Congress did a disservice to the insurance industry and American business in December by failing to enact legislation that would give insurers a backstop against financial loss from terrorist attacks. An attempt to include tort reform measures in the bill was apparently the biggest stumbling block. Since a financial backstop could have performed a great service without any tort reform measures, it looks like the bill's sponsors were greedy and needlessly lost support. [See reader comments].

Many state regulators will approve the exclusion endorsements. They have little choice since they are charged with safeguarding the financial solvency of the insurers operating in their states. Unless Congress moves swiftly when it reconvenes in late January, we expect the exclusions to be heavily used on commercial accounts of all sizes. We will keep you posted on developments and soon provide you with our analysis of the ISO and AAIS exclusions.

Thank you for your trust and confidence. Best wishes for peace, happiness, and prosperity in 2002.

Jack

Jack P. Gibson
& President
& IRMI

Risk Tip

Audit Your Claims Providers. One of the duties of CFOs and risk managers is to monitor and control the expenses of the risk management operation. This duty extends not only to the purchase of insurance, but in cases in which the claim department is actually either hired by or internally supervised, to the technical operation of the department as well.

To put this in perspective, reserves are generally evaluated as the case is first identified and then, later, reviewed again when there is a change in the understanding of the facts and exposure of the case. In many instances, however, this second review is not conducted until immediately before the handling professional is ready to expend the money.

This "after the fact" reviewing undercuts the reason for having a reserve in the first place, which is to predict, and budget, for future expenditures. Failure to prudently budget leads to untimely changes in management and, in some cases, to financial liability.

There are other issues as well, including timely tenders to reinsurance carriers. This is especially important as the delay in tendering to a reinsurer can remove contractual obligation to indemnify the insured, regardless of whether that duty was delegated to the TPA or not. With the current financial market and the recent case law decision in the United Kingdom regarding reinsurer rights, this issue will be surfacing in the short term.

The remedy is for risk managers and CFOs to periodically provide for an audit of their claims-handling professionals. Your clients have exposures here, both corporate and personal, in the absence of this due diligence checkup.

By: John M. Beringer Jr., LPCS, RPA
& Beringer & Associates, Inc.

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

Aftermath: Coping with and Implementing Urgent, Radical Change—The tragic, horrifying and life-changing events of September 11 have affected us all—individually, organizationally, nationally, and globally. As part of her change management series, Dr. Laura Markos examines the change cycle and what leaders can do to help.
Preventing Denial of Service (DOS) Attacks—One of the most prevalent attacks on computer systems that we know of today is a denial of service (DOS) attack. While common and potentially devastating, these attacks can be avoided, as explained by Chris Cowger in this article.
When Applying the Limitation for Wind-Driven Rain, What Constitutes a "Roof"?—In this article, Doug Berry summarizes the insurance law cases addressing the question of what is and is not a roof under property insurance policies.
If It Looks Like a Claim and Sounds Like a Claim, Is It a Claim for Reinsurance Purposes?—In this article, Larry Shiffer explains why a claim to an insurance company may not be a claim to a reinsurer, depending on the nature of the reinsurance provided.
Failure To Train about Age Discrimination Results in Employer Liability—In this article, Paul Siegel examines a recent ruling by the Seventh Circuit holding an employer liable for $50,000 for age discrimination and lists ways employers can avoid harassment and discrimination claims.
Can an Indemnity Agreement Determine Who's Primary and Who's Excess?—Joe Postel explains that the answer is simple: not unless the indemnitee has a judgment for indemnity against the indemnitor, citing a recent California Court of Appeal case.

New IRMI Insights

The Continuing Impact of September 11 on Workers Compensation. It's been over 90 days since the attacks, and resulting WC payments are estimated to be over $4 billion. This article updates how the various state and insurance regulators are responding.

IRMI Construction Risk Conference

Now Accepting Construction Risk Conference Session Proposals. If you wish to propose a workshop or other session for the 22nd IRMI Construction Risk Conference (to be held November 11-14, 2002, in San Diego) please send us your submission by February 1. For more information, visit the Conference web page.

IRMI Products & Services

Risk Finance in a Firming Market. The firming insurance market is causing resurgence in the use of retrospective rating, large deductibles, self-insurance, captives, and other sophisticated risk financing plans. Give your coworkers these tools to turn hard market challenges into opportunities.

Risk Financing. This detailed reference manual (1,500 pages) is a blueprint for evaluating, choosing, and implementing the best risk financing options, from deductible programs to captive insurers.
Captive Insurance Company Reports. Every month CICR gives risk professionals insightful tips for optimizing the performance of the insurance companies they own, manage, or advise—from insuring benefits to analyzing the components of a captive's expense ratio.
Financing Risk & Reinsurance. Monthly issues of FRR explore the leading edge of the risk management and insurance industry with its coverage of risk securitization, financial reinsurance, and enterprise risk management.

Your View—Terrorism Exclusions

Reader feedback from Jack's last editorial shows that the insurers were not responding in a uniform way with respect to coverage for terrorist acts. Below are some readers' comments.

As a company we are not revising our forms to exclude acts of terrorism, however, our property treaty renews 4/01/02 and we are preparing for a possible change.

—Sharon Smith, Amerisure

We have seen an unfortunate albeit typical, over-reaction from some of our markets. Some markets are not writing any risk with height exposures over 8 stories or risks that have more then 100 employees at any single location. Some are conditionally nonrenewing risk until their reinsurance treaties have been finalized. It is disconcerting for us as brokers to see these reactionary and punitive measures when you work so hard to develop relationships.

—Greg D'Ambrosio, ARM, Vice President of Risk Management,
Ron Sellers & Associates, Inc., Orlando, FL

In the "D&O world" I have heard discussion about re-applying the "failure to maintain insurance" exclusion.

—William V. Helsley, Financial Services/Professional Liability Broker, Wood Special Risk Brokers, LLC, Alpharetta, GA

I haven't seen actual endorsements or policy language excluding terrorist acts, but the warnings are clear: they are coming. I'm also reading about companies being formed to insure the risk, and the ability to buy back the exclusions. It seems it's going from an uninsurable risk to an expensive insurable risk before it's even uninsurable! The final legislation from Congress will determine the final coverage and cost I believe.

—Barry Port, Executive Director, PURMA, Southborough, MA

Insurers have applied terrorism exclusions to property & public liability renewals in Australia since September 30. The exclusion is "wording to be agreed." The draft clause provided to date is open to interpretation and your concerns on the misapplication of the clause are well founded. A strong approach from insureds and their representatives is required to confine any terrorism exclusion to its true intention.

—Terry Dunlevy, Senior Manager Group Insurance,
Commonwealth Banking of Australia

So far, we have had USAIG cancel the war risk insurance on our aircraft and we purchased a partial buy-back at one third of our original annual premium.

—Gerald M. Florence, Vice President, Risk and Insurance Services,
JM Family Enterprises, Inc., Deerfield Beach, FL

As of February 2002 renewals, we've not seen any terrorism exclusions. But we believe if ISO exclusions are approved, then the industry will follow fast!

—Merrill J. Fischbein, ARM, President & CFO,
Fischbein Insurance Services, Bloomington, MN

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IRMI Update—Issue #32

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