IRMI Update—Issue #165
An E-mail Newsletter for Risk and Insurance Professionals
ISSN: 1530-7948
July 25, 2007
In This Issue
Colleague,
The overflow crowd for a workshop on fairly basic additional insured issues
at the annual RIMS conference was a bit of a surprise to me. The lack of reliable
information and confusion on this topic in the past made me expect to see these
workshops draw large crowds. But, frankly, I thought that the availability of
quality information and guidelines in a very popular IRMI publication, Contractual Risk Transfer, would have remedied
the confusion by now.
If your organization subscribes to this reference service, make sure you
put Contractual Risk Transfer to good use
for your company or your clients. Do you work for one of the top 100 insurance
brokers as ranked by Business Insurance?
Then you probably have access through SilverPlume Sage or IRMI Online (about
80 of them subscribe). Additionally, many risk managers and insurance underwriters
have it on their shelves or in their Web browser.
Contractual Risk Transfer is a two-volume
reference set in its print form (also available online) that provides a deep
treatment of all the issues surrounding additional insured issues and more.
It tells you the types of hold harmless clauses that may be used in each state,
the good and the bad of the ISO additional insured endorsements, what to watch
for in manuscript endorsements, and how to write practical and effective insurance
requirements for your contracts. It even provides sample boilerplate contract
language you can tailor for your own needs and reviews the different computerized
certificate tracking systems available from various vendors. You can get all
this, 1 year of quarterly supplements to keep your manual on the leading edge,
and much more for less than you would pay a consultant for 1 hour of work!
Practical, real-world advice on how to implement effective contractual risk
transfer strategies is only a phone call or Web
site away. Call IRMI client services at (800) 827-4242 to see if you already
have access to Contractual Risk Transfer and would like to learn how to use it. If you don't subscribe, consider doing
so here.
Of course, the 27th IRMI
Construction Risk Conference will also feature workshops on additional insured
issues and contractual risk transfer. To register at our lowest price,
please do so by August 17.
I hope to see you in Orlando.
Have a great day.
Jack
Jack P. Gibson, CPCU, CRIS, ARM
President
IRMI
Manage the Risk of Employee-Owned Vehicle Use—Employees
frequently use their own vehicles on company business. This usage can vary from
running errands, for example going to buy office supplies, to almost constant
use, for example sales personnel traveling a territory.
Such usage can subject the employer to liability. So employers should take
several steps to assure that both they and their employees are properly protected.
Employers should clearly communicate to their employees that they are not
covered as an insured under the employer's policy when they or anyone else in
the organization uses their automobile on company business. Employees should
understand that their own insurance covering the vehicle stands first in line
to cover any loss.
It is important to stress to employees that they should be familiar with
their automobile policy coverage if they use their own vehicle in the employer's
business or borrow a vehicle for such use. Coverage provided by a personal automobile
policy can vary from one insurer to another, so they should be encouraged to
contact their personal lines agent for advice before using the vehicle on company
business.
To protect their own insurance or self-insurance program from loss, employers
should require minimum levels of liability insurance and proof of insurance
from the employee. They also should develop and disseminate policies for automobile
usage to all affected parties to provide guidance and help eliminate potential
areas of confusion.
Drawn from
Practical
Risk Management, Topic G-8, Automobiles.
For IRMI
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In the July issue, "Use Financial Models To Quantify Risk Management Decisions,"
Don Riggin examines methods to employ corporate assets to facilitate company
growth. This is done by determining the best combination of risk financing variables:
premiums, insurance limits, and retentions. Further, the process involves calculating
a risk premium, or capital charge, for the chosen risk hedging strategy.
For IRMI
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There are now over 900 risk management and insurance articles on IRMI.com.
Below you'll find summaries of some recent additions with links to the articles.
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workshops today.
In IRMI Update 164, Jack Gibson asked readers what
they were seeing in the marketplace this summer. We received many responses,
including comments on what actions were being taken in response to the changing
markets. Below are a few of these comments.
-
My customer base is made up of national and international companies.
I have experienced a definitely softening market in almost all areas. Even
the coastal territories have shown signs of softening, with new players
willing to write property coverages. The absence of major catastrophes has
caused an increase in appetite for the insurers. I have experienced a willingness
to broaden coverages and reduce pricing because of competition. While I
feel that relationships with your underwriters are extremely valuable, it
would be a good time to check the market to see what is available. I do
not recommend doing this midterm, but rather at the normal renewal time.
Your normal underwriter should receive every courtesy and notice before
deciding to make any changes.
—Bill Horner, Producer Large Accounts, Bowen, Miclette
& Britt, Inc., Houston
-
I would call it a softening market overall but remaining somewhat hard
in higher risk areas like energy. If you have decent coverage and a good
relationship with your insurer, now is the time to request better terms
while keeping the price down rather than shopping around.
—Mark Gebhardt, Risk Manager, Southern Ute Tribe
Growth Fund, Ignacio, CA
-
I believe that some insurers are definitely underwriting irrationally.
I've quoted a number of risks that have been undercut by several companies
by as much as 50% which based on the risk, loss history, and other details
for the policy are absurdly underpriced. It wasn't a one time occurrence
either, so it leads me to believe companies are trying to drive up their
premiums. I do not envy them when the claims start happening for their inadequate
premiums. Our company maintains the same underwriting philosophy through
both soft and hard markets, so it is always interesting to see the business
shift. We actually don't lose a lot of business in the soft market and have
been showing small gains still. I feel sorry for the companies that play
tug-o-war with high-risk policies every few years.
—Damon Hatton, Commercial Underwriter, Mercury Insurance
Group, Oklahoma City
-
Solid companies are maintaining relationships with well-proven and well-established
insurers. The bargain hunters will eventually get what they pay for, and
the bargain sellers will not be able to sustain the commitments and ridiculously
low rates that they have made during these softening times.
—Chris Goulart. Senior Loss Prevention Consultant,
Liberty Mutual, Macomb, MI
-
Some companies are pulling out all the stops to write new business. In
some cases, they are bidding on risks that they have little experience with
and in the past would not even entertain. Further, the incumbent pricing
is more than fair for the risk involved to begin with. In my estimation,
the market is soft. Maybe not the softest we have ever seen, but as an industry,
we seem to make the same errors time after time. Bring the money in the
door, invest it, and we will worry about underwriting later.
—Peter Masiello, President, Masiello Insurance Agency
Inc., Keene, NH
-
I would describe the market as a continuing softening market but not
in a free fall. Insurers for the most part are using a reasoned approach
to underwriting. Risk managers who have not been in the market for a couple
of years now might be a good time to check it out but need to strongly consider
past performance, as should underwriters. There are also coverage improvements,
particularly in the D&O markets. However, coverage improvements may be maxed
out.
—Carolyn Snow, Director, Insurance Risk Mgt., Humana
Inc., Louisville
-
While the market is soft and appearing to get softer, the primary question
is what market is soft? It appears that most of the softness is in small
to middle size insurers, mid being risks with sales up to and through $5
billion. The Fortune 500 (if not 1,000), while seeing a so-called soft market,
are in reality moving their business toward more exotic placements. I've
seen and heard of any number of risks moving offshore, using nontraditional
methods of handling risk, and generally moving toward long-term placements
which guarantee some sense of normalcy.
—Peter Polstein, Consultant, Somers, NY
-
We are definitely in a soft-market currently. Pricing
is off by 20-25%, with light and medium duty commercial vehicles going for
under $1000 per unit and on larger fleets under $900 per unit. Underwriters
are doing stupid things, and the carriers are showing once again that they
cannot stand prosperity. Even in many of the construction trades, rates
have fallen rapidly, the exception is still the residential general contractor
where markets are very limited. The market is very reminiscent of the late
1990s, where underwriters and carriers were only looking at cash flow, combined
loss ratios were high, but nobody cared. You must market accounts or risk
losing them to competitors in the marketplace, so loyalty is not really
much of a consideration for most clients, although they will give the incumbent
carrier a last chance to meet competitors' pricing. In a couple of years
we will be back to another hard market trying to explain to clients why
their insurance costs are on the rise and coverage narrowing in scope.
—Doug Singer, Producer, Minard-Ames Insurance, Phoenix
-
Our unit specializes in Med Mal, and we would say that the market is
soft and continues to soften. However, the pendulum has swung back from
the hard market cycle too quickly in our opinion, with preferred carriers
writing some questionable risks. With rates relatively flat and little variance
in coverage, we usually recommend to our clients to stay with their incumbent
carriers in all but the most advantageous of circumstances. One area of
exception is on the surplus lines side, where marketing is critical. Carriers
are competing fiercely for this business, slashing premium and adding coverage
enhancements every month. Probably looking at another 2 years before the
market begins to stiffen a bit on the Med Mal side.
—Scott Murphy, Vice President - HealthCare Practice
Group, Brown & Brown Inc., Orange, CA
-
Market in the Midwest continues to soften. New players in small commercial
arena; lots of aggression in Middle Market arena. Regionals and nationals
all seem to have plenty of capacity. No end in sight of the latest round
of price wars. Nobody's to blame. Underwriters are doing what they're told;
Agents are running scared of "competition" pushing underwriters to the edge.
—John Shedd, Marketing Director, American Agency,
Inc., Minneapolis
-
For construction risks, I think a lot of the premiums on the accounts
I have brokered are "more honest." Otherwise, the average rate decrease
on GL and WC is 5% and flat on auto. That is not soft. Middle market is
a bit softer due to competition. We have seen premium reductions on umbrella/excess
programs of 15%.
—Laurie Kessler, Marketing Executive, Construction
Risk Solutions, LLC, Baltimore
-
Soft and getting softer by the week! Pricing is down somewhere between
12% and 14%, and the slide appears to be about 2% per month on most lines,
according to what I am reading and experiencing. Now a few carriers are
beginning to report lower quarterly earnings, but that won't stop the slide
any time soon. Most hard-to-place coverage, i.e., flood and earthquake,
is now being thrown in on some risks for virtually no cost. Regional carriers
are not doing this, but the major internationals certainly are. Our industry
just can't live with success for very long!
—Tom Davis, President, Davis American, Ltd., Oak
Brook, IL
-
I agree with you that insurance is now easier to get. I specialize in
contractors since I have the CRIS designation and I must say, the artisan
side (plumbers and janitors, to name a few) is having a market opening.
I am finding more companies that will offer to quote the mom & pop artisans
at a very reasonable rate with good policy forms and additional insured
endorsement availability. I'm even getting admitted carriers (NIC through
B&T at B/W in Nevada) and non-admitted with less than $1000 MP (Landmark
American at $661 for a janitor last week.) I am very happy how things are
turning around for my artisans. It seems that every month that goes by,
I find another market for even less (and the wholesale broker fees seem
to be getting more reasonable too). Thanks for letting me give my 2 cents.
—Deborah Crawford, Owner/Broker, D Crawford Insurance
Services, Lake Forest, CA
-
I am really tired of hearing that the insurance companies do not know
what their product costs because of future claims. Remember Superfund? Remember
asbestos? Remember tobacco? I would offer that companies that produced products
many years ago, like chemicals, asbestos, tobacco, etc., have no idea what
their products ultimately cost in terms of the expenses they are paying
nowadays. The insurance industry is no different than most other industries.
—Henry Good, Risk Management Consultant, ABD Insurance
& Financial Services, Redwood City, CA
-
I did want to comment on your comments regarding "hard" and "soft" markets.
I think that these terms have become very relative for our industry. As
you are well aware, the requirements of the construction industry change
on a regular basis and the marketplace has to respond accordingly. I think
the idea of a "softening" market is becoming a thing of the past. With the
changes the industry is facing, such as the increase in benefits paid out
by the NY WC Board in the coming year, the issues facing the industry over
TRIA, or the increase in OCIP which will cause the insurer to try and draw
a bigger dollar out of less coverage can create a situation where we will
see more drastic changes as opposed to gradual "softening" or "hardening."
My company just went through a renewal, and by all standard definitions,
it was a "soft" market, and we did very well. However, all indications are
that next year, we will face a "hard" market and that our success this year
was more "luck." I think the industry is going to see a harder market because
we are an industry where change is the norm and the idea of predictability
has become a foreign concept.
—Adam Clark, Insurance Administrator, Moretrench
American Corp., Rockaway, NJ
-
Are intense competitiveness and unpredictable ultimate costs the only
two significant factors affecting the patterns of insurance pricing? What
about regulation? Doesn't regulation influence the pricing cycles (some
might say drive them). In the sense that claims payments always follow contract
pricing, the ultimate cost of the insurance product has always been unpredictable.
But the business has not always been characterized by the extremes of hard
and (especially) soft periods which have marked that past 3 decades in particular.
That would certainly be many decades to someone like me who has been in
the business for about 35 years, but hardly a long or defining period in
comparison to the much longer history of the industry.
I can name other (I could say almost any other) less regulated industries
that do not exhibit such pricing instability yet remain at least as competitive
as insurance. Indeed, it is not at all clear that intense competitiveness
and erratic pricing are natural or necessary companions. No industry, least
of all the insurance industry—that industry which should be the most stable
of all industries—would view it as either positive or natural.
I suggest that neither the insurance industry nor the market is inherently
irrational. But, when both are under the control of any regulatory scheme,
their conduct cannot appear to be otherwise. How can any regulator, a third-party
interloper with no stake in the insurance transactions it regulates, have
any but a disastrous effect on the industry it dominates? Industries can't
have goals, only individual companies can possibly have goals. And, when
each of those companies pursues its own interests, one of the consequences
is what we call competition. If the day ever comes when product determination,
which includes underwriting and pricing, is left to those who bear the consequences
of their decisions and to the market forces which temper all changes, the
question of rationality will not come up.
As one of numerous examples, look at the subprime mortgage disaster today.
Lenders are being skinned alive for "irresponsible" underwriting of unqualified
borrowers. And who are the skinners? Why, it's the same politicians and
regulators who, just a few years ago, were doing what they do best—just
as viciously attacking those same lenders for just as irresponsibly not
lending to just as credit strapped borrowers. So, which would you say is
irrational in the case of the mortgage debacle: the lenders or the market?
—Howard Stein, Product Development Consultant, CAU,
Newtown, PA
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