The IRMI research analysts recently spent several weeks talking to their industry contacts about the state of the insurance marketplace as part of the process we use to prepare our annual state of the market report. We publish the complete summary of the marketplace in the September issue of The Risk Report and appropriate portions of it elsewhere.

Our primary conclusion was that, while there has been a lot of talk about a firming marketplace, it really isn't happening for most accounts in most regions of the United States. Insurance rates for property subject to coastal windstorms and earthquake perils have generally continued to increase, and capacity is down somewhat. The same is true for public company directors and officers liability insurance, especially for financial institutions. Most other lines of insurance and locations seem to be experiencing flat rates or slight decreases. Competition on highly desirable accounts can result in even greater price breaks.

Do you agree with these observations? What are you seeing in the insurance marketplace? Are there any insurance lines that seem to be firming other than those mentioned above? Do you think we will see the market firm in 2010? Please gaze into your crystal ball, and tell us what you see. We'll share the most well reasoned prognostications with your fellow readers. [See reader responses].

All of us at IRMI are getting geared up for the 29th IRMI Construction Risk Conference, which is only about 5 weeks away. The conference fee increases by $100 in just 3 weeks, so it is time to register if you have not already done so. Everyone who is anyone in construction risk and insurance will be there and you should be, too. I hope to see you there.

All the best,

Jack

Jack P. Gibson, CPCU, CRIS, ARM
President
International Risk Management Institute, Inc.

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Risk Tip

Prepare for a More Active Consumer Product Safety Commission

For nearly 2 decades, the Consumer Product Safety Commission (CPSC) has functioned without a full complement of five commissioners. However, President Barack Obama has completed the appointments of, and the U.S. Senate has approved the selections of, a new chairperson and two new commissioners to fill the vacant posts.

With all five now in place, the CPSC will be at full strength once again. Foremost for the newly selected and existing commissioners will be the implementation of the far-reaching Consumer Product Safety Improvement Act of 2008. This legislation, signed into law by President George W. Bush, dramatically increases the penalties for noncompliance, focuses on removal of lead paint exposure, and creates a database for consumer complaints for greater transparency.

Manufacturers who have relaxed their products liability risk management or compliance programs should take note of this development and take proactive steps to correct any deficiencies. Especially in these challenging economic times, this new environment will require greater product safety diligence from all stakeholders. For more information about these initiatives and product safety, consult the CPSC Web site, which provides a wealth of information for manufacturers, distributors, consumers, and affiliated organizations.

By: Howard Franco Jr., Partner
Collins Collins Muir + Stewart, LLP
Orange County, CA

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What's New in Your IRMI Library

Professional Liability Insurance Market Directory Updated

Always a big challenge for retail agents and brokers is finding the right markets for difficult lines of insurance. E&O, professional liability, and management liability insurance markets are perhaps the most difficult to sort out. That's why we publish a directory of markets complete with contact information and web links in the IRMI Professional Liability Insurance reference manual and update it annually. If you subscribe to Professional Liability Insurance, check it out on the platform you have chosen:

For summaries of other new and updated information in your IRMI library, go to What's New on IRMI Online or What's New in SilverPlume.

New Expert Commentary

There are over 1,100 risk management and insurance articles on IRMI.com. Below you'll find summaries of some recent additions with links to the articles.

Supreme Court Declares Punitive Damages Available for Maintenance and Cure Claim—Michael Orlando relates a ground-breaking decision in maritime law.
Property and Casualty Insurance—To Repair or Replace—Claims for real or business personal property can raise many valuation issues, as related by Paul D. Haynes.
Intellectual Property Litigation Rising—Sanford Warren offers some methods to mitigate IP litigation costs.
Country Risk Management: Removing Board Blinders—Board members must act with knowledge and insight before operating abroad, per Daniel Wagner.

IRMI Featured Event

IRMI Conference 5 Weeks Away

You can still reserve your spot at the 29th IRMI Construction Risk Conference, November 1–5. View testimonials to learn why many of your peers attend this premier educational and networking event. Don't miss the Hot Topic presentations on federal insurance regulation, just minutes away from our nation's capital.

Your View

Covering Risk with Surety Bonds

IRMI Update 213 asked readers for their views on taking advantage of opportunities for lower cost construction and handling the risk with surety bonds. Below are some of the responses.

Jack, your article is right on target. In my marketing area (Pennsylvania and New Jersey), the surety bond is becoming one of the only effective products available for owners and GCs to protect themselves.

Recently, both Pennsylvania and New Jersey changed the lien rights laws which effectively prohibit a subcontractor from contractually waiving their lien rights on a project. This has given concern to project owners and their lenders that a completed project could have liens against it. The new laws provide an exception, however, if the project has a surety bond (including labor and material payment bond). Savvy project owners and their lenders can take advantage of the lower cost of construction right now and invest a small portion of the savings by requiring a Performance and Labor and Material payment bond on their projects. They receive a guarantee of a completed project that is lien free in return for this small investment.

Also, recent court decisions in Pennsylvania (Kvaerner and Gambone) have effectively eliminated any potential general liability coverage a GC had for construction defects of their subcontractors. Again, the surety bond is an effective tool GCs can use to protect themselves. A GC who requires a surety bond (performance bond along with maintenance bond in this case) from their major subcontractors is provided protection from defective work of its subcontractors.

On a side note, the "sub-guard" default insurance product some GCs are purchasing doesn't address either of these issues. Sometimes the old traditional products are a better value!!

—Peter N. Stoll, Jr., CPCU, AFSB,
President, The Stoll Agency, Inc.
Jack, with respect to your commentary of P3 projects and bonds. We have been involved in over 70 P3 projects and find that Subguard® is being used to a significant extent, plus an LC or parental guarantee. The surety industry has not properly addressed this sector, although Travelers has produced a P3 bond with a limited cash call, but it has its limitations. European contractors and developers usually just put up an LC, the method used in their home countries.

—Rory M. Roberts, Chairman & CEO
INTECH Risk Management Inc.
Owners and lenders would be well advised especially in these uncertain economic times to require performance and payment bonds from their prime contractor(s). Likewise, it would be prudent for prime contractors to obtain bonds from their subcontractors especially those that are "critical" to the schedule and/or are relatively large in amount.

Subguard® is an option to insure a project in its entirety, but it is limited to very large contracts or general contractors who perform large volume of work. The majority of projects probably would not be eligible for Subguard unless Zurich has dramatically reduced its dollar thresholds.

While "timely" completion of any project is always important, the satisfactory completion and payment of associated costs is in the final analysis more critical. My guess an owner or lender would much rather see a project that is 3 months late than one that goes into default and is not completed.

Bonds give the lender and owner assurance that even if the builder or their subs encounter difficulties, ultimately the project will be completed, and all the bills paid. Likewise, the subcontractors would much rather bid to a prime contractor knowing payment bonds are in place than having to rely on lien or legal actions to obtain payment for work performed.

Bottom line—if an owner or lender is savvy enough to require property and liability insurance including flood and earthquake coverage, if applicable, why would they not require or waive performance and payment bonds? It really is the only product besides Subguard that guarantees performance of the contract which is specifically excluded from liability insurance policies.

Surety bonds are no panacea for a trouble-free project, but they do provide a financial backstop in case of serious problems and the prequalification process performed by the sureties screens out those who have a higher probability of not performing satisfactorily.

—Rolf Neuschaefer, Bond Manager
Robert E. Harris Insurance Agency, Inc.

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