My last editorial, which spotlighted the Stewarts' article, "The Loss of the Certainty Effect," struck a chord with many readers. You can read a sampling of the reader responses below. One of my objectives with this column is to stimulate thinking and dialog on important industry issues. In doing so, I run the risk of offending some. If my column offended you then—or does so in the future—please accept my apology. My intent is not to attack the industry but to perhaps influence it in some positive way. And, when you think my editorial is off base, please respond with your view so that we can share it with everyone.

In the last few weeks, we celebrated two milestones with IRMI Update and IRMI.com: We surged past 20,000 subscribers to IRMI Update and we published the 300th article on IRMI.com! As one of our 20,000+ readers, I'd like to thank you for subscribing, for suggesting risk tips, for offering your view on my editorials, and for forwarding IRMI Update to your colleagues in the business. All of us at IRMI greatly appreciate your vote of confidence.

Everyone who has been involved in producing the excellent articles we've had the privilege of publishing on IRMI.com deserves credit for the second milestone. This, of course, includes the 58 industry experts and the eight IRMI research analysts who authored the articles. Additionally, IRMI's Bonnie Rogers, who edited all 300 articles, and Amy Seals and Marcia Brehm, who assisted with the production, deserve our thanks.

We still have some space in our July "Group Captives and Other ART Solutions for the Middle Market" seminar series. To see an agenda, review the speakers' biographies, and check the dates and locations, please check out our Web page.

Thanks again for choosing to be a part of our subscriber family.

Jack

Jack P. Gibson
President
IRMI

Risk Tip

Clearing Your Office Is Good Risk Management. It is amazing how much customer private information is left on an employee's desk at lunch hour and at breaks. We recommend that screen savers with passwords be used on computer workstations when employees are away from their desk. This is a simple and cheap way to enhance the security of private information which employee's must have access to but must otherwise be protected. We suggest screen saver passwords be changed monthly by management and access to them be limited. We also recommend that desktops be cleared at night so that cleaning personnel and others do not have immediate access to information that is confidential. Information is just as valuable as your bank account in today's business environment.

Ask your clients to walk with you around their office after closing. You will be amazed how much confidential information remains on desktops overnight. Even more amazing is that many times we find that employees do not have a clear understanding of how much damage can be done if the information falls into the wrong hands. A frank talk with employees about this issue and vigilant monitoring are the least expensive forms of risk management. You do not have to be a computer technician to develop ways to make your client's office operation more secure.

By: Chester A. Butler, III
President, The Butler Company, Inc.
Brentwood, TN
E-mail:
www.InsuranceButler.com

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

Survey Finds Average 29% Premium Increases For D&O Insurance—Mark Larsen discusses the 2001 Directors and Officers (D&O) Liability Survey published by Tillinghast-Towers Perin, highlighting current market conditions.
Update—Florida Windstorm Deductibles—To mark the beginning of hurricane season 2002, Doug Berry examines recent hurricane-related insurance issues.
Is Additional Insured Coverage Becoming Just an Illusion?—Joe Postel looks at the recent Illinois Appellate Court decision, National Union v R. Olson Constr., and at the judicial confusion over additional insured endorsements that exclude the additional insured's own negligence.
The Chinese Insurance Market—Jorn Kristensen and Cherry Zhuang examine China's political, legal, monetary, economic, and regulatory structures, and predict the future for life and non-life insurance there.
Optimizing the Management of Earthquake Exposure—Many companies feel their approach to managing their overall aggregate exposure to natural disasters is deficient. Rick Clinton examines some software and consulting options for handling the earthquake exposure.

New IRMI Insights

Terrorism Coverage for Commercial Property—A Status Report—Based on interviews with underwriters, agents, brokers, and risk managers, IRMI President Jack Gibson examines the current state of the market for terrorism coverage in property insurance.
The Ergonomics Regulation Roller Coaster—This article reviews OSHA's efforts to implement ergonomic regulations, presents details on the current proposed voluntary program, supplies information on a new legislative challenge, and discusses a recent study dealing with the causes of loss in the workplace.

IRMI Construction Risk Conference

Register for the IRMI Construction Risk Conference—We are now taking registrations for the Conference. Visit the Conference agenda for details about all the sessions and the presenters. To register, just complete the registration form or call (800) 827-4242.

IRMI Products & Services

New from IRMI: Design-Build Risk and Insurance—Contractors who act as design-builders must be on top of issues such as performance guarantees, licensing requirements, ownership of design documents, indemnification, and a variety of other potential risks. Failure to recognize and plan for these risks can be devastating to you or your client. Learn the ins and outs from the most knowledgeable practitioners in the industry. For more information, see this Web page.

Your View—The Loss of the Certainty Effect

In Jack Gibson's last editorial, he asked readers whether they thought insurers have become so slow to pay claims that the value of insurance is diminished. The responses were very emphatic, on both sides of the issue, and often very personal. Below are some excerpts.

I don't know what world you and the Stewarts live in. I have been an independent adjuster for 34 years and in that capacity done work for many insurance carriers. In a litigious, consumer oriented environment where horror stories about "Bad Faith" abound, I don't think decisions are made about "whether a claim should be paid or fought " based on the "size of the claim rather than policy language." There may be a few exceptions, but I don't think the vast majority of insurers operate that way and exceptions will ultimately pay the price for those business practices by way of excessive defense costs, regulatory sanctions or both...

—Richard A. McKinley, CPCU, ARM, AIC, Vice President,
York Insurance Services Group, Inc., Parsippany, NJ

I WHOLEHEARTEDLY AGREE! In a recent seminar in Bermuda I shocked the group by stating that the insurance industry had failed in the aftermath of WTC Attacks/collapse. Not only did it not seize the PR opportunity to show how and why insurance works wonders in so many different ways (public perception being that we are a necessary and boring "evil"), but it actually shot itself in the foot with denials of WTC losses. High above it all, the circling legal vultures will feast on the carcass of this insurance mess for decades. Additionally, at the very time when insureds are galvanized to buy more coverage or for a broader range of exposures, the market suddenly constricts yet trebles premiums...

Without insurance companies' management focusing on what they are providing (they are currently focused on Wall Street, institutional investors, ordinary stockholders!), the promise to pay unequivocally the normal broad range of losses for which they have received premium, then yes indeed a slow downward spiral. Mutuals will rise again as the policyholders club together to provide a service that fairly pays out claims as well as collecting premiums...

We are contributing to the abrupt cycles of insurance that alternatively oversell into bankruptcy or overcharge to make up for past fiduciary irresponsibility. WAKE UP insurance industry or something else will sneak up on us and eat our lunch! Don't let short-term stockholders ruin a long-term business, and value REPUTATION as a quality brand—the promise to pay future losses.

—Grahame C. Rendell, Senior Insurance Officer,
Marsh Management Services (Bermuda) Ltd., Bermuda
(The opinions expressed are those of the author and
do not necessarily reflect that of his firm.)

Our society in general, as reflected in the insurance industry as well as many other industries (accounting, energy), does not value highly integrity and ethics. The mindset tends to be that promises should be kept only if it is both profitable and convenient to the promisee. The insurance industry's reaction to events over the years is evidence of this fact. Policies make broad promises—but when environmental, lead paint, or terrorism claims hit policyholders—the industry's first reaction is that "we never contemplated this in our rates" and therefore, no coverage should exist. It seems to me this is the very essence of risk—providing coverage for unforeseen events. I cringe at the industry's position that terrorism losses are to be borne by taxpayers, not the insurance industry...

In defense of the claims person, the old saying is, "The fish stinks from the head down"—it is senior management that is ultimately to blame, not a $40,000-a-year claim supervisor with too many files to handle with too little training and education.

—Craig F. Stanovich, CPCU, CIC, AU, Principal,
Austin & Stanovich Risk Manager, LLC, Douglas, MA

I'm not sure you're right about insurers being less willing than before to settle liability claims, but if you are, the idea of an insurer charging more for its product and settling claims quicker would never be successful, because (1) the huge majority of insureds make their decision completely on the basis of who offers the lowest price; (2) a liability policy is by definition paying a third party (usually one who is suing the insured). Thus, insureds often have little, if any, reason to care whether the claim is paid promptly, and with litigation such as it is today, I doubt insurers could pay much more promptly even if they wanted to.

—Chris Hagg

When I started in the insurance business in New York in the early 1960s, I worked at Chubb & Son, Inc. (Now Chubb Corp.) at their corporate headquarters, which was still at 90 John Street in lower Manhattan. Percy Chubb was still at the helm of the company and each new employee (trainee) was given a copy of Percy Chubb's book titled If There Were No Claims, There Would Be No Premiums, which reflected the company's philosophy in the insurance business. The book stressed the need to bring claims to a fair and rapid conclusion, recognizing that paying claims was the best advertising an insurance company could achieve.

Over the years, I have seen Percy Chubb's philosophy changed by the industry in general to reflect something like If There Were No Claims, We Could Keep All of the Premiums. Many insurance companies use clerks in place of claim adjusters who simply send out a series of form letters in response to a claim. The first letter is a denial which, if challenged, is followed up with a reservation of rights letter agreeing to investigate the claim without admitting liability. It is rare indeed when a claim can be settled without lengthy and costly litigation.

I can no longer accept the insurance industry's almost total disregard for its customers. I advise my clients to be extremely aggressive in seeking claim payments right from day one. If you delay, you will find yourself on the defense for the entire game.

—Frank Griffin, Phoenix Risk Management, Inc.

I have been in this business for 32 years and I expect I've heard that the Industry pays claims too easily more than vice-versa. Seems like employers believe there are far too many WC paid that shouldn't be paid. Seems like those looking to make a not so honest buck feel that if they put in a nuisance claim or a somewhat frivolous GL claim, the Industry will pay it rather than incur the expense of fighting it, as long as you don't try to get too much. I am talking about the infamous "whiplash" type of thing. I am talking about the transient who supposedly slips on the wet lavatory floor in McDonalds. I am talking about the same piece of Contractors Equipment that supposedly gets stolen from the same owner more than once.

I have worked for 7 different P&C Commercial Lines carriers in the 32 years and I am unaware of one that denied a claim they felt due. On the other hand I saw fears of "bad faith" allegations and concerns about settling quickly result in amounts paid that perhaps should not have been.

—Kenneth E. Ryan, President,
Suncoast Risk Control Associates LLC, Bradenton, FL

I wholeheartedly agree with the conclusions reached by the Stewarts in their article. I work for a regional broker in a claims capacity and we are seeing more and more coverage denials on claims that never generated them before. The client (insured) is put in a position of having to fight their carrier for coverage, which absolutely creates an adversarial relationship. I also recently attended a seminar where a coverage attorney was speaking about this topic and he opined that the profit margins of the carriers were not where they wanted them to be, and this issue is the result. I don't know that to be the case of course, but even the thought of it is pretty scary.

—Karen F. Kestle, Assistant Vice President/Team Leader, Assurance Services Corporation, Richmond, VA

My experience has been the large first-party claims are handled well because the best adjustors are assigned to these claims. I do agree third-party claims and smaller claims are often poorly handled. Adjustors used to manage third-party claims, but now they seem to let defense attorneys manage the claim, which results in the claim dragging along for a ridiculous amount of time. This was not allowed 25 years ago.

The insurance companies do not adequately compensate their adjustors and these are the very people that can help their bottom line. The old adjustors that knew coverages inside and out are a thing of the past. The adjustors of today are taught to look for a reason to deny the claim instead of looking for coverage in the policy. Brokers today must have claims people on staff to protect their clients' interest. The demise of professional claims departments and adjustors has been ongoing for the last 10-15 years. I don't think top management understands we are in a service business and our clients don't forget poor service. A hard market may force some clients to use a market they don't like, but the hard market won't last forever.

—Kelly Wayne Gerland CIC, Sr. Vice President,
BCH & Associates, Houston

Did the Stewarts consider history? They are correct that lack of consumer confidence creates a negative reaction toward insurers, and that has been a fact of life for a couple decades. We know that over the years a substantial portion of the standard insurance market has run to alternatives like captives, risk retention groups, associations, etc., and this hard market is expediting that exodus. It probably is more for cost and coverage issues than claims handling, but they all add up to dissatisfied consumers.

Whether size of loss or coverage issues, insurers generally have created the perception that prompt and professional execution of their promise to pay (when warranted) is relatively unimportant. This may be by design, ignorance, incompetence, or any combination. Unfortunately, it is a huge problem, and it hurts the consumer and the industry. Insurers do not seem to recognize that there is a problem, and consumers have not organized to make it an issue. Insurers generally are not motivated by policyholder needs, and it usually takes political, legal or regulatory action to move them. They do not compete on services, except lip service. Like a recent securities sales commercial says, "Let's put some lipstick on that pig." There are very few exceptions, and as more alternatives to insurance develop, the industry will continue to lose consumers. Maybe the biggest problem is the loss of respect for the insurance industry on many levels, not just claims handling.

Most sales of commercial insurance do not focus on the insurer's claim service reputation, claim support services and organizational structure, service standards, internal and managerial controls, and other critical factors. Maybe if this were as big an issue as cost and coverage at the point of sale, the message would eventually seep through.

—Craig Thummel, CIC, CQM, Houston

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IRMI Update—Issue #44

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