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Senior Vice President
Bowring Marsh, Bermuda

Chemistry of Contract Language Unraveled

Large chemical plants and hazardous materials in the supply chain are obvious exposures, but nonobvious ones-- odorless and colorless-- are what most vex risk managers in the chemical industry.

For one, there are the sheer complexities of hundreds of products, many with multiple grades, forms, and specifications. That, complicated by the variables of multiple sites and the ubiquity of contract workers makes even basic risk management in the chemical industry a challenge.

"Krista has successfully negotiated consistent and favorable policy terms with multiple insurers within an excess liability program that are customized for a company with a challenging risk profile," one client said. "Consistency of policy terms and conditions are extremely important in an excess-liability program that does not provide follow-form coverage."

Doran, familiar with complex contract language, is also adept with manuscript terms, this client said. The Bermuda market was closely involved with the Deepwater Horizon blowout, but that disaster had a knock-on effect on the chemical markets and on the companies that make materials and chemicals used in the containment and remediation efforts.

Clients cite her expertise in working with jittery underwriters to prevent knee-jerk tightening of terms, or increases in premiums or exclusions. Because of exclusions arising out of the Deepwater Horizon tragedy clients are grateful for Doran, a senior vice president for Bowring Marsh, as she unravels the chemistry of the anguage at renewal and the rest of the year.

Managing Director
Aon, Philadelphia

Broker Imparts Clarity of Language

There is an adage that nothing is final and complete until you read about it the next day. And so it was for one of Hoffman's clients who thought they were moving smoothly through a routine renewal.

"Christian placed our directors' and officers' (D&O) coverage with enhanced terms, a much lower retention and for about half of the premium charged in the prior year," said the director of risk management. "This exceeded premium reduction expectations of about 30 percent going into the renewal. He and his team were altogether professional in their approach and timely in response to all questions and even a last minute change in coverage."

In another situation, a large chemical company with a diverse product line decided to overhaul its risk management program. In a dramatic stroke, the company eschewed the long and complex request-for-proposal process and simply awarded its D&O business to Hoffman. The client said that the move required a completely manuscripted policy with the carrier, but that the risk was rewarded by a premium reduction by more than half from the policy sold by the incumbent broker.

A different client also wanted to shift its program, but had lingering claim issues. The client credited Hoffman with getting the smaller incumbent insurer to participate in the process with the new, larger carriers to specify exact language proscribing past and future claims. The challenge was not so much one of cooperation, but of getting the different carriers to understand each other's language and to agree on clear terminology.

Senior Vice President
Marsh, St. Louis

Surety With No Surprises

As one chemical industry fire-safety instructor once told his class, "We are not pasteurizing milk here. We've got hydrocarbons at high temperatures and high pressures."

Risk managers at chemical companies often say that reality seems to come as a surprise to some underwriters. That is where the broker, in this case Marsh Senior Vice President Marleen Judge, becomes essential. "Marleen and her team have worked diligently in presenting our safety record and credentials to underwriters and effectively negotiated our policy terms," said one of Judge's clients. "They demonstrated genuine concern for our business in the annual review and preplanning for renewals."

Another client, a large industrial chemical firm, made two large acquisitions in 2010. The businesses were no more hazardous than the company's existing operations, and the acquisitions had not suffered any meaningful losses. Their size, however, meant higher exposures.

"Marleen was very aggressive with the market, and she had everything to do with us being able to renew with no major increase in cost," said the client's director of risk management. "She knew where she could and could not push."

Judge has also developed an expertise in risk financing. Many states require financial security on the part of large operators with significant exposures, and those letters of credit, trust accounts, or bonds can be a significant drag on a company's balance sheet.

Clients credit Judge with developing innovative ways for them to meet their surety obligations without tying up excessive liquidity or incurring high costs.

Managing Director
Marsh, Philadelphia

The Secret Agent

Fabrice Lebourgeois, managing director for Marsh in Philadelphia, is the international man of mystery--chemical mystery. This year his clients dragooned him to help with sensitive projects ranging from toxics, logistics and pending legislation. Even for an anonymous testimonial, clients stressed the importance of his research, and remained mum on the exact subjects.

That's not to say that Lebourgeois cannot deliver the goods in the traditional brokerage realm.

"Fabrice was integral in developing a strategic approach to the design and execution of this company's property insurance renewal," said the manager of risk and insurance management at a major chemical company. "He skillfully managed existing and burgeoning market relationships that might have otherwise been at odds. In the end, his efforts helped us achieve the best possible price and terms while leaving all parties satisfied with the outcome. I find his awareness of the industry unsurpassed. He is tireless in the pursuit of compromise on tough negotiations. I trust his counsel on my company's most significant insurance issues."

One dividend of the research Lebourgeois conducts is his ability to bring evidence to bear when normal industry parameters work to a clients' disadvantage.

"We had huge increases in transportation and distribution costs in 2010 arising out of new legislation," said the risk manager at another global chemical producer. "As an international company we require a truly global placement with all the complexities that entails."

Vice President
Aon, New York

Earning Her Stripes

In a year noted for a dearth of initial public offerings, Kristi Nowicki, vice president with Aon in New York, earned her stripes by developing directors' and officers' (D&O) insurance for a specialty chemical company's stock listing.

"Kristi was instrumental in helping us prepare for a potential IPO, which later resulted in a sale of part interest in our organization," said the chemical company's insurance and risk manager. "In addition, she was able to assist us in placing a runoff D&O program along with a specially placed program to fill potential coverage gaps in our new program. She has been a pleasure to work with and very professional throughout."

Another client traces its history to the early days of the process industries, which is great for customer loyalty but complex for D&O, fiduciary and employee practice liability. Despite that complexity, that company's risk manager said "we're blown away by the renewal numbers that Kristi was able to secure for us this year. We got a lot of coverage enhancements and about a 20 percent reduction in overall premium."

One other unique anecdote adds to Nowicki's accolades this year, one that proves owners are not only out for the lowest possible costs but rather the best possible placement.

"We went out to quite a few competitive markets," said one client. "and we could have saved even more by going with a different program. But we were happy with the savings and the service we got with our incumbents and decided to stay with them despite slightly higher costs."

Managing Director
Marsh, Salt Lake City

A Broker Hangs Tough all Summer

David Wilkins, managing director with Marsh in Salt Lake City, is client manager for a large diversified chemical company with global operations, and that company is mighty glad for it.

"He has a tremendous technical knowledge of the chemical industry and the very complex liability and property insurance issues major chemical manufacturers must deal with," said the company's director of risk management.

The client cites Wilkins' ability to place "our layered reported occurrence excess liability program, achieving excellent coverage terms and reducing our premiums."

Most of the challenges that brokers confront each year involve the client and the underwriters, but the real challenge comes when external factors add a third dimension of complexity to programs and placements. Such was the case in the spring and summer of 2010, when all insurance markets started to react to the Deepwater Horizon oil rig disaster in the Gulf of Mexico. Ironically, most of the offshore drilling renewals had been completed, but the accident, combined with the depths of the recession, chilled most industrial markets.

As chemical renewals proceeded through the summer, carriers in the U.S., Bermuda, and London proposed new terms, conditions, and exclusions. Clients report that Wilkins worked closely with them fending off the most onerous of the new policy language, and achieving accommodations on the rest of the changes.

Wilkins "got the underwriters and other parties' brokers to resolve our coverage issues even when they were very reluctant to do so," one client said.