Printer Friendly

It's not too late for New Year's resolutions.

The start of a new year has traditionally been a time to take stock. In London's insurance community, however, nobody has time to notice that another year has passed until renewal season is over. Still, it is not too late to make the following resolutions, all of which urge risk managers to eradicate many traditional beliefs widely held in today's insurance community.

Recognize that insurers are not interested in risk management. Risk managers should realize by now that it is their responsibility to manage risks. Other professionals and consultants may offer assistance with sincere intentions, but at the end of the day the responsibility lies with the risk manager.

The goal of insurance-that the heavy losses of the few fall lightly on the many-reveals the social responsibility of risk spreading. Yet it also shows that the economic interest of insurers lies in predicting how many losses will make up "the few." Consequently, insurers need to be concerned with loss severity so they can spread the sum of losses, plus costs and profit, among "the many." Thus, it is fair to say that insurers are more interested in risk predictability than risk reduction.

Recognize that insurance brokers are not essential. Brokers still find the notion shocking, and many risk managers still swear by the miracles their brokers have performed. Yet in the United Kingdom some risk managers are already by-passing brokers simply because they are self-insuring or insuring with captive insurance companies.

In addition, the way risk managers pay brokers when they do employ their services is in itself indicative of the way attitudes are changing vis-a-vis insurance buying. Fees rather than commissions are the order of the day. Traditional brokered transactions are absurd because the higher the insurance premium, the higher the commission. No wonder there has always been controversy as to whom the broker really represents.

The key question in assessing if brokers are necessary is: Do they have the expertise or servicing capabilities that are not duplicated by insurers or insurance buyers? In most cases they do, but the areas of exclusive expertise and servicing capability are disappearing fast.

It is true that brokers know which coverages are being offered and where to find large capacity and the best rates, with a few even offering international networks of offices. These attributes were once useful, even indispensable, when risk managers were less knowledgeable about the insurance industry and their companies' risk exposures business and rarely met face to face with their insurers.

Today's risk managers, however, are generally as educated about the insurance business as their brokers. Indeed, many risk managers were once brokers themselves, and brokerage houses are increasingly trying to lure risk managers to their firms with lucrative job offers.

Nevertheless, risk managers are at a disadvantage when it comes to the day-to-day knowledge of the market. The broker places risks every day and can pinpoint an incompetent or inappropriate underwriter. But even this might change in the near future.

Modern technology and communications may make traditional marketplaces such as Lloyd's obsolete, now that it is becoming possible to hold face-to-face meetings with participants from around the world via computers. There is no reason why risk managers could not be connected to underwriting markets in this way and become as current with them as brokers.

Beware of futurologists, particularly those who profess expertise in predicting risk problems. Risk managers would be wise not to rely on so-called political risk experts, who substitute true predictions of difficult-to-envisage events with forecasts of immediate and inevitable consequences of known circumstances. Risk managers should make a concerted effort to approach the future with caution and leave as little to chance as possible.
 Advertisers' Index
Allendale Insurance 56,57
American International Group 52,53
AM-RE Managers 34,35
Argonaut 14,15
Arkwright 68,69
Assets Unlimited 37
Blue Cross/ Blue Shield Assn. 12,13
CIGNA 4th Cover
Environmental Risk Group 40,41
Fidelity & Deposit 9
Gay & Taylor 4
Hartford Steam Boiler (The 2nd Cover
Home Insurance 44,45
Industrial Risk Insurers 3
Johnson & Higgins 1
Liberty Mutual 18,19
Wm. H. McGee & Co., Inc 6
Metropolitan Life 21
North American Reinsurance 3rd Cover
Reliance National 17
Safety Mutual 30
Society of CPCU 50
Sphere Drake 43
Transamerica Insurance Group 64,65
Zurich-American 11

Chris F. Best is editor of Foresight, a London-based insurance and risk management journal published by Risk and Insurance Group Ltd.
COPYRIGHT 1991 Risk Management Society Publishing, Inc.
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1991 Gale, Cengage Learning. All rights reserved.

Article Details
Printer friendly Cite/link Email Feedback
Author:Best, Chris F.
Publication:Risk Management
Date:Feb 1, 1991
Previous Article:ORIMS meets leading brokers of Toronto.
Next Article:IRS issues captive insurer guidelines.

Related Articles
Record Recruitment; Find jobs heaven in 1997.
RESOLUTION TIME; Ditch bad habits, adopt good ones, it's...
Male shot; A man's-eye view, from the editor- at-large of Maxim.
My resolutions failed - but others did brilliantly; View from the clock tower.
Culture capital opportunities must be seized; IN ASSOCIATION WITH Rensburg Sheppards.
Jordanians speak of 2004 resolutions.

Terms of use | Copyright © 2016 Farlex, Inc. | Feedback | For webmasters