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Once again we find ourselves at a paradoxical time of the year for risk and insurance professionals—the holiday season and the busiest insurance renewal season are simultaneously upon us. And this year's January 1 renewals will be the most challenging in a decade. Nevertheless, it is important to try to maintain some balance in your life. Please plan to spend some quality time with family and friends. You will be more effective meeting the challenges you encounter in 2002 as a result.

Best wishes for a happy holiday season from all of us at IRMI.

Jack

Jack P. Gibson
President
IRMI

Risk Tip

Assess and Manage Your IP Risks. With the growing recognition of the importance of intellectual property (IP), it is imperative that organizations fully exploit their patents, copyrights, and trademarks while at the same time minimizing or insuring the risks that accompany such actions. The following plan of action is recommended:

Review and catalog all intellectual property, looking carefully at the ways the company uses it and related technologies. Consider what would happen if the intellectual property rights were invalidated.
Review current operations with a view toward discovering any exposure that might result in business interruption, loss of royalty payments, or a need for any redesign, remediation, and reparation that may occur or be required if your firm is found to be infringing on another's IP.
Focus on those areas of greatest vulnerability, and then conduct an audit of intellectual property defense and enforcement policies and procedures.
Assess the viability of these policies and procedures and the associated need for insurance in the areas of infringement abatement, infringement defense, and loss of intellectual property value.
Review available insurance and determine which programs cover the above-identified risks.
Use the team approach, joining the risk manager, director of research, chief patent counsel, and group or division leader to make decisions in this area.

By: Robert W. Fletcher
President
Intellectual Property Insurance Services Corp.
E-mail:

Suggest a Risk Tip. Future issues of IRMI Update will include more risk tips from our readers. Send us a practical tip (less than 300 words) for identifying and managing risks, buying insurance, managing claims, or filling gaps in insurance coverages. We'll give you credit for your contribution.

New Expert Commentary

There are now 225 articles on IRMI.com, and many more are in production. Below you'll find summaries of some recent additions with links to the articles.

ERM and September 11—Would the insurance industry have been in a better position today if ERM were more widely practiced before September 11? Jerry Miccolis says "Yes" and tells how ERM is used to test the aggregate effects of various scenarios and then to develop plans to mitigate those effects.
Is Computer Data "Tangible Property" or Subject to "Physical Loss or Damage"?—In this second of a two-part article, Catherine Rivard and Michael Rossi address these questions and discuss the lack of a definitive answer by the courts. They also reveal some of the ways insurers are responding to the property and liability risks associated with computer data.
A Vessel Doesn't Have To Be a Criminal To Be Arrested—Under maritime law, a vessel can be arrested to obtain jurisdiction and security for certain claims. Michael Orlando explores the basics of the different types of admiralty jurisdiction and what admiralty lawyers mean when they refer to "Supplemental Rules."
Claims?? We Don't Need No Stinkin' Claims!!! (Or Do We?)—In this article, Sanford Warren Jr. explains the parts of a patent: the written description and the undecipherable claims section, as well as the scope of rights granted under a particular patent.

New IRMI Insights

Auto Manufacturer Parts versus After-Market Parts: A Question of Quality—Many insurers and industry groups believe non-original equipment manufacturer (OEM) or after-market parts are the same quality as OEM parts, but are they truly of like kind and quality? This article examines the debate.

IRMI Construction Risk Conference

Construction Risk Conference Handouts Available Online—The speakers' handouts from the 21st IRMI Construction Risk Conference are now available on IRMI.com. The 28 handouts cover such topics as how to make the surety bond pay, additional insured issues, design-build exposures, and OCIP success stories, and they may be downloaded at no cost.

IRMI Products & Services

Political Risk Insurance Guide—The tragic events of September 11 underscored the need to evaluate, manage, and insure political risks. If a company exports or imports products, raw materials, services, or components, it may face potentially catastrophic political risks. Written by an experienced insurance professional, the POLITICAL RISK INSURANCE GUIDE carefully explains the risks businesses face when they operate outside their countries of origin, the coverage intricacies of investment insurance, and the coverage available under trade insurance policies. For more information or to order the book, visit this web page.

Your View—Insureds Meeting with Underwriters

More than 100 of the readers who responded to Jack's last editorial agreed that the consultant who recommended that the risk manager and CFO not meet with their underwriters was living in the dark ages. Others agreed that while in general it is very important for management to establish relationships with underwriters, there are times when it may not be a good idea. Lastly, a very few agreed with the consultant. Selected responses are posted below, starting with some in favor of the meeting and working down to some who were not.

This consultant is certainly living in the dark ages! Regardless of the condition of the market, interaction between the management team of a company and their underwriters is crucial to the establishment of a trusting personal relationship.

Who better to explain the company's history, (discontinued operations) or its vision for the future, (expansion or change of direction in operations) than those who have the inside knowledge of the day-to-day operations within the company? In most cases, the broker will not be privy to that information and, even if he is, he will not be comfortable discussing it without the approval of the company beforehand. And, given our current litigious environment, the broker's corporate legal team would seek some sort of hold harmless agreement in advance of any such discussion. Now, how likely is the broker to instigate that conversation with his client?

Having underwritten and subsequently insured some of the toughest accounts, exposures and geographic locations in the construction industry, I can safely say that had it not been for our meetings between the management team of the insured, the brokers team and the company underwriters, the account would not have been insured! I say it's time for the consultant to live in the real world. If that fails, fire the consultant!

―Terry Doherty, President, Elite Insurance Services Inc., Las Vegas

I have always believed that meeting directly with the underwriter is a "good thing" but it may not be best in all cases. The entire intent of meeting with the underwriter is to build a trusting business relationship. Hopefully, this trust is of mutual benefit to both parties by the transacting of insurance products and services at a reasonable cost with the least amount of administration.

The underwriter needs to convey how a client is perceived, good and bad. It gives the client an idea of where he stands and helps to assess the value of relationship. It is also an opportunity to improve the profile if the relationship is worth pursuing or maintaining.

An underwriter should want to know what steps a company is taking to manage a risk or exposure before you come to them for insurance. The more detail a company can provide in this regard should help enlighten an underwriter what kind of risk you are, and I think this is best communicated by a company spokesperson (getting it from the horse's mouth, so to speak) instead of secondhand.

If a company does not have a risk management program, or the risk manager is not well versed in its company's risk profile, or just does not present well, it may be better to let the agent or broker do it.

―Sonny Chan, Director, Risk Management, Blyth, Inc., Greenwich, CT

As a prior risk manager, I strongly recommend that most risk managers meet their underwriters. If the risk manager is one who would get in the face of the underwriter and be argumentative, then I would recommend against it. Most professional brokers would like the risk manager to accompany them to meet the underwriter. In most cases, I would encourage all risk managers to meet their underwriters to establish a negotiating position. The broker can be the negotiator between the underwriter and the risk manager. I have found that this works out quite well if planned. The risk manager should define parameters that the risk should be priced at and determine what the necessary coverages are and which are negotiable. This has to be done well before the meeting with the underwriters so that positions can be established.

―Allon J. Greene, The New Directions Group, Inc., Irvine, CA

Having been both a risk manager and broker, I strongly agree with you. My additional points are: (1) to the underwriter, the risk manager personifies the insured, and the image the risk manager presents will go a long way in affecting rates and terms (either up or down); (2) it's possible the insured may change brokers, so having a direct relationship between insured and insurer can only help during underwriting, claims, or procuring loss control services; (3) I can understand why some brokers might provide such self-serving advice (to create a more prominent role for themselves in the transaction), but I am perplexed what would motivate an "independent" consultant to give this advice.

―Charles Kolodkin Sr., Vice President, Gallagher Healthcare Insurance Services, Inc., Houston

I believe meetings between underwriters and risk managers are crucial, hard market and soft. They are the ones entering into the risk transfer contract. They have the information and authority that determine the terms and price of that contract. They will ultimately be looking across the table to settle a large claim.

Good brokers add immense value to the relationship, but a broker's relationship with underwriters should never replace a risk manager's relationship with underwriters. However, face-to-face meetings between risk managers and underwriters should be used sparingly and should be timed for greatest effectiveness and efficiency for all three parties (risk manager, underwriter, and broker).

―Greg Dodd, Perot Systems Corporation, Dallas

Although more and more underwriters are demanding meetings, there is danger involved with RMs dealing directly with underwriters. However, it remains largely a simple understanding of who is working for whom―it is the broker's job to make sure the RM understands that the carrier is looking out for their own good―period. Whereas the broker is looking out for the insured's good.

As a broker, I never lie to a carrier, I never hide facts―but there is a way to present exposures―an old adage is never ask a question until you already know the answer. Bottom line: brokers, educate your clients on the dangers of getting too close to a carrier, then, by all means, make the date and build a good relationship between the carrier and insured, but not so good the broker ends up the fifth wheel. I've seen that happen, much to the insured's detriment. Remember who works for whom.

―Darla K. Brunner, AU, CPCU, Area Assistant Vice President/Account Executive, Arthur J. Gallagher & Co., Los Angeles

You pose an interesting question on whether or not risk managers should insist on meeting their underwriters. First there are two perspectives here, the underwriter's and the risk manager's.

You noted the importance of building a relationship in the hardening market, but it is the opposite side of the cycle where it is a priority to the underwriter. Typically, underwriters (of which I used to be for 8+ years) are production-oriented, analytical people. Many do not enjoy, or even do well, with the "schmoozing" aspect of the job, preferring to rely on an in-depth engineering report from a trusted and known source. Given that it is at times a business need for the underwriter to do this, I would imagine that it typically happens more during the soft market where everyone on the insurer side is aggressively trying to sell the business. When the market hardens and volume begins to outpace the capacity to keep up, underwriters don't want to spend valuable time in the field unless the size or complexity of the account requires it. Nor is it feasible from a cost standpoint for the underwriter to become personally involved with every policyholder/account, although we can assume we're dealing with larger accounts if they have an actual risk manager on staff.

From the risk manager's perspective it does allow them the opportunity to sell their company as you noted. But as an underwriter, who did on occasion go out to meet clients, I put a lot more faith in the results of the engineering report and the opinions of producers whom I had developed a long-term relationship with. One or two meetings between the risk manager and the underwriter will not create a relationship, and most underwriters are too busy to get out into the field on a frequent basis. If I were giving advice to a group of risk managers, I would suggest carefully selecting an agent/broker, then working to develop a relationship with them. Good producers, in turn, have relationships with one or more underwriters (depending on the type of agent/broker in question), often with multiple insurers. They can bring that to bear on behalf of the risk manager, and will call in those markers for accounts they believe in strongly.

―Greg Altsman, Supervisor of Education Development, Erie Insurance Group, Erie, PA

There is only one instance when I think the consultant could be correct. If the circumstances are such that the insured has inaccurate or a jaded view of the insurance industry, or in the instance where the risk is very complex and the insured refuses to acknowledge the manner or value in accentuating positive attributes that may differentiate the risk from others in the class, then the insured should stay home and spend the time getting educated.

―Wes Brandt, President, Rimco Northwest, Bellevue, WA

Perhaps a risk manager will like to meet with the underwriter. However, overall it is not always a great move on an agent's part. In some cases, we have done this and have totally briefed the underwriter as to what to expect, however, I did not find it helpful in most cases. It seems to be more of an interference than help. In other cases, I take the underwriter or company rep out after the deal is closed to discuss the placement and future and what to expect of the carrier.

―Gene Bonina, Acordia

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IRMI Update—Issue #30

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