IRMI Update—Issue #57
An E-mail Newsletter for Risk and Insurance Professionals
ISSN: 1530-7948
January 21, 2003
In This Issue
Colleague,
As we are painfully aware, last year was a difficult one for insurers and
insureds alike. Standard & Poor's (S&P) evaluates insurers' financial strength
and ability to meet policyholder obligations using quantitative and qualitative
factors. Last year, S&P downgrades increased significantly. Consider the following
S&P statistics:
| 2002 |
648 |
| 2001 |
380 |
| 2000 |
421 |
| 1999 |
214 |
| 1998 |
492 |
| 1997 |
391 |
| 1996 |
196 |
Included in these downgrades is at least one major insurer. (Current financial
strength ratings and insurer profiles are available at no charge on IRMI.com). This is definitely a time to
be very careful when choosing the insurers you will trust to protect your company's
assets in the future, and many in the industry are struggling with how to respond
to an insurer's deteriorating financial position.
What should a risk manager do if his/her insurer's rating drops substantially?
Should you wait patiently until your next renewal, watching for further developments?
Or should you try to jump ship midterm, despite the difficult market and the
costs involved with cancellation? Should you take other steps, like requesting
a cut-through endorsement? What about agents and brokers? What should they recommend
to their clients? [See reader comments.]
On another note, we still have plenty of space in our "Captive Insurance
Solutions for the Middle Market" seminar. Someone recently asked me what size
accounts fit in our definition of "middle market." This seminar should help
anyone exploring captive insurance alternatives for a company with premiums
ranging between $500,000 and $5 million.
Have a great day!
Jack
Jack P. Gibson
President
IRMI
Set an Example for Your Staff—One tip our Loss
Control staff is continually stressing with many of our smaller employer clients
is: You are an example to your staff. If you do not practice safety, chances
are neither will they. Whether it is driving too fast, entering restricted workspaces
without protective gear, or maintaining your personal equipment, your employees
will follow your example.
By: Tom Arney, President
The PRM Cos.
Albany, New York
http://www.prm.com
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. We'll
acknowledge your contribution as we did for Tom and include your e-mail address.
There are now 376 articles on IRMI.com, and many more are in production.
Below you'll find summaries of some recent additions with links to the articles.
-
Managing Environmental
Liabilities through Contracts—There are real and perceived environmental
hazards or contamination routinely found at construction sites. In this
article, Jeff Slivka explores less common provisions for managing environmental
risk through contracts.
-
Minimum Insurance
Requirements—The principal's financial stability is vitally important
to the surety underwriter. Rolf Neuschaefer explains what to look for when
risk of loss is transferred to others by contract.
-
Earthquake Performance
of Nonstructural Components—Nathan Gould explains how poor performance
of nonstructural components, equipment, and systems is the greatest contributor
to damage, losses, and business interruption for most facilities after an
earthquake.
-
Maritime Pollution:
Mixing OPA and CERCLA Makes for Foul Waters—The interaction between
the Oil Protection Act and the Comprehensive Environmental Response, Compensation,
and Liability Act over an Oil Spill Liability Trust Fund recovery can be
muddy. Michael Orlando explains.
Insights into D&O Liability
from IRMI—Director's and officer's (D&O) liability exposures are
evolving fast and presenting insurers and insurance buyers with many challenges.
The latest supplement to Professional Liability
Insurance contains a revised discussion of the legal aspects of D&O liability
exposures written by John Black and Carrie Cope, attorneys with the Chicago
office the law firm of Peterson & Ross. Their article provides a comprehensive
look at how recent statutory and case law developments have affected the liability
of corporate directors and officers.
Professional Liability Insurance is
a 3-volume, 2,000 page reference manual addressing professional, errors and
omissions, employment practices liability, and D&O insurance coverages and exposures.
For more information, go to this Web page.
Frank Lee has written 11 articles
on Sales Call Reluctance in the Management & Sales section of IRMI.com's Expert
Commentary. He is an expert in his field and, through his writing and seminars,
helps employees and managers in all areas overcome their fears to become successful
salespeople. There are 12 types or categories of sales call reluctance, and
Frank has written about 8 in his IRMI.com articles. Click here for a list of all of his articles. To learn more about Mr. Lee and sales call
reluctance, read his biography.
In IRMI Update 56, Jack Gibson asked what
readers were seeing with respect to renewals. We received numerous replies,
portions of which are reproduced below.
- We are a $250 million a year general building contractor.
- Workers Compensation—49% increase
- General Liability—no increase
- Umbrella—29% increase
- Professional Liability—34% increase
We decreased our limits on umbrella by 25% to only have a 29% increase,
otherwise we would have been at a 40% increase.
—Pat Monea, Granger Construction
- There are many questions but few answers with regard to terrorism coverage.
I have seen rates for "statute" based terrorism coverage be anywhere from
1 cent per $100 of value to 60% of the P/C premium. The pricing is all over
the place. We have also seen no charge for the current policy period which
is encouraging.
—Don Glitz, Vice President, Corporate Risk Manager, GMAC
Commercial Mortgage Corp., Loan Administration
- Seems that the market's approach to terrorism is just as confusing as
whether clients should or should not select the coverage.
We have conducted an informal poll through our intranet and the responses
mirror the confusion in the market. Pricing is all over the board. Seemingly
low risk, low target area accounts are seeing moderate charges for coverage
(5-15%) while others in same risk profile have seen 40% and higher charge
regardless of risk factors. In one case involving major metro area account,
the account moved from one carrier to another because of significant differences
in capacity and charge for terrorism coverage.
—Louis F. Locante, Senior Vice President, Acordia, Pittsburgh,
PA
- Our U.S. operations qualify as a large account, although we do not have
locations in cities most likely to be targeted. Yet, our insurer charges
100 percent of our current annual premium for terrorism, on the 1/1/2003
renewal. This is excessive by any definition.
—Charles J. Salek
- The major problem we continue to have on renewals is the umbrella coverage
and pricing. Umbrella rate increases still have not leveled off, and, we
are having to carefully scrutinize the coverages forms and endorsements.
I obtain no less than 2-3 umbrella quotes for every account that I renewed.
This enables me to choose the most comprehensive coverage and pricing for
my insureds. However, it makes marketing accounts for renewal as well as
new business a labor-intensive process. An umbrella carrier's appetite changes
each month. They may competitively price and offer comparable coverage on
one line of business one month and decline to quote the next month on same
line of business. It seems as though I am constantly searching for umbrella
markets.
I am finding that my markets are quoting on average 3-5% of the premium
for terrorism coverage. With nothing with which to measure by, the pricing
seems reasonable, however, none of my insureds have purchased the coverage.
I have one standard market that is including the coverage at no extra charge,
they have not made a decision to charge for the coverage.
—Janice Lucas, CISR, Account Manager, Insurance Alliance
- I've also been receiving quotes on a property/DIC placement that has
several layers. I've received quotes from two carriers representing three
of the layers, with 6 layers still outstanding. One of the carriers requires
that we respond and pay premium by 1/18 when we haven't even received the
remaining quotes. It's very difficult to make a decision regarding the purchase
of this coverage when we don't know the cost is for all layers.
—Leslie Magnuson, ARM, CIC, Vice President, Jenkins/Athens
Insurance
- My firm is a large consumer owned electric and gas utility located in
the upper Midwest. Our property insurance renewal date was 12-1. Our annual
property premium is in the mid seven figures. We secured renewal terms without
a rate or deductible increase. There was a small increase due to replacement
values on the order of 2-3%. We attribute that partly to an aggressive underwriter
contact policy we have maintained over the years and a deliberate practice
of maintaining capacity both in the United States and London. Our experience
cemented our feeling there is no substitute for face-to-face relationships
with underwriters at the highest possible level. We spend a week in London
every other year refreshing relationships built and maintained even when
capacity was possibly cheaper in the United States during the last decade.
For underwriters who cannot attend our briefings, and for those who do
as well, we provide them a CD copy of the entire briefing. Our experience
is the underwriters we deal with much prefer the electronic version to another
stack of paper.—Evan Mandigo, Risk & Insurance Administrator, Basin Electric
Power Cooperative
My fire sprinkler contractor client located in Rockland County, NY, renewed
1/1/03. A midsize contractor in this line of business with approx. 11 mil
in revenues and $2.5 mil in field payroll. Early in September 2002, we put
the property/casualty insurance program to bid with two brokers in addition
to the incumbent broker. Each broker chose several carriers to approach.
In total, there were approximately 10 insurance companies that would write
this class of contractor business so we were told by the 3 brokers. It became
obvious that none of the insurance carrier underwriters even looked at the
account submission until beginning of December—declinations started coming
in mid-December. On December 30th, the insured received only one offer from
one carrier to place renewal coverage! (The incumbent carrier nonrenewed
"class of business.")
- Expired general liability premium $143,000 Renewal general liability
premium $380,000
- Expired umbrella liability premium $120,000 ($10 mil limit)
- Renewal umbrella liability *quotes* $90,000 for $1 mil. limit; $168,000
for $4 mil
- The general liability renewal has an 80% minimum earned premium
endorsement!
I've been in the property/casualty business for almost 40 years and I've
experienced several hard, difficult markets, this is the first time a client
had no choice or options on a renewal. Talk about taking advantage in a
tough market, this takes the cake!
P.S. The general liability carrier insisted on writing the insured's
WC; this could cost the client an additional $15,000-$20,000.
—David J. Skolsky, CPCU, Insurance Analysts & Consultants,
Avondale Estates, GA
- I think the worst experience of this 1/1/03 time period was that the
carriers did not/nor could they release their quotes until the very last
minutes. (And there is NO exaggeration there.) We had submissions in months
prior to 1/1 and they still were not able to release until the 11th hour;
with some on the 12th hour. Premium increases ranged between 15-50%.
—Kristine M. Pansing, CISR, Account Manager, Frank F.
Haack & Associates, Inc.
- In my opinion, the [terrorism] coverage is not being priced reasonably.
I have just received a quote from one carrier to add $5 million which is
the primary layer of a $100 million program. The cost on an annualized basis
is $68,000. This is with a $100,000 deductible. I have received a quote
from another carrier for $2.5 million part of $5 million excess of $15 million
for $8,000.
I am not sure what coverage is afforded except that is to cover terrorism
as defined by the Act. Does it cover loss caused by nuclear devices or contamination?
I think not since there is a nuclear exclusion already on the policy. Does
it cover loss by chemical or biological destruction or contamination? I
think not, since there are already exclusions on the policy.
—Sill DeSerto, Risk Management Consultant, Spring Hill,
FL
- The terrorism rates are too high. Large corporations are opting for
it but small and medium sector are totally opting out of it. The property
experience of the developed countries is being unnecessarily being extrapolated
in pricing of similar risks in third world. The risk perception, exposure,
and the associated parameters are different and the same should be reflected
in pricing.
—Joydeep Roy, Iffco-Tokio General Insurance Co Ltd.,
Kolkata SBU
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