Top of the agenda for risk managers is having confidence in the financial


stability of the insurer. Most use ratings agencies as their primary method of analysing this risk, but some also conduct their own analysis.


“Financial stability is extremely important to us,” says Brendan Cahalan,


risk manager at Standard Motor Products. “We do not do business with anybody who is rated lower than ‘A’, according to A.M. Best, as we do not want to be involved with anyone whose finances are in any kind of question.”


The importance of their ratings has not been lost on the carriers either. “Ratings are very important, as they provide a form of signalling device


to the marketplace as to an insurer’s solvency and to the way in which they behave—in other words, the ratings give some indication if the company behaves in a manner expected of a single or double ‘A’, or a ‘B’ company,” says Jacob Rosengarten, chief enterprise risk officer at XL.


“Ratings provide a statement about corporate behaviour, and solvency.


Therefore, we take it very seriously, and I cannot imagine that any company would feel otherwise.


“So what do you need to do to maintain a rating? First of all, we are very conscious of our solvency, and that we strive to be as well capitalised as we need to be. We use internal economic capital models to measure and report on solvency on a routine basis. As part of this, we also employ stress tests to make sure that, if stress should occur, our capital strength is maintained.


“We also consider our company’s appetite for risk; these appetites form


a type of utility function by which we can help define mile posts of success or weakness. We determine that we are operating our business in a manner consistent with our appetites.”


But negotiations do not end with financial stability. Many risk managers


seek flexibility from carriers, and this can often represent a deal breaker when it comes to winning business.


“The terms and conditions are important, and we would naturally


want them to be in our favour,” says Cahalan. “We need to know that the carrier is not too rigid and will make an exception on issues that impact us, but maybe not other insureds. Flexibility is the key.


“We must ensure we are not just being given some kind of ‘off-the-shelf ’


coverage. We need to know they understand our business so if we have a unique risk, especially on a one-off basis, we are accommodated.”


The integrity of an insurer is also important to risk managers, according


to Diane Bascom, senior risk manager at Stanley Black & Decker. “Integrity is a fundamental quality of a successful relationship and is the


ethical code to serve as the guide for our business relationships,” she says. “It is critical that integrity be the foundation of the broker, insurer and client relationship. We look to the insurers we do business with to provide broad coverage at competitive and reasonable rates.”


Integral to building this sense of trust between the risk manager and


their insurer is building a good relationship. It is important that both parties have a good understanding of the other’s needs.


“From our perspective, it is all about meeting with the client and building


that relationship. We want to make sure they are comfortable that we are offering a product that is the right fit for them,” says Richard Bessinger, senior vice president, Starr Indemnity & Liability Company—a member of Starr Companies. “They need to know that we are underwriters who understand what their operations are about and that we can provide solutions to the client.


“Every client is different and has their own items of concern, so it is important that they have a partner in their insurer who takes the time to understand what the insured operations involve, and who can provide appropriate solutions to them.”


The importance of going the extra mile to impress a client is well


understood by insurers—however, risk managers recognise the need for communication on their part as well to ensure a beneficial outcome for both parties.


“We think that, overall, underwriters are improving in these areas.” says Bascom. “Naturally, the level of improvement varies from one insurer to another and, quite frankly, from one underwriter to another within the same insurance company. Improved communications between the parties, especially in terms of goals and expectations, has contributed to this result.


“Likewise, it is imperative for risk managers to communicate their


expectations early on in the renewal process and provide underwriting submissions early enough for the underwriters to meet the risk managers’ time lines.”


While it is important for carriers to recognise the current needs of their


client—and be able to match those needs with the appropriate coverage— they must also be able to anticipate their client’s future needs, so that they can advise their client accordingly.


“Because of the speed of introduction of new technologies and new


ways of doing business, risk managers will always be required to balance the potential benefits of these new technologies against what kind of catastrophic exposures they could produce,” says Rosengarten.


“For example, if you only design your business to withstand unusual


extremes, and price accordingly, then you might end up pricing yourself out of the market. However, if extreme scenarios are not given sufficient weight, then you run the risk of suffering a material loss event.


“Increasingly, risk managers will continually need to balance these two


issues together, in order to let commerce move ahead, whilst simultaneously ensuring that a very bad stress scenario has been considered and can be managed.”


Making those kinds of judgements is never going to be simple and


there is no doubt that an effective relationship between the client and their insurer will help the client to better understand their needs and exposures. This means that whatever the future holds, communication will always be key to building understanding between a risk manager and their insurer.


September 2011 | INTELLIGENT INSURER | 69


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