Looking at risk anew: Some aspects of risk management--particularly subrogation and crisis response--are getting a closer look since the Sept. 11 attacks. (Property/Casualty).

A company's risk-management strategy must take many potential risks into account and find solutions to cover them, say attorneys for the insurance specialist firm Cozen O'Connor.

Since Sept. 11, some ignored aspects of risk management are now beginning to emerge on the risk manager's radar screen--especially subrogation and crisis response, they said.

Elliot Feldman and Joseph Gerber, who co-chair a practice group within the firm known as "crisis response and management," say they are seeing more risk managers looking for more alternatives in their strategies since Sept. 11 and the subsequent hardening insurance market. "All risk managers today must be concerned with each and every aspect of crisis response," said Gerber. "You must make sure you have the right insurance coverages in place. But you also must have a crisis-response plan and a recovery plan in place."

Gerber pointed out that 49% of commercial property insurance in 2001 was underwritten through captives. "What that tells me is that there is an increasing trend toward self-insurance," he said. "Most of these properties have a defensive mentality. They don't want to be sued. They want to limit their liability exposures."

Although many companies--particularly large ones--are aggressive in protecting themselves against first-party liability claims, they are somehow less vigilant against third-party claims. Subrogation--the right of the insurance company to recover from a third party the amount paid under a policy--is an underemphasized aspect of the risk-management strategies of most companies, said Gerber.

"The challenge for risk managers who administer insurance programs for large companies is that, when a significant loss occurs, there is a system in place for immediate, thorough investigation, preservation of evidence, retention and management of consultants, notice to potentially responsible parties and overall protection of that company's rights," said Gerber. "If it is not done immediately after the loss, in many instances those rights and claims are going to be lost or impaired."

De Facto Insurance Company

Gerber pointed out that a company that self-insures large risks and has a large deductible on its coverage is a de facto insurance company, and therefore should approach its loss management as an insurer would. "What insurance companies have been doing is to have a thorough and effective program for enforcing claims against third parties," he said.

A self-insured company that suffers a fire, explosion or water leak, or any type of property/casualty loss, has to be prepared with a crisis-management system--which Feldman described as an expansion of loss-control procedures--which will put key company people (insurance personnel, lawyers, engineers, etc.) into action within minutes of the loss event.

In legal disputes, especially involving third-party claims, Feldman said the courts "are very exacting" in terms of what they expect from insurers and large, sophisticated self-insured companies with respect to documenting the loss site, preserving evidence and giving potentially responsible parties the same opportunities as the party that suffered the loss to evaluate the physical evidence.

"The insurance market is getting harder by the minute and will continue to do so for some time to come," said Gerber. "You will see much larger deductibles and self-insured retentions on the property side, because it's an effective way to lower the premium. Everybody is moving toward these large deductibles, making them self-insured for a good number of their losses.

"If they simply eat them, they are missing out on the opportunity to make meaningful collections from responsible third parties," he said. "Unfortunately, a lot of these companies are simply not focused on this aspect of the exposure."

The missed opportunities for subrogation are gaining a lot of attention from corporate risk managers since Sept. 11, because the insurance deductibles and risk-retention levels have risen immediately and dramatically, Gerber said. "Since Sept. 11, there are a lot of areas that aren't even insurable," he said. "The move toward self-insurance, to some extent, is being prompted by the insurance industry's underwriting restrictions. Some companies simply find they are unable to obtain coverage against some acts of third parties."

Those trends are driving renewed interest in preventive measures against potential loss and a crisis-management plan when a loss does occur, Gerber said.