RIMS Conference 2002: A Sense of Betrayal

May 2002

IRMI President Jack Gibson comments on his perceptions of the RIMS conference and the reactions of those who are dealing with this century's first hard insurance market.

by Jack P. Gibson
IRMI

Each year I attend the annual conference of the Risk and Insurance Management Society (RIMS) to take the pulse of the market and the industry. My approach is to talk with brokers, underwriters, and risk managers, attend press conferences, visit with exhibitors, and sit in on the educational sessions. In some ways, this conference reminded me of 1985. As evidenced by high attendance in the educational sessions, there was a renewed sense of urgency and seriousness among the risk managers. On the other hand, I didn't see the near panic that was evident 17 years ago.

The risk managers with whom I spoke expressed disappointment with the degree to which the insurance marketplace has hardened and particularly with the insurance industry's wholesale moves to exclude terrorism. Underwriters, on the other hand seemed to feel that they were finally going to be able to bring pricing in line with where it should be. Brokers feel caught in the middle—they are working harder than ever and are required to be the bearers of bad news. I guess I'd have to say the pulse of the market and industry is racing!

Surveys Reveal Risk Manager's Feelings and Intentions

Two surveys released at RIMS reveal the feelings and intentions of risk managers. One, conducted by Munich-American RiskPartners, focused on the alternative market and was unveiled at a press conference by William Moll, the firm's president. RM Access, a new brokerage firm backed by Fidelity Investments Company, conducted the other survey, which was reviewed at another press conference by President Robert J. Murphy and Senior Vice President John F. Ryan. While these studies were not related, the results seem to complement each other.

Not surprisingly, both studies concluded that risk managers believe the primary challenges facing them are insurance pricing, coverage, and capacity. For example 89 percent of the 90 respondents to the Munich-American study identified at least one issue related to the hard market as their biggest challenge for the year, and respondents to the RM Access survey, which were all from Fortune 500 or Forbes 50 companies, answered similarly.

But what was more revealing was how risk managers indicated they intend to address these challenges. The ratings in the Munich American survey show that 59 percent of respondents view their relationship with their insurers as long-term relationships with value-added services. But interestingly, 69 percent of respondents expect their relationship with their insurance provider to change over the next 24 months. When asked how this relationship would change, the most mentioned items were:


Change insurers/consider new insurers 23%
Coverage/capacity/price changes 22%
Self-insure more risk 16%
Strained relationship 13%
Insurers will demand more information 7%

Mr. Moll may have summed it up perfectly when he said, "There is a sense of betrayal among risk managers."

Mr. Ryan of RM Access explained that his survey revealed that by far the two key projects of the largest American companies are risk assessment and development of alternative risk transfer programs. Sixty-three percent of the respondents indicated they expect to increase their use of alternative risk financing tools in the next year, while 37 percent expected their use to remain the same. Mr. Ryan postulated that, since his survey focused on large companies, these 37 percent are likely to already have substantial alternative risk transfer (ART) use. Captives will be the leading way these firms enter the alternative market, with 30 percent of them expanding use of an existing captive and 38 percent forming one in the next year.

Thus, these surveys indicate that premiums will be pulled from the traditional marketplace and sent to the alternative market, just as occurred in the mid-1980s. David Mair, director of risk management and purchasing for the U.S. Olympic Committee and 2001-2002 president of RIMS, confirmed his agreement with this conclusion during a RIMS press conference. He believes RIMS members don't feel they are getting the solutions to their problems from the insurance industry. He also believes that insurers have vastly overrated the tolerance of risk managers for price increases, and they are looking at all types of risk financing programs.

Christopher Mandel, assistant vice president, enterprise risk management, for United Services Automobile Association and incoming president of RIMS, concurred with Mr. Mair. "Clearly there is exploitation going on," he said, "risk managers are networking and exploring options. They are forming groups and beginning talks to form alternative risk finance vehicles. The airline industry is just one example of this."

"We're Not Gonna Take It!"

My conversations with many risk managers revealed similar convictions to those of Messrs. Mair and Mandel. They believe the ART market can work for them, and they aren't afraid to use it. This situation reminds me of the lyrics to the song, "We're Not Gonna Take It," from The Who's rock opera, Tommy.

We're not gonna take it
Never did and never will
We're not gonna take it
Gonna break it, gonna shake it,
let's forget it better still.

Many risk managers attempted to do exactly this in the 1980s when they moved to the ART market, and many more may do so this time around. We'll see....


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