Newsletter Sign-up

Squint long and hard enough, and you can find the anachronism, sometimes subtle at other times glaring, on the Hollywood silver screen: a digital wristwatch worn by an actor playing an infantryman in World War II, or glimpses of modern-day Athens, Cairo or Milan in a story about the conquests of Imperial Rome, or Union soldiers in the Civil War firing 1873 Winchester rifles.

Then there's the not-so-subtle television ad for personal auto carrier GEICO, which features a caveman talking to a therapist in a high-rise office in the middle of a bustling city.

But in securing coverage for risk these seeming anomalies are no mistake.

In a world where hundreds of millions of documents are stored electronically in computer vaults, Lloyd's brokers still require the use of pen and paper to write down contract details.

In a world where sensitive, encrypted data is mapped from one computer system to another with a single keystroke, agents and brokers furiously key, rekey and re-rekey the same prospect's information into dozens of carrier computer systems.

In a world where counterparties in New York and Sydney, separated by 10,000 miles of continent and ocean, seal multimillion-dollar contracts with electronic signatures and each receives his PDF copy in seconds, brokers deliver policies to some commercial clients after the policy has expired.

In the United States, not a week goes by during which broker and carrier representatives file 50 different forms to satisfy regulators in 50 states, even when it means changing just one or two fields on a 10- or 20-page document.

In the insurance world, these examples surface daily among insurance buyers, brokers and carriers. If a major Hollywood studio were to shoot a feature-length spoof about buying commercial insurance, these examples might well factor into the script.

But for commercial buyers frustrated at the pace of innovation in the industry, and for buyers who've wondered aloud that perhaps the insurance and risk management industries rather like conducting business the old-fashioned way on purpose, they're not far off.

James Duggan, vice president of risk management, security and corporate services for the New York-based perfume manufacturer Coty Inc., which supplies labels like Calvin Klein and Chloé with scents, says there's no reason that, in this day and age, buyers have to wait three months before they receive their contracts in the mail.

"It's something I've paid for, it's something I should have," says Duggan, who uses Willis and Marsh as brokers. "I have a binder, but the binder doesn't have every word in the policy in it."

He says if there's a contractual question, his brokers advise him to go back to the old, expired policy for reference. But, if that's the case, he asks, then why don't brokers simply change the dates on the old policy. "The industry still seems to struggle with that," he says. At least Duggan's getting his contracts during the period that the policy is in force.

If automobile buyers can peel off a dealer's lot with their purchase after signing a stack of documents, why can't risk managers do the same? In despairing moments, there are times when Duggan even wonders if innovation has completely passed the industry by.

When that's the case, is there any reason for buyers to believe that innovation will one day pierce the reactionary fortress that sometimes surrounds the industry? (The answer is yes, according to other articles compiled for this report.)

"The industry is happy with the status quo," says James Bisker, global insurance industry leader for IBM's Institute for Business Value.

MOVING SLOWLY IN A RAPID WORLD

Jack Hampton, former executive director of the Risk and Insurance Management Society Inc., says that too often, the industry's just very slow. Carriers, many of them with hordes of accountants in their ranks, are sometimes guilty of dwelling on outmoded pricing structures, he says. At worst, they let reserves dwindle below the red line instead of adjusting quickly.

By the time actuaries have tweaked the models to accurately reflect the risks they underwrite, the nature of the risk has changed and risk managers are paying premiums that have ceased to reflect the exposure. It's a game of catch-up, with actuaries usually doing the catching up.

Risk management needs, says Hampton, are "responded to very slowly." In the '90s, for example, the industry lagged in tightening its underwriting discipline. The venerable London reinsurer Lloyd's almost went bankrupt because of it.

On the claims side, risk managers often enter a world that operates unto itself. Take the nation's guaranty fund system, for example, in which outstanding claims are paid to policyholders covered by carriers who've been declared insolvent. In the world of the large, complex commercial claims, buyers sometimes feel as if there are two time zones, and two only: slow and slower.

"I don't think there's collusion with regard to slowness in the industry," says Lance Ewing, vice president for risk management with Nevada-based Harrah's Entertainment Inc. Moving slowly with the distribution of contracts has become so ingrained, however, that the industry has grown comfortable, even complacent, and "wears it like a comfortable pair of shoes," he says.

In a litigious era it's common for lawyers, not underwriters, to have the last word on any policy. This latest development Ewing calls "tiresome."

Pennsylvania-based Reliance Insurance Co., which went into liquidation in 2001, and Legion Insurance Co. and Villanova Insurance Co., which went into liquidation in 2003, know that better than anyone else. By last fall, with the Legion case winding its way through the Pennsylvania courts, scores of claimants still hadn't been paid.

In the case of Missouri-domiciled Transit Casualty Co., policyholders saw their first distributions in 1995, a decade after the company collapsed. And in the case of the California-based workers' comp insurer Mission Insurance Co., policyholders had to wait 21 years--21 years--for insolvency proceedings to resolve themselves.

Wayne Salen, risk manager for Labor Finders Inc., a privately held labor staffing company in Palm Beach Gardens, Fla., says buyers tend to cut carriers and brokers some slack when documents arrive late simply because he and his peers have come to accept the stalemate.

"Qualitatively, the insurance industry has got a long way to go," Salen admits.

The delays Salen, a member of the Risk and Insurance Management Society Inc., accepts from industry vendors would not be acceptable from other vendors.

But Ewing and other former leaders of RIMS say the foot dragging on the part of some carriers and brokers isn't going to go on for much longer.

Young risk managers in their 20s, used to electronic and wireless technologies, will see to it that carriers and brokers deliver documents electronically within hours of a handshake.

Either the industry complies, or these young buyers will take their business elsewhere, whether underwriters or lawyers sign off on the final terms of the policy or not.

"Institutional dinosaurs will be left behind," says Ewing.

CYRIL TUOHY is managing editor of Risk & Insurance®.

ALSO: READ THE OTHER PARTS TO THE INNOVATION SHOWCASE ISSUE.

September 15, 2007

Copyright 2007© LRP Publications