Buyers will be pressured to figure out how to respond, “especially if they have to go through certain internal hurdles to get decisions like that made,” he said.

Concentrated workers' comp risk is another challenge facing buyers, “and it relates to the same matter, and that is terrorism risk, because concentration risk is the new exposure that underwriters hadn't given a lot of thought to before,” he explained.

Mr. Mandel maintained that “broader enterprise risk discipline” will take on new urgency this year, due to the threat of terrorism and partly because of corporate failures–which, he said, have highlighted the need for a broader risk management perspective.

“This means traditional risk managers need to get out of their boxes and sign up for the broader question of addressing all the material and significant risks to your enterprise,” he said.

This raises all kinds of “thorny issues for people because if they didn't take that initiative before and they try to now, they may find all kinds of results,” including the possibility that the internal auditor or some other function head “has beat you to it.”

Even worse, the question could be raised whether certain risks belong under the auspices of a risk manager at all, he added.

The question risk managers need to be asking themselves, he said, is: “Are you really a world-class operation?”

He warned that chief financial officers who are “under the gun” because of recent corporate failures and accounting scandals will “not take that heat by themselves.”

Since the majority of risk managers report to CFOs and treasurers, he said, “I think they're going to distribute that stress down through the ranks to their other function leaders, like risk managers,” and expect that the risk managers are running world-class operations, he said.

What does “world class” mean? It implies that risk managers should be getting respect to the point of being treated like “the internal expert that you are supposed to be,” he said. Others should “listen when you talk and display your opinions,” he added.

In today's business climate, he warned, risk managers also have to become more efficient.

“This has become very real and has manifested itself in significant ways,” he said. There is danger that after downsizing and getting rid of their risk managers, he added, some companies may ask, “'do I even need one'which I find incredible. It's the old continuing problem of do-more-with-less.”

In mid-sized companies, where the chief financial officer or treasurer distributes duties to other staff, there could be an overlap between functions, he said.

“If you have, say, a group focused on financial risk management and they've been able to get the banners and the attention that insurance risk managers haven't, a CFO may see them as being more qualified to handle risk management as they define it.”

Mike Mead, immediate past-chairman and a director of the Captive Insurance Companies Association in Minneapolis, said that insurance buyers seeking better coverage and a reprieve in the alternative market from higher premiums might have to stay where they are.

As a captive promoter, he said, “I almost hate to say this, but I'm afraid for many of them their only choice is to spend more money in the traditional marketplace” even though “the marketplace is going to continue to shrink and there will continue to be great difficulty with availability.”

Although many have tried, both successfully and unsuccessfully, to turn to the alternative market as a potential solution in 2001 and 2002, “the facts have never changedcaptives and alternatives are not for everybody,” he said. “The fact that you can't find any insurance doesn't change the fact that you may not be qualified for a captive.”

Mr. Mead said that he is “happy to talk to people about [captives and risk retention groups] and help them set them up, but fronting is going to get worse and worse, reinsurance will get worse, fees will go up. People are going to spend a lot more money to finance their risks in 2003.”

One of the main reasons organizations may not qualify, he said, is size. “All of us in the captive management industry get people whose premium went from $35,000 to $70,000 and so they want a captivethat's ridiculous,” he explained. “You really need to be above $1 million in annual premiums to look at a captive.”

He said other qualification aspects are often overlooked, such as the resources of management.

“You have to have the ability to have a high-level decision maker involved in running the captive,” he said. “If other pressures of business and the economy don't allow you to dedicate a person to do that, you shouldn't be doing the captive because it's not going to go well. You have to look at a lot of aspects of the situation.”

Tracy Dahl-Webb, president of the Public Risk Management Association in Arlington, Va., and human resources and risk management director for the city of Brookings, S.D., said that the unique challenge for the public sector is “the magnitude of what we have to handle and how far spread it can be,” as well as the public's right and perception that “we'll take care of things so that they don't need to be worrying about them.”

Specifically, she said, public risk managers have multiple issues with insurance including loss of coverage, increased deductibles, lower limits and in some cases complete denial of coverage.

“It's the compounding effect of the hardening market and the increased exposures that we have now recognized with the activities all over the world,” she said.

Also, she said, experiences and exposures for public risk managers vary depending on their location.

In regards to terrorism coverage, she said, “we have a lot of entities that have huge holdings, and not having that coverage is a very scary thing.”

She said PRIMA would be following the Treasury Department to keep its members–especially large cities that are fully self-insured–informed of updates in implementing the Terrorism Risk Insurance Act, which requires insurers to offer the coverage and itemize the price, but does not require buyers to purchase it.

What's most difficult for public entities is that they are expected to maintain standards such as response time for fire departments despite having fewer employees due to budget cuts.

“Being public servants, people continue to strive,” she said. “I look at my own employees. The hours they are putting in and the efforts they are putting forth are increasing, but how long can they continue to do that?”

Reproduced from National Underwriter Property & Casualty/Risk & Benefits Management Edition, January 6, 2003. Copyright 2003 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.