RIMS Advice: In Sour Times Make Lemonade

By Caroline McDonald

NU Online News Service, April 16, 2:55 p.m. EST, NewOrleans? The post-Sept. 11 hard market insurance climateis a chance for risk managers to sharpen their focus and be betterat what they do, an expert advised at an industry conferencehere.

Merritt W. Fabel, director of corporate risk and insurance forAmerican International Group in New York, made his comments duringthe Risk and Insurance Management Society, Inc. annualconference.

Mr. Fabel spoke as a panelist at a seminar titled "The HarshReality: A Post 9-11 State of the Industry"

Even though he is employed by an insurer, Mr. Fabel said that,"I have the same problems [with coverage] that everyone else has,"including questions from upper management about rate hikes.

He said that like risk managers everywhere, it's also difficultfor him to accept current market conditions.

"I have no losses, so therefore why am I being asked to shoulderthe burden of a 200 percent rate increase?" he asked. "Some thingsmake absolutely no sense but I think this is a great opportunityfor risk managers to shine."

For "all too long" in the soft market, "it just came easy tous," he said. "Now we have to work with our own management tobudget for these things," and to get a better feel for theunderlying risks.

In the past, he said, there were issues and coverages that riskmanagers didn't have to focus on. Now, "we're really becoming moreexpert on what are truly the active and passive risks that wehave," he said.

When he is hit with a 200 percent rate increase, he explained,"I already know in the back of my mind that maybe some of thesethings I can self-insure for and I don't really need this."

Back when costs were lower, he continued, it might have been agood price. "But at this point it's a very dear price and there'snothing as expensive as insurance that I don't need."

Brian Merkley, consultant, Tillinghast-Towers Perrin in Dallasgave his company's assessment of how bad the effects of Sept. 11were.

A summary of Tillinghast's analysis of the overall impact onindustry annual claims across various lines of insurance, he said,revealed that more than 20,000 claims have been paid since Sept.11, totaling about $10 billion.

He said the company projects ultimate losses "between $30billion and $58 billion. For both primary insurers and reinsurers,9-11 was likely to be larger than the two previous catastrophescombined."

Those catastrophes were, he said, Hurricane Andrew in 1992,which totaled $20 billion in losses, and the Northridge earthquakein 1994, which totaled $16 billion. "This looks to be close to bothof those combined," he said.

In examining the various lines affected, he said that workers'compensation and liability are "relatively stable." Yet aviation isvery volatile, "depending on the number of crashes each year."

Aviation was greatly affected by 9-11, he said, as wascommercial property and business insurance, "where we saw a 75percent increase in the annual claims in that line."