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Safety--not retentions--is top priority

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Carol Arendall's attitude toward risk is straightforward.

"Our key philosophy is risk mitigation and that's really where we want to go. Our goal is to eliminate as many claims as we can," said Ms. Arendall, senior director-risk management for Naperville, Ill.-based OfficeMax Inc.

She said that philosophy extends to both property and life safety. But even the best risk mitigation efforts aren't perfect. During her less than two years as head of the company's risk management efforts, Ms. Arendall has put together an insurance program that combines both the usual and not-so-usual coverages to protect the corporation.

OfficeMax does not release detailed information about its program, including limits and premiums paid. But Ms. Arendall did say that when she assumed her current post in 2005, "we wanted to understand what we had in place. You understand what you've got. Then you understand what enhancements you want to get—that was the major task for 2005 and 2006," she said.

"We look for long-term relationships. We're certainly not going to shop every piece of our program every year. But we had a real good opportunity when I first came on board. Everything was marketed, if not the first year then the second year," she said.

Now "it's our intention to be relatively stable and continue on with the market relationships we already have."

The result was, for the most part, "your basic risk transfer program," she said.

"We have some very strong partners" in American International Group Inc. and its Lexington Insurance Co. unit, she said. They are the company's primary insurers for its property and casualty programs, she said.

Lexington also happens to be one of OfficeMax's "best customers," she said. "Last year, when we were negotiating our property," Ms. Arendall went to Boston and—literally the moment she got out of the cab—the OfficeMax truck pulled up to deliver Lexington's office supplies, she said with a laugh.

"All of our insurance relationships have been very good," she said. For example, Chubb Corp. provides financial products coverage while Factory Mutual Insurance Co., which does business as FM Global, participates on OfficeMax's excess property program.

Gallagher Bassett Services Inc. is OfficeMax's third-party claims administrator with AIG as the company's primary workers compensation insurer.

Marsh Inc. is OfficeMax's primary broker, and Ms. Arendall notes that she has had a long business relationship with Elsa M. Lynch, the Chicago-based Marsh USA Inc. senior vp who handles the OfficeMax account.

But not all of OfficeMax's coverages fall into the plain vanilla category.

For example, OfficeMax has a professional liability policy covering printers' errors and omissions, said Ms. Arendall. "We have a very large copy practice," with OfficeMax making "lots of photocopies for lots of people," and the company wanted to make sure it was covered if a problem arose from the company's printing business.

The policy, which AIG writes, "would come into play if say a small business who wanted to print a coupon for $5 off and it got printed $50 off," she said. "All of these people show up with the coupons—what do you do?" She added that such mistakes no longer happen frequently because printing jobs often consist of an exchange of electronic files.

Ms. Arendall also had to deal with insurance programs of OfficeMax's operations in Canada, Mexico and Australia/New Zealand.

"I had to understand what was out there," she said. "That was a bit of a challenge because our foreign operations had pretty much done their own thing. You wanted to try to understand when reaching out to those partners to find out what they had in place and how that ultimately rolls up to the corporate program."

Outside the United States

There was no one-size-fits-all answer to the non-U.S. programs. "In some cases, it made sense to centralize; in some cases, it made sense to continue to allow the local placements."

Ms. Arendall stressed that OfficeMax feels "very strongly about our market relationships, and about telling our story to our underwriters."

John S. Jennings, the company's senior vp and treasurer, will accompany Ms. Arendall on visits to underwriters, where she said he will emphasize "we are committed to risk mitigation, which supports our core values." Such senior management commitment comes through strongly in the meetings, she said.

On the property side, when FM Global Engineering points out a problem, OfficeMax responds by getting "the right people" in the room to address it, she said.

FM Global goes to all major facilities and conducts engineering surveys, she said. FM Global has been "very good about saying, 'Hey, these are the absolute things you're going to have to do and this is about how much this is going to cost you and these are fairly inexpensive fixes for things that we think you're going to get the best bang for your buck.' "

In fact, "we've changed the way we do our new-store plan by layering in the FM Global requirements," giving them to the contractor "so we don't have to go and redo things—it's part of what we're telling the builders—this is what we require," she said. "It's built into how we do it up front."

"Safety is part of our overall philosophy—that's both from life safety as well as from making our buildings safer from a property loss perspective. That's more of our focus, not so much 'Do I want to take this retention or that retention?' "

"And some of it, let's be honest, the market dictates what we're going to take," she said. "We're not in a situation where people are going to provide first-dollar coverage for a company our size."

Managing liability risks is key as well, and store managers form the front line in that effort. Accidents can "sure make for a poor customer experience."

"When you operate on the retail side—keep the stores clean and neat. When you're focused on housekeeping issues, that's really the best thing you can possibly do," she said.

"No slips and falls—keep your operations clean and neat. That is part of what our store managers are responsible for," Ms. Arendall said.