|
Seaview 2002 - IRU Fall Conference - A Recap
Following cancellation of the 2001 Fall Conference for only the second time in the IRU's history, the large and enthusiastic turnout for this year's conference at the Seaview Resort was clear evidence that the membership was delighted to be back together for the camaraderie and education which took place on September 9 & 10. Perhaps it was the choice of venue and/or another of Tony Joseph's exemplary programs which lured the largest attendance in quite some years. Regardless of the reason, the Seaview Conference cleaned out the cobwebs, and provided an informative jump-start for the upcoming renewal season. Following President Gordon Olver's welcoming remarks, Tony Joseph introduced his lead-off speaker - AIG's Bill Cotter, Chief Underwriting Officer of National Union Fire, who got things started by reviewing the evolution of the market for Directors & Officers Liability in light of the Enron and other corporate scandals. According to Mr. Cotter, although D & O coverage for privately-traded companies has been generally profitable, such has not been the case with respect to the high profile exposures emanating from the stock company sector which has been besieged by allegations of fraud and misdealing. Quite the contrary, D & O insurers have suffered considerable losses from coverage issued to their higher profiled clients, thereby justifying a general need for rate increases of 205%, and as much as 250% to generate a more satisfactory 15% return. Aside from remedial price changes, there is also need for coverage changes to eliminate such existing flaws such as a dilution of "individual" coverage which has often been eroded by the application of coverage to the "entity" when a claim occurs. These and other issues are also addressed in a White Paper on D&O Insurance written by Mr. Cotter and Christopher Barbee which will be published in the Winter Issue of the Journal of Reinsurance. Compounding the pressures evident in the D & O market, Sharon Caffrey and Craig Turet of Duane Morris LLP & Affiliates described even worse developments arising from the dramatic increase in asbestos claims emanating from the aggression and creativity of the plaintiff's bar. Although original estimates contemplated that asbestos claims would be generally wrapped up by the year 2010, it now appears that such forecast was rather optimistic, and that the target date for such wrap-up will be 20-30 years later in order to cope with more than 500,000 claims in the pipeline. Such increase in claim activity emanates from the targeted expansion of law suits to smaller companies, including plumbing contractors, insulation companies, etc., following the demise of many larger firms already bankrupted by asbestos related claims. In addition, defense counsel continue to face a myriad of problems such as plaintiff competition, stratification issues, dearth of resources, demand for speedy trials, fewer defendants at trial, increased demand, soaring verdicts, and the disappearance of manufacturing targets. Unfortunately, those problems are only minimally offset by more savvy judges who freeze the less deserving cases, and some possible movement to enact legislation which may stem the tide of asbestos lawsuits. During his presentation on the evolution of the Surety market, Dick Young (Guy Carpenter) demonstrated how the results of the last two decades reflect the traditional elements of the underwriting cycle. In brief, the poor industry results for the period from 1983-89 turned around and generated net underwriting gains during the 90's based on re-underwriting and a back-to-basics mentality, with greater focus on aggregate exposures and the enhancement of computer capabilities. The good times for reinsurers lasted until 1999 when competitive pressures returned, and disastrous claims produced loss ratios well in excess of 200%. Although the tragedy of 9/11 had only minimal effects on the Surety market, the same could not be said of the Enron debacle which not only generated the prospect of a huge loss in its own right, but brought Surety to the attention of senior management and Boards of Directors. As a consequence, the market has suffered a number of defections, and the back-to-basics mentality has returned, not to mention an underwriting mindset which is focusing on increased rates, new coverage limitations, and reduced limits. With respect to the future, the outcome of the Enron litigation will certainly influence market direction which will also be impacted by the staying power of reinsurers weakened by current loss activity. Aside from generating the aforementioned underwriting adjustments, those pressures will likely force buyers to find alterative methods/facilities to handle contract and commercial accounts with large capacity requirements. At the beginning of day 2, Jeff Kucera (Miller, Herbers, Lehmann & Associates), brought the popularity and significance of Mold claims and exposures into better focus for his reinsurance audience. In brief, despite all the hype and publicity, there continues to be a dearth of public information on mold, and more particularly, on the damage it can cause. Thus far, the cost of mold to insurers is primarily driven by the fear of such health risks as migraines, failed memory, sore throats, earaches, body tremors, etc. Unfortunately, the absence of knowledgeable impact of mold, an organism prevalent in every home and building, has not deterred the public and more particularly, the legal community from filing claim actions. Of particular interest, however, is that the Ballard action which resulted in a $32 million verdict against the Farmers Group was not adjudicated based on an uninhabitable condition originating from mold, but rather from the allegation that Farmers handled the claim unfairly. In order to cope with the magnitude of mold actions, the insurance community has taken action to exclude or limit coverage for mold, and is supporting legislation designed to come to grips with this peril. During his presentation, Lance Finley (Guy Carpenter) emphasized the importance of reinsurance contract wording in general, and reviewed various issues which should be addressed in formulating specific provisions in the agreement. He focused particular attention on long-standing contractual issues in such areas as: extra contractual obligations, excess of policy limits, declaratory judgment expenses, and claim notices/settlements, as well as more current issues involving terrorism, mold, cyber risk, and "entire agreement" wording. During the course of his presentation, Mr. Finely suggested the following concentrated and proactive effort in order to minimize disputes arising from contract language:
Lastly, but certainly not least, Gina Higgins (Managing Director, MARSH FINPRO) provided an animated dissertation on Employment Practice Liability (EPL) in the U.S. Sexual harassment, discrimination, and improper termination have been the three critical issues which have prompted the surge in exposure, as well as demand for EPL insurance. Although initially included within the scope of CGL coverages, EPL insurance has emerged as a stand-alone form providing somewhat unique coverage for non-fortuitous events. Among the interesting statistics which reflect the growth in the EPL arena:
Future trends also lead to ominous expectations, based on:
All of these ingredients have caused the EPL environment to be characterized as a "free for all" and resulted in premium increases of the 400% magnitude. Additional Highlights In addition to the excellent educational presentations, the Conference included the following highlights of significance to the IRU membership:
Again, thanks to Tony Joseph, Mary K. Clancy and Guy Benthin for another great conference! See you all at the PGA National Resort & Spa next March 9-11, 2003. Hope the renewal season goes well in the meantime.
Paul Walther
|