Don't Put All Your Eggs in One Basket

Employers are all too vulnerable wherever the threat of a catastrophic event, such as terrorism, war, natural disaster and/or industrial accident, could affect their employees in any one location. Yet benefits are often purchased without strategically mapping out employee exposures by location, creating a significant concentration of risk. Some facts to consider when purchasing group life and AD&D benefits for employees:

- Many group life carriers have bundled group life and AD&D exposures that far outweigh their asset base within specific high-risk geographic locations. If a catastrophic event were to occur, the ensuing large-scale loss of life could create increased liability to an employer if its group life and AD&D carrier is unable to pay claims.

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- When available, the cost of group life catastrophic reinsurance is either prohibitive or the coverage is restrictive. Carriers have not been able to secure reinsurance protection to cover chemical, biological, radiological and nuclear exposures since the reinsurance market tightened after Sept. 11. Risk managers must ask questions about their carrier's reinsurance arrangements in pivotal areas, such as CBRN events.

- Insuring employees against terrorist acts requires that employers actively examine exposures and accumulations by location. One place to start is by spreading group life and accident risks to specialized carriers. This allows for a larger base of assets from which to pay claims for catastrophic losses and enables a specialist to help identify gaps in coverage. Employers also should understand how much reinsurance protection their carriers have, what's included in or excluded from a contract, and how the carrier would respond to a catastrophic event.

Benefit and risk managers would do well to overlay employee exposures by location against the insurance carrier's exposure. Are there a number of employees in a high profile building or along a fault line?Is the insurer mapping its exposures using the same criteria?

AD&D exposure requires the same strategic risk management approach that an employer gives to property, casualty, liability and medical risks. A specialist can provide flexible, tailored coverage, help the employer respond quickly and skillfully to real-world crises, and manage both the contract and the human issues associated with claims.

STEPHEN MUELLER is senior vice president of sales and business development at Zurich's Accident & Health group.

May 1, 2005

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