Partnership L.L.C., which works with runoff insurers.

"We're trying to get the money out before there really isn't any money," said a risk manager for a firm that had Kemper workers comp coverage. The risk manager asked not to be identified. "We're beating hard on our (third-party administrator) and broker to close as many claims as possible before Kemper goes out for good."

Future claims analysis

In addition, risk managers should study their insurance policies carefully. "Invest the time and money in a comprehensive valuation of potential future claims under the policy so that you may come to the negotiating table with a well-supported settlement number," said Jonathan Terrell, president of Washington-based Kenesis Corporate & Information Consulting L.L.C.

Also, "independently evaluate the financial vulnerability" of the runoff insurer, including the size of its surplus, said Mr. Terrell.

Contingent plans for any ongoing exposure also should be drafted, said William J. Berglund, owner of Claims Consulting and Advisory Services in Chicago. There could be coverage gaps, "so they've got to plan for that," he said.

Relationships do matter

And it is important for risk managers to maintain relationships with claims adjusters, say observers.

Carol A. Fox, senior director, risk management, with Cincinnati-based Convergys Corp., a software company that had coverage with Kemper, said when new adjusters were brought in or when cases were handed off to other adjusters, Convergys would work with them "bringing them up to speed (and) really having them understand what our needs are."

Fleetwood's Mr. McMahon said, "Even though you've lost those main contacts when people start disappearing, you have to remember to maintain an open line of communication with that insurer, or the people that are representing them now, and that's how you get things done."

Mr. McMahon added, "I know a lot of people get upset when this kind of thing happens, and it becomes a real, direct conflict in trying to get to negotiate or discuss things" with a runoff insurer. But, "You don't get anywhere by screaming and yelling."

"Be prepared to negotiate, but do it from strength," said Dennis L. Bennice, former risk manager at Toledo, Ohio-based Dana Corp., which reached a settlement with London-based Equitas Ltd. in 2005. "Remember, the insurers do this continuously. Be prepared for every conceivable delay," warned Mr. Bennice, who is now a vp at the Toledo-based Hylant Group.

Get expert help, observers suggest.

"Engage experienced coverage counsel to assist, especially with any overly aggressive claims handling practices by the runoff companies that may give rise to potential claims of bad faith," said Mr. Terrell. He recommended that risk managers also "be prepared to initiate litigation in support of well-founded and supported claims."

"It may not be necessary to go very far with prosecuting such litigation, but it is an important piece of the puzzle that should not be ignored," said Mr. Terrell.