Specialty markets for risk management.
Niche companies are often organized by the very constituencies they serve in response to perceived voids in the larger insurance marketplace. The companies work hard to maintain the strong ties they have with their policyholders. To that end, specialty insurers spend a significant amount of time "inside" their constituencies, gathering and sharing intelligence about trends and major events affecting the industry. As their constituencies grow, change and become subject to expanded liabilities, niche companies respond with new coverage products and packages.
Exotic risks are often good prospects for niche marketing, because they have several unique qualities that require special attention from risk managers and underwriters. Additionally, although exotic risks are unusual, they are often common enough so that they constitute a profitable market. Typical examples of exotic risks include livestock, zoo animals, school buses, members of the clergy, pharmacists, precious stones and expensive items of jewelry. Because each of these risks presents a set of unusual coverage challenges for risk managers, niche companies have been created to provide the appropriate policies for these organizations.
Three types of exotic commercial risks are described below. Each of these enterprises produces a unique set of risk management challenges - and each has spurred the creation of a successful niche company.
NEW RISKS FOR PHARMACIES
Even for people with health insurance, the cost of getting a doctor's opinion continues to rise. However, the neighborhood pharmacist's advice comes free of charge. For an increasingly health- and fitness-obsessed American public, the choice seems dear: try the pharmacy first.
Fortunately, improvements in medical technology and delivery systems allow pharmacists to accommodate their customers' need for advice. Pharmacies now augment their traditional "drug store" repertoire of solid and liquid dosage prescriptions with new products and services, such as durable medical equipment and preparation of intravenous solutions. Unfortunately, new lines of business also bring new liability exposures. "As pharmacists' counselling duties increase and there is increased reliance upon them to be experts in medications, professional liability for the pharmacist has gotten away from the products liability coverage of years past," says Jack Williams, risk manager/loss control specialist for Pharmacists Mutual Insurance Co. Therefore, it is likely that the professional liability of pharmacists will continue to expand. "As much as the pharmacy business has changed in the past 25 years, it is expected to change even more dramatically in the next 25 years," predicts Mr. Williams.
Some of the pharmacies that deal in durable medical equipment, such as wheelchairs, crutches, braces, hospital beds, food pumps and breathing apparatuses, simply stock and sell these products. Other pharmacies go further: Some, for example, have professional therapists or nurses on staff to consult with customers about. using the equipment.
"Intravenous pharmacies" prepare intravenous solutions - on physicians' orders - for use in nursing homes or in-home care situations. They may also prepare nutritive solutions, which are administered either intravenously or through gastric tubes. These tasks once were performed exclusively in hospitals. However, today hospitals release patients earlier in the recovery process, often while the patient is still in need of supervised care. As a result, an increasing number of pharmacies are taking advantage of this business opportunity by moving into the area of intravenous solution preparation.
When acting in their capacity as "consulting pharmacists," individual pharmacists do not actually dispense medications. Instead, they work with physicians, conducting drug utilization reviews and evaluations of medications prescribed for patients in hospitals and nursing homes, and for people receiving in-home care. Since this is a relatively new field for pharmacists, "there have been few tests of the extent of liability the pharmacist may assume in this role," notes Mr. Williams.
Mr. Williams also says that, over the next several years, it is likely that there will be a greater number of claims brought against pharmacists for counselling, or failing to counsel, patients. Therefore, it seems the free advice people get at their local pharmacy is, in fact, potentially very expensive - at least for the pharmacist.
JEWELRY AND THE RISK OF LOSS
Jewelry store owners and operators face an unusually daunting task: maintaining control over inventory that comprises expensive, highly sought after, small, easily transportable objects. As a result, their inventory is highly susceptible to damage and loss. Additionally, jewelry has the dubious distinction of being a very popular target for thieves, since stones and precious metals are easy to hide and dispose of.
Consequently, successful risk management programs for jewelry wholesalers, retailers and manufacturers require extensive security systems in addition to specialized insurance coverage. An increase in crime has caused security concerns to "surge to the forefront" of the jewelry insurance industry in recent years, says Ronald R. Harder, president and chief executive officer of Jewelers Mutual Insurance Co. "Before we take on any new risk, we need to know that effective physical, electronic and procedural security systems are utilized on a continuing basis," he says.
For protection, jewelers commonly use physical security devices such as safes, vaults and locks, and electronic security systems, including alarms, motion detectors and surveillance equipment. However, procedural security is often the key to loss prevention. Essentially, procedural security strategies involve determining how jewelry is to be displayed and handled by employees, how customers are to be attended to, and the procedures to be used in hiring and training employees. Effective procedural security strategies also ensure that store staff become an integral part of the security system by learning such things as how to tell when the store is being 'cased' by a potential thief, and what to do about it. "We have found that, although you are insuring the tangible, it's often the intangible factors that are most important," notes Mr. Harder. "Loss prevention begins with an owner's attitude and the employees' willingness to participate."
When, despite the best precautions, jewelry is lost, damaged or stolen, another special insurance consideration arises replacement. Although craftspeople can recreate most items of jewelry by using similar materials, some precious stones have no equal in terms of size, cut and quality. As a result, insurers are very careful about the dollar amount that they are willing to assume on particular items. "If the piece cannot be replaced, it's probably not a good risk," says Mr. Harder. "For example, the Hope Diamond. Where could you find another one? We would much rather replace an item than just pay for its value."
COVERAGE FOR CHURCHES
Churches require a unique package of insurance products to cover themselves, their clergy and church-affiliated organizations, such as camps, schools and nursing homes. "Within the past several years, the scope of liability facing these institutions has become extraordinarily broad and far-reaching," says Dieter H. Nickel, chairman and president of Church Mutual Insurance Co. One key to the expanding liability of churches is the fact that charitable immunity for religious organizations, which was once common, has disappeared or has been sharply limited in almost every state. In addition, the number and range of on- and off-premises activities sponsored by churches has increased greatly.
In particular, many churches now sponsor several activities - many of which are potentially hazardous - for the younger members of their congregations. These activities can include skiing, hiking, biking, boating, swimming, hayrides, horseback riding, three-wheeling, football, softball, basketball, rope courses, tubing, sledding, trampoline jumping and snowmobiling. Because of the potentially hazardous nature of these activities, adult supervision is of paramount importance to church officials, parents and church insurers. Churches also maintain their traditional ties to children through schools, day-care centers and bible camps.
Church youth-related programs have created a wide exposure to claims of sexual molestation. Consequently, some insurers now offer liability coverage against such allegations. "This is one of the most challenging areas of risk management today," states Mr. Nickel.
Another relatively new risk for churches is counseling professional liability for members of the clergy, who regularly act as counselors for congregants. In recent years, there have been several well-publicized cases of people who felt that they suffered personal losses, such as a divorce or a relative's suicide, that were directly attributable to improper counseling by a church employee. Because such intangible damages are not included under general liability coverage, specific counseling insurance is necessary for these exposures.
The property-related risks that confront churches are also extremely atypical. Since churches are unoccupied for hours at a time during both day and night, they are popular targets for thieves, vandals and arsonists. In addition, tall steeples on top of churches frequently attract bolts of lightning. Many church buildings are very old - some are officially registered as historical landmarks - and are often ornate, with intricate stained glass windows and interiors featuring molded plaster, gold leaf and hand-worked wood. Such architecturally unique buildings are exceptionally expensive to repair or replace. In addition, church organs, which are covered under the building's property limit, can be worth hundreds of thousands of dollars. So how does an underwriter approach such an exotic risk? "Pray a lot," says Mr. Nickel.
THE RISK MANAGER-NICHE UNDERWRITER RELATIONSHIP
When making decisions about whether to choose products and services offered by niche companies, risk managers should realize that niche companies consider themselves, above all else, to be experts in their field. They rely heavily on being able to gather accurate and timely information about the industries they serve, specific information about the individuals and businesses they underwrite, and all the relevant information about the legal environment surrounding their insureds.
The alliance between the risk manager and the niche underwriter will be most effective when the risk manager appreciates and utilizes the underwriter's expertise to the fullest extent possible. When this occurs, risks can be reduced, losses can be prevented or controlled and profits can be enjoyed by those on both sides of the insurance equation.
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|Author:||Rochman, Julie A.|
|Date:||Dec 1, 1992|
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