IRMI Update—Issue #87
An E-mail Newsletter for Risk and Insurance Professionals
ISSN: 1530-7948
April 20, 2004
In This Issue
Colleague,
Interestingly, the same discussion thread recently popped up on both the
IIAA website and RIMS list serve in response to member questions: "How much
liability insurance should I buy (or recommend)?" This is a question I've heard
repeated my entire career, and I’ve never heard (or been able to formulate)
a very good answer to it.
The typical cop out answer is, "Buy as much as you can afford," but I've
never liked this one. Someone has to make a decision, and this isn't a good
criterion for decision-making. It just keeps agents from losing E&O suits and
risk managers from being second-guessed when the number they pick proves inadequate
following a catastrophe. Proper presentation of some guidelines to management
should facilitate decision-making without these unsavory consequences. So here
are a few thoughts on this topic.
- Start by developing a minimum limit. Every commercial entity should
have at least a $1 million umbrella policy over its primary program, most
should have at least $5 million, and many should have at least $10 million.
- Identify the liability exposures that present the organization with
potential for the most severe awards and attempt to determine the highest,
average, and median awards or settlements in those areas. Legal counsel
and sources like Jury Verdict Research or VerdictSearch may be helpful for
this analysis.
- Consider the extent that others’ risks are being assumed in contracts
(e.g., indemnity provisions) as well as the limits being required by others
in those contracts. Conversely, consider the extent to which the organization
can allocate its risks to others in its contracts and the financial wherewithal
of these indemnitors to respond.
- Take into account the locations of the organization's operations and
the litigiousness of those locales. What is the largest liability award
ever granted in each state (and in what year did it occur)? Don't forget
to also consider areas where products are sold or used.
- Benchmark the limits selected against those purchased by other organizations
in the same or similar industries and locales. RIMS does a survey of its
members which can help with this, and Marsh offers benchmarks on its Web
site. But don't overweigh this factor as you may just be repeating others'
mistakes.
So what do you think? Are these guidelines helpful? What else should be considered?
Do you have any suggestions for equating recommended limits to either net worth
or annual revenues? If we work together, perhaps we can develop a useful model
for everyone to use. [See reader comments].
On another topic, the first of the three scheduled "Captives Built to Last"
seminars is only a few weeks away. This is an intermediate level seminar for
anyone interested in captives. If you could use practical information on how
to structure and operate a captive insurance program that withstands market
cycles, you don't want to miss this seminar. It is being conducted by Kate Westover
and Gordon Cook. Go to this site to learn more.
Have a great day,
Jack
Jack P. Gibson
President
IRMI
Reduce Recreational Vehicle Premiums—Many corporations
own recreational vehicles such as campers, hunting vehicles, and the like. Obviously,
if the vehicles are garaged in an urban area and designated in a high-use category,
the premium can be quite high. It is often possible to garage them in the rural
areas where they are used and have them classified as farm vehicles to establish
a lower premium.
Source: Derived from recommendation #8 from
101 Ways To Cut Business
Insurance Costs
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
acknowledge your contribution.
There are now 527 articles on IRMI.com, and many more are in production.
Below you'll find summaries of some recent additions with links to the articles.
-
The Ethical Dilemma
Caused by Fighting Fraud—Insurers must spend time, effort, and
a great deal of money to stop fraud perpetrators from becoming wealthy off
the inaction of insurers and prosecutors. Barry Zalma explains.
-
Managing the Nanny
Risk—In this personal risk management column, Jack Hungelmann
looks at the exposure created by the hiring of a nanny rather than using
a nanny service, and offers possible solutions.
-
The Mediators' Role:
Tackling the Illusion of Objectivity—In this article, Elizabeth
Moreno looks at how mediators can tackle their illusion of objectivity and
stay neutral during the mediation process, using psychological studies for
guidance.
The 2004 ISO CGL Policy—In
March, Insurance Services Office, Inc. (ISO) began filing a revision of the
standard commercial general liability (CGL) insurance coverage form, scheduled
for implementation with policies written or effective on or after December 1,
2004. In this article, Jeff Woodward looks at the most significant revisions.
New Captive
Seminar by IRMI—"Captives Built to Last: How To Structure and Operate
a Captive Insurance Program That Withstands Market Cycles" is a new seminar
to be held in three cities this spring. This workshop is for anyone with an
interest in captives, who understands the basics of how and why captives are
formed, and who wants to look at the practical realities of owning and operating
an insurance company. It will deepen your understanding of the operational and
financial issues that arise in different types of captives, explain how to set
expectations for the captive management and service team, and suggest ways to
quantify captive "value added." Mark your calendar and plan to attend in one
of these cities: Las Vegas on May 5–6; New Orleans on May 19–20, and Philadelphia
on June 2–3. Call (800) 827-4242 to request a brochure or see the seminars section of IRMI.com for
more information.
Michael
Mead has written for IRMI.com for 2 years on captives. He is the
president of M.R. Mead & Company, LLC, a member of Crusader International Group,
a privately held consulting intermediary specializing in life insurance, group
insurance, and property-casualty programs using alternative risk financing techniques.
It has established alternative funding structures for the long-term care industry,
construction, auto rental, trucking, chemical, and pharmaceuticals. In addition,
the company is in partnership with a leading independent captive management
firm, with offices in Cayman, the District of Columbia, South Carolina, and
Arizona. Mr. Mead is currently a director and past chairman of the Captive Insurance
Companies Association (CICA), a director and vice president of the Arizona Captive
Insurance Association, and a director of Global Insurance, Advantage Life, Rubicon
Insurance, and Ashley Cooper Life Insurance. He is also a popular speaker at
numerous industry conferences, including the World Captive Forum, CICA, various
contractor associations, the School of Professional Development of the University
of Wisconsin, and the National Association of Surety Bond Producers (NASB).
For more information on Mr. Wagner, see his full biography and a
list of his articles.
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