Winning the loss

The lack of capacity in the post-11 September market means that commercial clients are having to take on more risk themselves. As a result deductibles are growing and, for those with a claims history, deductibles are a major headache.

One major UK retailer now has a deductible for each and every property loss of more than £30m. That's up from the 2001 industry standard of a couple of million per loss.

Understandably, loss adjusters, lawyers and anyone else who thinks they can manage claims and recover uninsured losses, are rubbing their hands at the prospect of moving up the food chain.

Pàdraig Croke, Dublin-based area director of loss adjuster Cunningham Lindsey, says the trend towards higher deductibles has already encouraged corporate clients to turn to loss adjusters to handle claims below the new thresholds. Previously, he notes, this service was provided by the underwriters. It has become common for policyholders to ask loss adjusters to effectively act as a claims department, providing risk management advice, handling correspondence and taking claims through to their conclusion.

GAB Robins chief operating officer Benedict Burke sees enhanced opportunities in the alternative risk transfer (ART) market. He says: "We think the door had opened prior to 11 September. But undoubtedly the restriction around capacity and reinsurance capacity has reinforced that strategy. And I think these claims management opportunities are there for the long term.".

And it's not just claims handling that clients are crying out for. Risk management services can help policyholders avoid future problems. Clients might be advised, for instance, to pay more attention to the exposures from such risks as slips and falls.

Philip West, managing partner at law firm Davies Lavery, says his firm is now chasing the high deductible market. "We're now approaching a lot of companies with a package whereby we can deal with the claims inside their deductible."

West also sees the possibility of increased scope for disputes, as insurers seek further to limit their exposures by changing their wordings.

Shopping around
Tim Gregory, Miller Fisher's director of UK loss adjusting, says a corporate that is asked to accept a vastly increased deductible might first shop around before discovering that there is little alternative in terms of insurance cover in the current market. The next step would be to look for ways to manage the enhanced level of risk, while seeking ways to reduce the incidence and cost of future claims. Staff training of insureds is a key priority for Gregory. He stresses the importance of making managers aware of health and safety regulations. "You've got to put it on people's agenda," he says.

Stuart White, a partner at Reynolds Porter Chamberlain (RPC), says the law firm has seen a number of major insurers outsourcing a significant proportion of their claims handling to RPC.

Lawyers, White says, can help clients manage risk in key areas. Proper attention to procedure, for instance, can minimise unfair dismissal claims. Similarly, good legal advice can help brokers to stay on the right side of the regulators.

There are also opportunities for lawyers to scrutinise insurance contracts on behalf of insureds to protect them against unwanted exclusions. "Many claims are larger than they need be because of sloppy contracting," adds White.

Bearers of bad news
Smaller businesses, which are unlikely to have in-house lawyers, often look to outside counsel in such areas as: terms of trading; property commitments; information technology contracts; media relations; and the protection of intellectual property. Even larger businesses with their own staff lawyers often need specialist legal services.

The tightening of capacity has caused some difficulties for brokers, who have to deliver the bad news to clients. Matthew Clark, commercial director of London broker Tolson Messenger, says most clients understand the pressures that the insurers are under. But at the same time clients may point out that their own risk profiles have not changed. And there are complaints from insureds about deteriorating service from the underwriters.

Big premium increases do stretch the patience. An underwriter who was happy to accept the prevailing market rate just 12 months ago might now be looking for five times that amount.

Clark also cites the imposition of restrictive impositions on financial lines policies, notably for wrongful acts that had been previously covered under directors' and officers' (D&O) wordings. One such change, brought in by AIG, would involve the refusal of an insurer to pay a claim where such wrongful acts had led to the insolvency of a company.

"Including this clause," says Clark, "is a bit like AIG saying that they just don't want to underwrite such risks any more."

Such attitudes among underwriters can also create problems for brokers who know that there is a market for this kind of cover. Provided good risk management is in place, there should be a price for everything.

A tougher attitude by insurers toward these risks can have the salutary effect of forcing brokers to be more careful with the risks they present. Clark says: "I suspect that where brokers' submissions are poor, underwriters find it much easier to say no."

A lack of capacity, along with the high cost of premiums, has already pushed big corporate clients to look for insurance alternatives. "The emergence of greater risk management has meant major corporates have been increasingly confident of taking high levels of self-insurance," says Burke.

Risk management
The focus of Robins Claims Solutions was on the desire of corporates to control their own risk, particularly in such areas as employers' liability (EL), product liability and motor. Rather than place these risks in the standard carrier market, Burke says companies were opting to take very large deductibles or run the risks through offshore-based captives.

Such companies needed virtual claims departments to handle such things as notification of loss, multi-currency accounting and the payment of third parties. The use of a specialised service provider allows the client to control the service standards and the price for claims management work.

Opportunities have increased as insurers have become more wary of both the London Market and the major corporate risk market in the wake of 11 September.

"Brokers are finding the need to offer risk management advice," says

Burke, "which doesn't necessarily mean placement of risk in the traditional way."