Magazine article Risk Management

Finding Coverage in Tough Times

Magazine article Risk Management

Finding Coverage in Tough Times

Article excerpt

It is not news to say that the insurance market is tough. During the first half of 2001, rates were already climbing 20 percent to 40 percent. After September 11, Enron and WorldCom, rates have soared to over 400 percent for some lines of coverage. Although original predictions optimistically foresaw a rate peak in early 2002, analysts are forecasting another two years, perhaps more.

In addition to rate hikes, coverage is shrinking. Manuscripted forms are a thing of the past as carriers focus on conventional off-the-shelf products. New exclusions are being introduced often across all lines. The most common of these is the terrorism exclusion, which was first introduced on property but has been adopted in policies with no terrorism exposure such as errors and omissions (E&O). Multiyear policies, too, are becoming increasingly rare.

As a result, risk managers are being forced to accept higher deductibles and self-insure risks at heretofore unseen levels. Carriers are highly selective about the type of companies they want to insure--which in some cases translates into whichever company is willing to pay the most for coverage.

This is today's insurance market. It is extremely difficult, but as risk managers, we still have a job to do, and it can be done well. Just be aware that it will take more effort, dedication and creativity to find the appropriate level of coverage for your company. The key is differentiating your company from your competitors and others in your industry group.

Meet with Underwriters

As you approached the renewal seasons in the past, you may have relied on your broker to meet with underwriters on your behalf and test the waters for rates and terms. In a tougher market, relying on an intermediary is chancy. No one knows your business or your risks better than you do, so meet with the underwriters and excess carriers and tell them your story the way it should be told.

This is not new advice, but most of us only meet with underwriters or reinsurers for critical lines of coverage. Generally, it is easier to let the broker meet with the underwriter and communicate whatever enhancements we want to see accomplished for the renewal cycle.

For example, when Cisco went to renew its foreign general liability and foreign workers' compensation package, we assumed that there would be little change from the prior year. We had already negotiated policy enhancements to ensure that the foreign general liability dovetailed with our commercial general liability and umbrella/excess policies. While we paid lip service to meeting with the account's incumbent underwriter, we did not push hard.

When the broker called and gave us pricing indications, I was shocked. Instead of a minor increase, he was indicating that our premium would jump by more than 400 percent. All of a sudden, this standard type of coverage became a whole lot more visible on our radar screen. Unfortunately, we were only a few weeks away from the renewal date.

We immediately pressured our broker to set up a meeting with not only the incumbent carrier, but with the top two competitively priced carriers. Because we waited so long to set up meetings, we were not successful. The best we could do was a conference call with the incumbent underwriter. I wish I could report that we got our price down to a reasonable level. Unfortunately, I cannot. We were able to come to an agreement on retention, structure and price that might not have been possible without that live conversation, but we would have been far more successful if we had set up meetings in advance of the renewal and talked to several providers.

Provided that you can arrange such a meeting with a potential (or existing) carrier, the discussion is only useful if all parties (you, the broker intermediary and the underwriting team) are honest and up front about the expectations of the meeting. If you keep your agenda and expectations hidden, how can you possibly hope to achieve your objective? …

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