RIMS 2000: Year of the Internet.

Insurers say they're putting technology talk into action.

A record number of participants at the Risk & Insurance Management Society Inc.'s annual conference and exhibition in San Francisco grappled with changes in risk management, especially the impact of rapidly advancing technology and the "firming" of commercial insurance rates.

Preliminary numbers confirmed that the 2000 conference, which was held April 30 to May 5 and celebrated RIMS's 50th anniversary, had the largest number ever of attendees and exhibits, said Susan Meltzer, assistant vice president, insurance and risk management, Sun Life Financial of Canada, and former RIMS president. The previous record was set at the 1990 conference in Boston, she said.

The 2000 conference was characterized by a growing interest in new technology, including the Internet and risk-management systems, and a substantial presence of technology offerings on the exhibition floor.

"Last year, risk managers were talking about the Internet," said John F. Ryan, vice president of commercial marketing, Liberty Mutual Insurance Co., Boston. "This year they're doing it." A survey conducted by Liberty Mutual and released at the conference revealed that four out of five risk managers surveyed said they spend at least two hours a week on the Internet in their jobs, and 25% reported they spend more than five hours a week online.

Although the official theme of the 2000 RIMS conference was "Building a Stronger Future From a Rich Past," it probably should have been the "Conference of the Internet," Ryan said.

Risk managers at the conference were also talking about rising commercial insurance rates. Liberty Mutual's survey showed increased rates and changes caused by insurance company mergers and acquisitions was the biggest issue risk managers think they will face in 2000.

Risk managers will need to learn a "role reversal" to work in an environment where insurance brokers have an advantage, Meltzer said.

Concerns about workers' compensation cost containment surfaced frequently at the conference. Premiums are going up because of increased medical costs, and full employment means employees aren't as eager to go back to work, Ryan said. Risk managers are interested in aggressive loss-prevention programs, and there seems to be a return to a more holistic management of workers' comp services as opposed to a piecemeal gathering of providers' services, he said.

Globalization was a common thread among discussions at the conference. More companies have international exposures, and they're looking for ways to manage those exposures. Liberty Mutual's survey found that risk managers expect corporate growth and associated risk management challenges to be top concerns.

Chubb: Curb Bermuda Tax Advantage

In light of the position taken by the U.S. Treasury Department on tax shelters, Congress is likely to enact legislation curbing the tax advantages received by U.S. insurance companies that redomesticate reinsurance operations to Bermuda, Chubb Corp. Chairman Dean O'Hare said. "In addition to that, there is nothing to stop the Treasury Department from reaching the same end through regulation," he said.

O'Hare addressed the issue at an informal press conference at the annual conference and exhibition of the Risk & Insurance Management Society Inc. in San Francisco. He said the companies in question are "skimming hundreds of millions of dollars off our Treasury," while companies such as Warren, N.J.-based Chubb are paying effective tax rates of up to 35% on their portfolios.

A long-term effect of the movement of assets offshore could be that Congress would raise taxes of all U.S. insurance companies, he said.

Asked whether Chubb would consider redomesticating, O'Hare said that would be a "reckless" choice for the company. For Chubb, it is not a question of survival but of fairness, said.

"I'm not against legitimate (offshore) reinsurance," he said. "Just the ones that are there for tax purposes." He predicted that Congress will probably pass legislation this year, or the Treasury Department will act.

O'Hare supports the notion of a federal insurance regulator who would focus on solvency.

Brokers, Risk Managers Switch Roles

Acknowledging that commercial insurance rates are rising, RIMS leaders predicted a role reversal for risk managers and insurance brokers during the conference.

Since many current risk managers and brokers have not experienced a hard insurance market, it will be interesting to see if they know how to switch behavior, said former RIMS president Susan Meltzer.

As an example of the increased power that brokers wield today, Meltzer said, "If my broker comes to me this year and says I have to have a 5% increase, I won't kick him Out the door. Now, if he says 15% or 20%, we'll have to talk.

"It's also interesting that brokers say the market is firming instead of hardening," she said. The choice of words reflects brokers' attempts to emphasize relationships between brokers and risk managers, she said.

As part of that emphasis on relationship, "I see a lot of actual underwriting going on," she said. In the past, underwriters have reacted to changes in interest rates or acted as a commodity-based market, she added.

Lance Ewing, director of insurance and loss prevention for GES Exposition Services and RIMS vice president, external affairs, said underwriters had recently come to his facility for the first time to see what they were actually underwriting.

David Mair, associate director, risk management, for the U.S. Olympic Committee and RIMS first vice president, said small insurance buyers are going to feel the pinch of the hard market and will move their accounts, but larger buyers will ride the waves.

Rising Costs Concern Risk Managers

Rising insurance costs, insurance-industry mergers and acquisitions top the list of risk managers concerns for 2000, according to a survey conducted by the Liberty Mutual Group. Results of the survey were released at the RIMS conference.

The next three concerns expressed by survey respondents in descending order of importance were workers' compensation cost containment, claims and claims management, and e-commerce, including the Internet and risk management information systems.

The appearance of rising insurance costs as a No. 1 concern was a major change from the 1999 survey results. which included no mention of costs, said John F. Ryan, Liberty Mutual's vice president of commerical marketing. "In 1999, a lot of companies were telling people the market is changing," he said. "This year, our buyers recognize that rates are increasing."

Workers' comp coverage, including keeping costs down, has been in the survey results for several years, Ryan said. So far, however, there hasn't been a strong movement toward alternative markets for workers' comp coverage, he said.

The response has been more emphasis on strong loss-prevention programs, including good claims management, fraud detection, and getting employees back to work. "Productivity is significant," he said.

Technology Can Help Mitigate Losses

Insurance companies should use rapidly advancing technology to mitigate losses rather than circumvent producers, said Viateur Beaudreau, a director in the Hartford Technology Services Co., a subsidiary of Hartford Financial Services Group. Beaudreau and Dennis Replogle, president of Specialty Risk Services, a third-party administrator subsidiary of Hartford, spoke during the RIMS conference.

Hartford Technology, Hartford, Conn., demonstrated its regard for the Internet with a 3,000% increase in spending on Internet projects in three years, Beaudreau said. In 1998 Hartford spent $6 million on Internet projects. In 2000, it will spend nearly $180 million.

"Through (Internet) pre-sales activity on the front end and policy servicing post sales, we are offering to strengthen the relationships we have with our producers and policyholder risk managers--just the opposite of what the dot-coins are doing," he said.

One way Hartford anticipates technology can help reduce losses is early reporting of workers' compensation claims, Replogle said. A study conducted by Hartford found that claims filed five or more days after an injury cost an average of 15% more for medical and income-replacement benefits than similar claims that had been filed promptly, according to a company statement.

The study analyzed more than 30,000 lost-time workers' comp claims between 1994 and 1998. The injuries fell into three categories--back injuries, carpal tunnel syndrome and other nerve disorders, and miscellaneous injuries--which represent about two-thirds of all lost-time workers' comp claims.

Hartford is also launching a pilot program to process workers' comp medical bills online, Replogle said. "By 2001, we will have all bill paying online," he said.

In the near future, another type of technology-sensors will enable insurers and risk managers to mitigate losses, Beaudreau said. The sensors are inexpensive microchips that can respond to any physical condition, including temperature, motion, sound, odor, light and the absence of light. By combining the sensors with a global wireless satellite network, any of these conditions can be monitored in real time, he said.

An example of how this technology can reduce losses is a customer with a large truck fleet who can now know where the trucks are, how fast they are moving and the temperature inside the trucks, he said. "We could know about potential losses before they occur."

In two to five years, sensors could be implanted into human bodies and could possibly warn employees if their movements could cause injuries, he said.

Lloyd's Seeks Stronger U.S. Profile

Although the United States has always been an important market for Lloyd's of London, providing about one-third of its premium income, the company has embarked on a campaign to make itself better known among U.S. insurance brokers and risk managers. Lloyd's Chairman MaxTaylor described the campaign in an interview at the RIMS conference.

Taylor listed three reasons for the campaign, including:

* Recognition that Lloyd's underwriters need to present Lloyd's and the individual syndicates to risk managers more directly.

* Increased interest from risk managers in learning about Lloyd's.

* Recognition that developing countries present attractive, but longer-term opportunities, and strategies need to be developed for mature countries as well.

In 1999, Lloyd's U.S. premiums totaled $4.8 billion, up 17% from $4.1 billion in 1998. Taylor declined to set a premium goal for the campaign, but said another 17% increase would indicate success.

Of that $4.8 billion, $2.1 billion came from reinsurance, and $1.8 billion came from surplus lines. The remaining premium came from exempt lines, such as aviation, and the small amount of licensed business Lloyd's does in a few states.

One area of opportunity for Lloyd's in the United States is in covering e-commerce risks, said Julian James, managing director, Lloyd's North America. James and several representatives of Lloyd's syndicates spoke at an informal press gathering at the RIMS conference.

Asked whether the campaign would seek to change that distribution, Taylor said it was not up to him to make that decision, but rather the individual syndicates would choose which lines of business they wanted to pursue.

In a survey conducted by Lloyd's among 250 attendees at the conference, 70% of the respondents predicted e-commerce risks would emerge as the biggest new risk of the 21st century.

"E-commerce risks are a natural for Lloyd's," James said. The company is known for taking on unusual risks or new risks with little actuarial loss history. The biggest problem Lloyd's has with underwriting e-commerce risks in the United States is not being able to predict how laws that affect e-commerce will develop, he said.

In addition to e-commerce, respondents to the survey mentioned loss of reputation/brand, class action and terrorism as the biggest risks for the 21st century.

Lloyd's is already responding to the terrorism threat by looking for exposures, such as kidnap and ransom, that arise from U.S. companies doing business abroad, said Barnabas Hurst-Bannister, active underwriter, Limit Syndicate 79.