IRMI Update—107
An E-mail Newsletter for Risk and Insurance Professionals
ISSN: 1530-7948
February 22, 2005
In This Issue
Colleague,
Mary is right. I met Mary, a very bright insurance lawyer, at the recent
ABA Construction Law Forum in New York. She has an interesting way of identifying
legal trends. When legal publisher Mealey Publications introduces a new reporter
devoted to a particular topic, she interprets it as confirmation that there
is much more litigation to come in that area. Mealey publishes more than 50
reporters, covering such focused topics as lead, asbestos, silica, insurance
bad faith, construction defect, and other types of litigation. So what is the
latest legal issue on Mary's unique radar screen? Broker liability from contingency
commissions.
Yes, Mealey will launch its "Insurance Broker Liability" report next month.
For only $695 per year, lawyers can keep up with the latest developments in
lawsuits against agents and brokers.
While Marsh has settled with Spitzer, we've probably only seen the tip of
the iceberg as respects the effects of his action. There is an impending sea
change in agent/broker compensation, and, right or wrong, contingency commissions
are going away. The IIAB and others will fight for them, but it's a lost cause.
If regulators and litigation do not force elimination of contingency commissions,
the marketplace will. In the future, commercial insurance buyers are likely
to choose only those agents and brokers who forgo contingency commissions, and
all will have to do so to compete.
These will be difficult times for managers of agencies and brokerages. If
you are one, you might consider a subscription to Mealey's other new report:
"Antidepressant Drugs." Seriously, you would be well advised to think about
your business model and how you can adjust it for this new reality.
How will agents and brokers find additional revenue to replace lost contingency
commissions? In what ways will agent/broker compensation be made more transparent
to buyers in the future? Will these changes make it more or less difficult for
small firms to compete in the marketplace? [See
reader comments].
On another note, we still have some seats left at all three Tech-eRisk 2005
seminars to be held next month. If you are an agent or broker, the new media
and cyber policies may provide lucrative new sales opportunities. If you are
a risk manager, you would be wise to analyze your firm's exposures and need
for this type of insurance. Mike Rossi and Amit Yoran will give you the knowledge
to do this. For more information, see our seminars page.
Thank you for subscribing to IRMI Update. Have a great day.
Jack
Jack P. Gibson, CPCU, ARM
President
IRMI
Take Advantage of No Cost Insurer Services—They
say there's no such thing as a free lunch, right? That might be true, but there
is free loss control, fire protection engineering, and sprinkler consulting.
Many insurance companies offer high caliber, professional consulting to their
insureds at no additional cost. The services are funded by the premiums and,
perhaps more significantly, by the resultant lower loss ratios as a result of
the efforts of these dedicated risk control and fire protection professionals
and the subsequent implementation of various loss control measures by the insureds.
What happens when an insured does not partake of mutually beneficial offers
of loss control advice? One recent example highlights the risks and costs to
insureds.
An insured, very successful in custom audiovisual component manufacturing,
was building a new 40,000 sq. ft. facility. The builders risk premiums quoted
were deemed too expensive so the insured completely self-insured this aspect
of the venture. The insured hired reputable sprinkler contractors and engineers
to design the sprinkler system. Based on occupancy description and a review
of NFPA 13, the sprinkler system was designed. This remote site also required
fire pumps and a reservoir.
On paper, the entire sprinkler system, hydraulic calculations, and pump installation
complied with NFPA 13. During a subsequent site visit by a professional fire
protection engineer that was required by the underwriter for the permanent property
insurance that would be put in place after completion, it was, however, discovered
that:
- The height of rack storage exceeded the maximum allowable for the sprinkler
design density, and therefore, was not in compliance with NFPA 13.
- The used fire pump was never performance tested.
- Only one fire pump was installed without a backup pump—although a backup
pump was planned.
- There was no independent electrical service to the remote pump house;
it was fed through the main plant.
- None of the water supply valves in the pump house or at the sprinkler
alarm valve in the plant were monitored.
The insured now faced additional and unexpected loss control expenses and
much higher property premiums until all deficiencies were rectified, and they
could have been avoided had an insurer's risk control specialist been consulted
prior to construction. There's usually no charge for these insurer-based loss
control services, so be sure to take advantage of them.
By: Owen Kurin, P.Eng., MBA, FCIP, CRM
Loss Prevention Manager
The Citadel Assurance
Toronto
Owen.Kurin@Citadel.ca
Suggest a Risk Tip.
Send us a practical tip (less than 300 words) for identifying and managing risks,
buying insurance, managing claims, or filling gaps in insurance coverages.
Submit your tips. We'll
acknowledge your contribution as we did for Owen.
There are now 631 risk management and insurance articles on IRMI.com. Below
you'll find summaries of some recent additions with links to the articles.
-
A Broker's Value—Gary
Bausom addresses the need and method of assessing enterprise goals and the
broker or brokerage firm's role in achieving those goals.
-
London Calling (for
U.S. Healthcare Risks)—Despite weathering several crises, the
London insurance market remains a solid alternative to the U.S. domestic
market for healthcare risk management. Charles Kolodkin explains.
Amit Yoran will be sharing the podium with Mike Rossi at our upcoming Tech-eRisk
2005 seminars. Who better to explain the latest trends in cyber threats than
the man who coordinated the U.S. cyber security efforts for the Department of
Homeland Security last year? Prior to joining the Bush administration, Mr. Yoran
was the vice president of Managed Security Services at the Symantec Corporation.
He is now Security Advisor with Yoran Enterprises. Mr. Yoran and Mr. Rossi will
open your eyes to cyber risks and how to identify, contractually transfer, and
insure them.
Are you an agent looking for lucrative new sales opportunities? An underwriter
trying to put your arms around cyber exposures and coverages? A risk manager
wondering if your company is properly protected? This seminar is for you. Visit
the seminars section of our web site to learn more.
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