Fighting Time Lags

Many risk managers become increasingly concerned about the time lags that they experience on renewal quotes. The problem is that, by the time they get a quote from an incumbent insurer, the renewal date is imminent. If the renewal quote is unattractive, little time is left for risk managers to scramble about, get competing bids, and fully explore other options.

Before the market hardened, many risk managers reported that they got quotes two to four weeks before expiration, as quotes are good for only 30 days. Now, however, they often see them three to eight business days before policy expiration dates, with little time for negotiation or review of options. “Take it or leave it” deals abound, unfortunately.

Certainly, some accounts require more specialized attention than others. However, no risk manager can thoroughly review coverage proposals, request changes, make reasonable decisions, and communicate to executive management in just a few days before the renewal date. Theoretically, this might be possible, but it is undesirable from a procedural standpoint. One tip is to try and extend renewal dates in advance if it looks as if you are being backed into a corner.

The types of accounts that can consistently get proposals (with analysis and recommendations) 30 days in advance are likely to be program business and middle-market parochial accounts. If risk managers have any of the following issues, however, they may not get timely proposals:

• National insurer with home office or centralized authority.
• Renewal coinciding with busy reinsurance season (Jan. 1 or July 1) or before an underwriting industry meeting (CPCU or PLUS convention).
• Programs requiring large or global capacity, such as earthquake, business interruption, contingent business interruption, specialized product liability, and international network.
• Pinched capacity from incumbent markets, requiring new insurers or disruption in claims-made continuity.
• Normal dynamics in business operations, such as plant closings, changes in financial conditions, mergers and acquisitions, material uninsured or insured litigation, and concentration of employees.
• Changes in the external risk environment for specific industries (Elliot Spitzer's investigation into mutual fund trading, laddering claims, etc.).

This is just a sampling. Renewals are almost like fencing matches, with underwriters requesting minutiae (e.g., number of employees on each floor for each building, plus construction and occupancy data for all owned and non-owned structures).

The risk manager's job is to give underwriters what they need, but not necessarily everything that they want. This is a balancing act on a tightrope. Be candid without going overboard. After this, if you can get quotes 30 days before the renewal date, congratulate yourself on a great job.

Nearly all quotes have caveats, however: if any material changes occur between the proposal and binding, insurers can modify or withdraw them. Insurers will exercise this right. This is not a purely theoretical concern. Some brokers and risk managers have seen national insurers withdraw $10 million-plus workers' compensation premium quote two days before binding. The reason given was that they had changed their minds on providing unlimited workers' compensation. Making a tender for another firm or asset also could affect insurers' decisions.

Therefore, if your firm is loss-free, has strong financials, needs only standard market capacity, has no specialized coverages, has great internal cooperation in providing you with underwriting data, and works with insurers who are not compensating for five years of deficits, you have a better chance of receiving proposals within 30 days of your upcoming renewal. This is more fantasy than reality, however.

Maximize Broker Influence

Risk managers may want to spend time making sure that they have received the best coverage terms (factoring in price and coverage) or checking that their companies have no transactions that will trouble their insurers.

Talk to your broker. Some insurers issue quotes to brokers at least 30 days before expiration. Brokers sometimes hold quotes until five to seven days (or less) before expiration. Put the kibosh on this. Require that brokers present quotes so that you have a reasonable time frame to review them (at least 15 days). If the broker is afraid to present until just before renewal, maybe you need a new broker.

Set standards for receiving quotes. If the carrier or broker cannot meet those standards, find another. When you choose an insurance broker, make it clear what your service standards are and that you are dead serious in enforcing them. Put the standards in writing and communicate them to your current broker, or to any broker candidates if you are considering making a change. Craft the standards in such a way as to provide extensive lead times for making decisions and avoiding eleventh-hour fire drills.

It is the risk manager's responsibility to set standards. If you let the carrier or broker show up seven days before renewal, you get what you deserve. Establish a calendar, diary, or tickler system that tracks all upcoming renewal dates and flags your attention well in advance. Put it on your e-mail calendar. Get working on renewals with lots of lead time so that there will be no information gaps in your application. This reduces or eliminates the need for further back-and-forth communication between the risk manager, broker, and insurer. It also saves time.

Renew the Broker?

Another aspect of the renewal process meriting consideration is the brokerage relationship. This is a good time to validate the broker's compensation system. Pose various questions to your broker before renewal time approaches. These include: “Do you get any contingent income or override commission from any of the insurance carriers with whom I have coverage? Do you receive any income from management placement agreements? Do you receive any kind of fee income other than the usual commission?

Admittedly, these are awkward questions. Nevertheless, they should be understandable in the wake of recent legal actions taken by the New York State Attorney General's office. No insurance broker should be surprised or offended by risk managers' posing such questions. Any time is an appropriate time to do so, but it might make sense to raise these issues at renewal.

In fact, this also may be an appropriate time to assess the performance of your incumbent insurance broker. Do not stay with the same insurance broker through inertia or habit, any more than you should stay with the same insurance company just because “that's who we have always used.” Your insurance company should earn your business through competitive pricing and excellent service. The renewal date is an ideal time to step back, reflect, and take stock of your insurance company's performance. Likewise, it is an opportunity to assess your insurance broker's performance.

The rewards from a well managed renewal process are more competitive prices, savings in the insurance program, improved service, and a general stress-free feeling. Providing ample lead times and doing homework is a recipe for stacking the deck in your favor and managing the renewal process in a way that works to your advantage.

Admittedly, there is no one single renewal in the risk manager's calendar year. In fact, it is possible that renewal dates will be staggered, calling for similar procedures. After a while, the risk manager should have a template or process to use for managing renewals, whether it pertains to earthquake coverage, general liability insurance, or directors' and officers' liability placement. Regardless of the line of coverage, however, advance lead time and careful planning are crucial.

So why be a slave to fashion, or to risk management fashionistas? (Don't look to me for fashion advice, though. My wife says that my idea of fashion is black socks and sandals with Bermuda shorts.) The basic blocking and tackling of risk management include a core area of insurance renewal management. Screw that up and no one will care much if you can set up a whiz-bang captive on the Isle of Guernsey. Handle it flawlessly and you may always be in style as an effective risk manager.

Kevin Quinley, CPCU, is senior vice president for Medmarc Insurance Group in Chantilly, Va. He can be reached at [email protected].