Let rigor and a record prevail
Managing liability risks is more challenging than ever. Skyrocketing litigation costs, frequent carrier insolvencies and historically high premiums in some lines–particulary commercial liability and excess casualty–make it difficult to cover a company’s most significant risks at an affordable price.
With unproven carriers bringing to market attractively priced contracts, it can be tempting to leap at lower premiums. This is a costly mistake. A strong liability policy, supported by an insurer experienced at handling complex, high-severity claims, is vital to sound liability risk management.
The carrier you select is the most important factor in determining the strength, reliability and ultimately, the true value or’ your company’s liability protection. Hence, risk managers must be diligent in evaluating carriers based on four attributes: fiscal strength, industry expertise, claims handling ability, and litigation prowess.
First and foremost, risk managers must scrutinize the financial condition of their insurance partners: it is prudent to review a prospective carrier’s ratings from the principal rating agencies. However, as evidenced by the sudden liquidation of once top-rated companies, even high ratings don’t guarantee a carrier’s financial viability.
Today, we must dig deeper, researching, for example, the senior debt ratings of the carrier’s parent company. These ratings can shed light on the insurer’s long-term solvency prospects.
Second, consider your company’s current and future risks and its potential exposure in long-tail lines. Then weigh whether a prospective carrier has the experience and commitment to tackle these risks by evaluating its history and longevity in the market. Does the carrier have a proven track record of supporting insureds in difficult lines through both hard and soft markets? Does the carrier have the flexibility and foresight to be a true consultant in the risk management process? Will the carrier help you prevent and mitigate losses by providing expertise and resources to enhance your pre-loss planning and crisis management capabilities?
A third prerequisite is world-class claims management expertise. A carrier’s ability to deliver what it promises in an insurance contract is what makes a policy powerful–or wholly lacking–when it’s needed most.
Ask your insurer to share complex claims handling history and learn about the structure and staffing of its claims operation. Be sure your carrier knows the loss trends, as well as the litigation strategies and resources that offer the best chance for success.
Finally, your carrier’s relationships with third-party legal defense firms must also be carefully considered. Given today’s unpredictable tort environment and massive jury awards, be sure that your insurer is the one with access to the best legal guns out there. Learn all you can about the legal strategies that your carrier and its attorneys have employed on behalf of commercial insureds.
For lasting security, we must weigh not only a policy’s premium, but also its enduring value. Considering the long-tail nature of many of today’s largest claims, a liability insurer must be able to support its insureds both now and years down the road. Our rigorous evaluation of a carrier’s financial viability, industry expertise and claims and litigation capability is the closest thing we have to a crystal ball–and this should steer every insurance purchase decision.
SORAYA WRIGHT is director of corporate risk management at Clorox Corp.
COPYRIGHT 2004 Axon Group
COPYRIGHT 2004 Gale Group