Preparing for the worst: risk managers are flocking to the annual Risk and Insurance Management Society's conference to discuss hot topics including pandemics, wild weather and terrorism.

Key Points

* All companies should have a plan to respond to a potential pandemic. In the past 100 years, a total of three pandemics have killed 43 million people worldwide.

* Risk managers can prevent 80% of wind storm and hurricane losses if they take steps to make sure their buildings remain water tight.

* Risk managers say a permanent solution to terrorism insurance is still needed.

Even without a cloud in the sky, talk of catastrophes is likely to fill the balmy air of beautiful Honolulu this April as thousands of risk managers converge for the annual Risk and Insurance Management Society's conference.

While last year's conference was dominated by issues stemming from the broker compensation investigations, this year, risk managers are expected to get back to basics, said Mike Liebowitz, incoming RIMS president and director of risk management for Bridgeport Hospital & Healthcare Services Inc., in Bridgeport, Conn.

"We want to get back to real risk management issues," Liebowitz said. "We are no longer just the purchasers of insurance. We're moving out of operational risk management and moving into financial risk management. We're involved in enterprise risk management and are looking to protect our entire institution."

Going beyond the broker compensation issues, risk managers will be discussing ways to improve processes, from binding coverage to resolving claims.

"Can the carrier and the broker come together to get the insured party their policy within 30 days of the binding?" Liebowitz said. "We're talking about service issues. I think we can build on the momentum of the compensation issues to develop a process that our partners can agree upon."

The agenda also is loaded with high-profile speakers, more than 100 classes for risk managers, and many chances to network. Several hot topics on the agenda include the threat of pandemics, severe weather and terrorism.

Pandemic Threats

Risk managers are busy planning and preparing to handle an influenza pandemic, Liebowitz said.

Influenza pandemics happen when an influenza virus infects and can be efficiently transmitted between humans. Animals are the most likely reservoir for these emerging viruses, according to the White House's "National Strategy for Pandemic Influenza." Avian viruses played a role in the last three influenza pandemics. Two of these pandemic-causing viruses remain in circulation and are responsible for the majority of influenza cases each year.

Pandemics have occurred intermittently over centuries. The last three pandemics, in 1918, 1957 and 1968, killed about 40 million, 2 million and 1 million people worldwide, respectively. "Although the timing cannot be predicted, history and science suggest that we will face one or more pandemics in this century," the White House said.

All companies should have a plan to respond to a potential pandemic, risk managers said.

Janice Ochenkowski, director of global risk management for Jones Lang LaSalle, an international commercial real estate firm, said her company has a pandemic threat task force to handle such a challenge.

"We operate in 37 countries. We need to be able to advise our employees and make management decisions if there is an outbreak in a particular region. We need to answer questions for our employees: Should they travel? Should an office be open and operating? Should they work from home? Plus, there's all the benefit and human resources questions," Ochenkowski said. "You can't have all the answers, because you don't know what will happen, but you can have plans and directions. You can have a group assigned to review and manage the process in the event of an outbreak, and that's what we've done."

Some companies or organizations face even greater challenges. When it comes to pandemic risks, the healthcare industry "is like the frosting in an Oreo cookie. We get it from both sides," Liebowitz said. First, hospitals face the same risks that every other corporation faces: supply chain worries and staffing issues. And, if a pandemic did strike, hospitals would have to deal with a surge capacity issue. "What do we do when the masses descend on our emergency department?" he said.

The Bridgeport Hospital has created an incident command center and emergency headquarters where hospital officials could live to oversee the hospital's response to a pandemic or terrorist attack. The center is equipped with various communication methods, including land lines and cell and satellite phones. It also has giant screens so the staff can monitor the news media, both television and Internet. Sleeping quarters and a kitchen are included so the staff, including Liebowitz, could "live there as long as we needed to manage a disaster."

The hospital has mobile hospitals it could use if necessary. Part of developing a plan to handle a pandemic is making sure the hospital can control the people, provide the care, and make sure there are enough products and the right products to treat them, Liebowitz said. "My biggest fear is if we get a disease that we don't have a treatment for, then what are we going to do? ff we have a treatment, we have a good chunk of our issue resolved," he said. "Bird flu is one of the things I worry about. It's a very scary perspective from where I sit."

Wild Weather

Risk managers also are looking to discuss what they learned from hurricanes Katrina, Rita and Wilma, and how they can prepare for future wild weather.

"Do we have enough coverage? Do we have supply chains in place? How do we quickly remediate our losses and reduce our business interruption losses?" Liebowitz said.

As forecasters predict a new 10-year cycle of more intense hurricanes, many insurers have contracted their coverage, lowered limits, raised deductibles and stiffened terms and conditions.

Michael F. Burke, vice president and manager of catastrophe exposures for FM Global, said risk managers may not be able to control the weather, but they can control their losses.

"There's another way to manage risk appetite and manage risk through loss prevention," Burke said. FM Global's business model is unusual in that it employs an army of engineers, rather than actuaries, and focuses on teaching its clients how to prevent losses from happening in the first place.

The company has had much success, Burke said.

For instance, FM Global studied 476 locations, all worth more than $ 5 million, that were subjected to Hurricane Katrina's 60 mph winds. The buildings that had enacted all of FM Global's recommendations reported losses of 34 cents for every $100 in insured value, compared with those who had not enacted all the recommendations, which reported losses of $2.34 per $100 in insured value.

"They had an 80% reduction in loss, by doing these fairly simple recommendations," Burke said. "On average, the recommendations cost $7,400 total (per location). We think our customers spent about $2.5 million total to prevent $500 million in gross losses. And it doesn't have to be through deductibles and business solutions; it's through screws and screw guns."

For instance, Burke estimated that 20% to 25% of all wind losses from hurricanes stem from the improper installation of metal flashing, a structure which anchors the roof in place by being stretched around the perimeter of the roof.

"Buildings don't blow down; roofs blow off and then rain enters the building," Burke said." The loss of a roof cover, valued at $200,000, leads to a loss of $1 million to $100 million loss inside the building. Simply keeping buildings water tight can easily drive 80% of the wind storm/hurricane losses out of risks."

Risk managers also will get a chance to hear how companies handled legal and accounting issues raised by the 2005 hurricane season. "We're focusing on presenting claims, particularly business interruption, which can be a very complex type of claim involving multiple events and multiple causes of events. This is important for our members who were impacted by Katrina, Rita and Wilma, but also for those who weren't, but may be impacted by a future incident," Ochenkowski said.

Terrorism Risks

While some may have thought that the extension of the Terrorism Risk Insurance Act has given risk managers some breathing room, risk managers say it's just a temporary fix.

"It's not just TRIA, it's TRIA and beyond," said Ochenkowski. "First of all, our focus is to provide our members with information that is a comparison of the old TRIA to the new legislation, so they understand the difference."

Risk managers also are concerned about terrorism insurance coverage, availability and pricing, both under the existing legislation and after it expires Dec. 31, 2007.

"It's another temporary two-year Band Aid," Liebowitz said. "We're going to be back in the same boat a year from now, looking for another alternative to TRIA. We know we need the coverage; the economy of the country needs this coverage. We think the big question will be who is going to step up and take responsibility for it."

Ochenkowski said it's unlikely the act will be extended again.

"We as a country and as risk managers need to be aware of the limitations of the extension, and also proactively seek more permanent solutions and some commercially acceptable methods to minimize the terrorism risks to our organizations" she said.

Risk Managers in Paradise

Last year's conference in Philadelphia found many attendees, especially those from the East Coast, wondering what the turnout would be in Honolulu, the first time the society has held a conference there.

But attendance of both risk managers and exhibitors is expected to be strong, Liebowitz said. "People come to the RIMS conference for education and networking. The location is not really an issue" he said.

RIMS officials do not release attendance figures until the conference is underway. Last year, the conference drew about 10,000 attendees. The conference also has been designated an official International Federation of Risk and Insurance Management Associations Inc. event, and will feature several sessions in Japanese, with English translation available.

Next year, the conference will be held in New Orleans, as planned long before Katrina devastated the city.

"We are supporting New Orleans, and moving forward with conference plans for 2007," Liebowitz said. "They will be more than ready to go in April 2007."

An Ounce Of Prevention

Risk managers can prevent up to 80% of hurricane claims by taking steps to keep their buildings waterproof.

Building owners that applied all of FM Global's waterproofing tips reported losses of 34 cents for every $100 in insured value. Those who didn't make all the changes reported losses of $2.34 per $100 in insured value.</p> <pre> Building Upgrades Avert Losses Unimproved Locations $2.34 Improved Locations $0.34 Note: Table made from bar graph. </pre> <p>Prevention in a Flash

By properly securing the metal perimeter flashing, which should be fastened to the outside wall of the building, rather than through the roof, risk managers could prevent up to 25% of wind loss damage.

Risk and Insurance Management Society Annual Conference & Exhibition

When: April 23-27

Where: Hawaii Convention Center, Honolulu

Contact: www.rims.org

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