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NEW YORK—Though conditions in the commercial casualty insurance market remain generally favorable, buyers still struggle with significant coverage gaps and service shortfalls in addressing their companies' exposures, a panel of risk managers said Tuesday at Advisen Ltd.'s Casualty Insights Conference in New York.
Global regulatory shifts, advancing technology, hybrid business models and a growing cultural proclivity for litigation are among the more distressing trends driving claims activity in the casualty space, panelists said.
And in many cases, panelists said, risk managers are in dire need of new insurance solutions and services to minimize the impact of those exposures. One glaring deficiency, they noted, is the lack of insurance products tailored for the increasing number of firms that have begun blending production and service business models in response to changes in global supply chain structures.
“As more American companies move into service-oriented business models and away from manufacturing, I'm not sure insurers are keeping up with that,” said Maria Diaz, director of global risk management at Norwalk, Conn.-based Xerox Corp. “In other words, they're very good at addressing the risks of a manufacturing company, and they're very good at working with a financial institution or other type of service firm. But if you're a company that does both, it's really a challenge to design an insurance program that is creative enough to meet those needs.”
Another shortcoming that the insurance industry must address in the near term, panelists said, is the extent to which brokers and underwriters are willing to provide advanced risk management functions—such as compliance audits, predictive modeling and risk tolerance assessments—as basic elements of their services, as opposed to a la carte and often expensive supplements.
“The core services that we're getting need to move beyond the basic ‘101' risk management,” said Debbie Gramer, director of global risk management at Englewood, Colo.-based Arrow Electronics Inc. “Our brokers and insurers come to us with some very nice stuff that makes us starry-eyed and excited because it's really going to add some value, but it's going to cost several thousand dollars. These are things that should be a part of every renewal discussion and every strategy meeting.”
Panelists also noted difficulty in securing adequate coverage for certain specific risks, despite what most of the conference's speakers described as ample capacity in the broader casualty market. Some purchases, such as guaranteed cost coverage for workers compensation or stop-loss insurance for environmental exposures, have proved challenging largely because of steadily worsening claims frequency or severity, panelists said.
Other products, such as cyber policies designed to address cloud computing risks, are too underdeveloped in terms of the industry's comprehension of the underlying exposures to justify purchasing, panelists said.
“I know that there are data privacy other cyber liability products out there, but I'm not wholly convinced that there's a 360-degree product out there that encompasses cloud computing risks,” Ms. Gramer said.
Slight decreases in average renewal premiums in the second quarter of 2011 for several lines within the commercial insurance market suggest that the soft market may be near bottom, according to the RIMS Benchmark Survey released Thursday.