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Managing Director
Aon, Chicago

From Transferring Risk to Financing It

For Mike Giacobbe, managing director with Aon Risk Solutions in Chicago, placements and claims are all in a day's work, until one loss isn't.

"We had a $50 millon claim," said one risk manager, "and it redefined how we view our business and how we manage risk. We had been doing things just the way our peers had been, and in hindsight that was like wearing your father's sports coat."

So Giacobbe brought to this risk manager's attention the bombshell revelation that no risk transfer had actually taken place.

"No one has ever actually transferred risk," the risk manager said. "What we are really doing is risk financing: Can we afford this loss or not? Before Mike, insurance was just another service that we bought. Now we evaluate what is most economical to finance ourselves, or finance with outside participation."

Giacobbe's approach, another client said, was to take the client through "a forensic process, evaluating the long-term costs of what we used to call retention or transfer."

"At the end, we did make some tactical changes to our placement in the market, and it is not like we suddenly went to all manuscripted forms," this client said. "But we understood what we kept and what we went to the market for, and had good reasons for doing it. We saved some significant premium money, but we won't know for sure until 20 years from now." The approach led to a $75-million swing in the company's balance sheet, the client said.

Senior Vice President
Marsh, San Francisco

Finding Options for Clients

One traditional utility client suffered a major loss early last year, the biggest in the company's history, and the claim remains open. Still, the client had to renew despite that sword of Damocles hanging over it.

"We had price increases as well as carriers questioning if they should continue to renew," said the risk manager. "With Sarah's help, we have managed to maintain the majority of our coverage and minimize our price increases."

To achieve that, the risk manager said, Hicks brought on new carriers. "She included self-insured layers in our program to ensure carriers had attachment points high enough that would allow them to remain on our program or join our program at reasonable prices," the risk manager also said. Clients said that Hicks, a senior vice president for Marsh Inc. in San Francisco, knows their accounts so well that they allow her to address specific concerns with carriers.

"That has increased their confidence in our broker and in our company," said one client. "We have been able to anticipate many of the market's questions, so we could address them in our marketing trips, and allow the carriers access to our most senior executives to answer specific questions, and rebuild confidence in the market."

One insurance buyer said that Hicks has a knack for generating options so customers can "make informed choices," around multiple retention levels, coverage terms and alternative insurance.

The choices, the buyer said, allowed his risk management department to be aware of the trade-offs surrounding coverage terms, price and capacity as it built its insurance tower.

Senior Vice President
Marsh, Philadelphia

Parachuting into the Void

The only thing more challenging than being involved in a multiyear, multiparty utility construction project in California, is parachuting into one at a critical point and having to make a comprehensive risk-management determination on the fly.

That was exactly the situation facing Jim Loesner, senior vice president for Marsh USA Inc., in the summer of 2012.

There was a "long and drawn out development of a joint venture," said one executive. The venture involved two utilities on opposite sides of the country and still another party supporting new construction to supply gas and electricity.

The third party selected private-placement bond financing for its share of the transfer rights in the transmission line, and the financing had to be closed on the date of commercial operation. If the funds were not available on that date, the venture agreement was void. As the date approached, lawyers for the private placement lenders began to raise questions about the risks to which the third party was exposed.

"Jim was directed to examine the lease agreement, as well as the utilities' insurance policies to determine the nature of risks, if any, that could expose the third party to litigation," the executive said.

Loesner recommended the third party buy a nominal amount of general liability coverage to cover the legal costs of a claim and meet the lenders' requirements. The coverage was bound a few days before commercial operation.

Managing Director
Marsh, Greenville, S.C.

The Powerhouse

Magic is the art of getting results. Sometimes winning a Power BrokerŪ recognition is not a matter of coming up with a complex solution, but rather offering an elegant and effective one.

In the utility sector, insureds are often dealing with carriers and regulations that seem set up for complication. One client turned to Marsh Inc. Managing Director Daniel McGarvey to help deal with one of the largest claims in its history, one that had been running for more than a year of haggling with the underwriter.

"This was a very big claim, and it was not going anywhere," said the insurance buyer. "Dan jumped right in. He went down and spent a lot of time with the carrier, he spent a lot of time with us, and he spent a lot of time in meetings and on conference calls. As a result of all his hard work we finally got an offer of settlement from the carrier."

Another client suggested one source for McGarvey's heavy leverage. "He has so many contacts so widely across the industry that he has incomparable knowledge of just about every situation," this client said. "We saw this first-hand when he handled a claim for us. He was able to cite instances and examples and precedents that were very powerful in making our case."

McGarvey, it should also be noted, has a dozen professional designations after his name. His presence at the placement also confers a significant advantage, another risk manager said.

"Dan went out of his way on a very difficult builders risk placement for us that backed a very large, very complicated project," the risk manager said. "He was able to coordinate underwriters in the domestic and London markets and guided our presentations."

Senior Vice President
Marsh, Philadelphia

Mr. Spreadsheet

While the utilities industry is on the whole a large segment, the regional and power-generating differences tend to make for specialization among carriers.

For one risk manager, that reality became all too clear when a workers' compensation underwriter decided to leave the market, leaving insureds scrambling for new insurance supply.

"If you have any blemishes, then the placement is very, very tough," the risk manager said. "Shannon's knowledge of our segment of the industry, as well as our company and its loss history enabled him to replace the carrier that dropped out. We are very low risk in certain exposures, and not so low in others. He spends a lot of time educating the market on our behalf."

Beyond that salvage job, clients said that Moyer, senior vice president for Marsh USA Inc. in Philadelphia, has continued to develop the market, working with the few remaining players and attempting to bring new participants and new capacity into the segment. "We got our placement," said one client, "but we know that renewal is going to be a challenge for everyone in the business. Shannon is already working with us on our presentation."

Another risk manager refers to Moyer as "Mr. Spreadsheet."

"His knowledge of our policy, backwards and forwards, was a huge advantage in our claims this year," the risk manager said. "We did not have anything massive, but all the claims were handled smoothly, and then at renewal we actually got some credits back."

Assistant Vice President
Marsh, Charlotte, N.C.

A Big Part of the Solution

Last year, Eugina Visor, assistant vice president for Marsh USA Inc. in Charlotte, N.C., was instrumental in placing multiple insurance programs for a company that was rejected for renewal by the incumbent carrier and other markets.

"She led the charge for us and was able to work with others within her company and the insurance marketplace to provide a solution for not only our company, but an entire industry," the risk manager said.

The issue arose after a carrier declined to renew coverage for U.S. Department of Energy contractors involved in the handling of and potential exposure to radioactive materials.

The carrier dropped the renewals in October after the carrier could not receive government guarantees that new contractors would be willing to assume the past liabilities of DOE contractors, and after the DOE declined to provide direct reimbursement to the carrier.

Another client involved in a complex joint venture requiring specific coverage with high limits had a similar reaction after Visor convinced carriers that the client should pay only the premium amount commensurate with the portion of the contract awarded to the company. "This past year she took on multiple complex situations for us and found solutions," the client said.

"When we got the news that we would only be awarded a portion of the contract initially, we still needed to bind insurance coverage almost immediately," the client also said. "Gina was able to get the carriers comfortable with the last minute changes. It was her quick thinking and relationship with the underwriters that allowed us to see huge cost savings."

Managing Director
Marsh
Seattle

Senior Vice President
Willis
Nashville, Tenn.

Client Advisor
Marsh
Charlotte, N.C.

Chemical Practice Leader
Marsh
Philadelphia