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It is easy to hear in John Dempsey's voice how excited he is about his new path. What was meant to be a 15-minute conversation with Risk & Insurance® instead lasted more than an hour. The reason is that Dempsey's new endeavor--Dempsey Partners LLC, could be launching into the next wave of risk management before most others in the field realize the wave is breaking.

Dempsey saw the swell coming soon after Sept. 11, 2001. Then, working as managing partner with Dempsey, Myers & Co. LLP, he saw changes in how a claims management consulting firm like his could do business. Gone were the "small" $5 million claims that had been a staple, thanks to deductibles that increased by factors of 10. What was new was the attention that Fortune 500 companies were paying to their property values, driven by the hard market.

"The underwriters love this new focus on accurate values," said Dempsey.

But the big wave that Dempsey saw coming was formed by business interruption. Typically in a big claim, he explained, insurers are always looking to see what their actual loss was and what their indemnity payment should be. They go through a process of evaluating business models, process flows, the insured's capacity for mitigation--all with the ultimate goal of determining what the actual BI loss was.

"Especially after 9/11, we got into financial institutions quite a bit, and we found that insurers, underwriters, claims people, in doing their analysis through this, found that certain revenue streams were not lost even though the events of 9/11 were so devastating," he says.

One client in particular was a broker-dealer whose main revenue prior to the terrorist attacks had been interest on margin loans. After Sept. 11, the market plummeted, triggering a whole lot of margin calls. The loans were repaid, but the client's revenue "evaporated."

"So the question is, is that a business interruption loss?" said Dempsey.

The client claimed it was; the insurer disagreed.

But for Dempsey, the light bulb went off: a cookie-cutter approach to BI is not adequate for complex organizations. Better yet, apply a customized analysis ahead of any loss.

"The thought was, wouldn't it better to know in advance what was insured and what wasn't insured," he said.

Dempsey doesn't claim to have invented this preemptive way of tackling BI.

"I don't claim any original thought, or maybe a little bit," he said.

But his previous firm had earned its stripes working for financial institutions, pharmaceuticals, chemical producers, media conglomerates, gaming, airlines and other companies that have very difficult business interruption risks. And he said his new firm hopes to also ride the wave of interest in identifying and quantifying other catastrophic losses, such as supply chain or employee dishonesty.

He's moving ahead with Dempsey Partners after nearly 26 years with partner Bill Myers. Though Dempsey can't speak too much of the breakup with Myers because of a confidentiality agreement, it doesn't seem to have left any ill will.

"I still think he's a great guy," he said.

Dempsey expects 100 active matters to remain with the new firm. All 10 senior executives with Dempsey Partners were with the previous company.

MATTHEW BRODSKY is Web editor/senior editor of Risk & Insurance^®.

(Read the rest of the first March People on the Move newsletter.)

March 12, 2008

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