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Dividing coverage allows Harrah's to get capacity

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When Harrah's Entertainment Inc. had trouble getting sufficient excess workers compensation capacity, the company took an unusual step--it divided its coverage purchase among two insurers to allay their risk concentration concerns.

The manuscript policy arrangements also helped the gaming and entertainment company win favorable pricing and obtain an unusual per-occurrence deductible for communicable disease, said Bradley Darr, senior client executive for Beecher Carlson in Brentwood, Tenn.

Since the Sept. 11, 2001, terrorist attacks, insurers have ceased to provide unlimited, statutory workers compensation coverage limits for certain employers with large concentrations of employees in locations that underwriters consider particularly risky, Mr. Darr said.

More recently, potentially large losses from communicable disease, such as avian flu, have also concerned insurers. "Two or three years ago, underwriters didn't think about pandemic flu or influenza, but that has been a big issue," said Mr. Darr, who places casualty coverages for Harrah's.

Of the company's more than 80,000 employees worldwide, it has more than 30,000 employees in Las Vegas and another 15,500 in Atlantic City, N.J., with many of them concentrated in casinos.

Simultaneous losses in Las Vegas and Atlantic City from a pandemic outbreak or terrorism could exceed available capacity from a single insurer, said Lance J. Ewing, vp-risk management for Harrah's. An exposure aggregation model for Harrah's showed such an event could produce a loss exceeding $1 billion.

Some large employers facing difficulty obtaining statutory workers comp limits for concentrations of workers turned to layering coverage, with a different insurer providing each layer, Mr. Darr said.

But Harrah's arrangement is unusual because most policyholders of similar size do not divide their purchases among workers comp insurers in the fashion that Harrah's did, Mr. Darr said.

Harrah's maintains a large retention that it self-insures through a Bermuda-based captive, Aster Insurance Ltd.

To obtain the capacity Harrah's needed, Mr. Ewing hatched the idea to divide its excess workers comp insurance placement, depending upon Harrah's locations, between two underwriters, Mr. Darr said.

Mr. Ewing then worked his relationships with insurers that sell Harrah's an array of other insurance products.

Beginning with the employer's Dec. 1, 2005, renewal, ACE Ltd. agreed to provide excess coverage for Harrah's Nevada workers comp risks. Meanwhile, Zurich Financial Services Group did the same for Harrah's Atlantic City exposures.

To help the two insurers further spread their risk, each provides coverage for a share of Harrah's operations in states other than Nevada and New Jersey, Mr. Darr said.

While helping Harrah's address its own risk concentration, the arrangement also eased the insurers' concerns about their risk concentration, Mr. Ewing said. The underwriters also insure several competing casinos operating along Las Vegas' famous strip, he said.

"We used two carriers to get the best coverage and price, while still being sensitive to the markets as it related to capacity," Mr. Ewing said. "It was a give-and-take to assure the carriers that we wanted a partnership that would not put them in jeopardy, but would give our employees the best coverage and at the best rates."

Mr. Ewing also obtained the unusual per-occurrence deductible for communicable disease.

Insurers typically provide communicable disease coverage with a per-employee deductible while other workers comp coverage, such as that for terrorism risks, is often sold with a per-event deductible, Mr. Darr said.

Under a standard policy arrangement, therefore, Harrah's would be responsible for many deductibles, with the number depending on how many employees became ill because of a communicable disease. But under its manuscript form, Harrah's would only face one deductible, Mr. Darr said.

In addition to obtaining the unusual occurrence deductible, Harrah's paid a lower rate for the coverage than it did the prior year, Mr. Darr said. The employer was helped by softening market conditions.

But Mr. Ewing said the favorable rates also stemmed from convincing the underwriters that Harrah's maintains a safe work environment.

For all types of injuries, Harrah's has the lowest employee incident rate of any company in the hospitality industry, Mr. Ewing said. He based that assertion on Bureau of Labor Statistics and Occupational Safety and Health Administration data.

While risk managers must consider the potential of terrorism attacks and pandemic outbreaks, Harrah's employees typically produce workers comp claims familiar to most employers, such as slip-and-fall accidents and back injuries, he said.)/18Slots-p20.jpg">

Mr. Ewing also obtained the unusual per-occurrence deductible for communicable disease.

Insurers typically provide communicable disease coverage with a per-employee deductible while other workers comp coverage, such as that for terrorism risks, is often sold with a per-event deductible, Mr. Darr said.

Under a standard policy arrangement, therefore, Harrah's would be responsible for many deductibles, with the number depending on how many employees became ill because of a communicable disease. But under its manuscript form, Harrah's would only face one deductible, Mr. Darr said.

In addition to obtaining the unusual occurrence deductible, Harrah's paid a lower rate for the coverage than it did the prior year, Mr. Darr said. The employer was helped by softening market conditions.

But Mr. Ewing said the favorable rates also stemmed from convincing the underwriters that Harrah's maintains a safe work environment.

For all types of injuries, Harrah's has the lowest employee incident rate of any company in the hospitality industry, Mr. Ewing said. He based that assertion on Bureau of Labor Statistics and Occupational Safety and Health Administration data.

While risk managers must consider the potential of terrorism attacks and pandemic outbreaks, Harrah's employees typically produce workers comp claims familiar to most employers, such as slip-and-fall accidents and back injuries, he said.