It is a buyer's market for commercial insurance, and insurers and reinsurers that can tap that potential may help change the face of the industry, writes Randall Clouser.

The current commercial insurance market is being driven by several factors, including capacity that continues to grow despite weakening prices and catastrophe losses that are at their lowest level since 1987.

In addition, consolidation within the industry continues at a record pace, meaning that individual companies have much more underwriting capacity - because there are many fewer individual companies.

Finally, the US economy as a whole is good, with low interest rates and high employment. This benefits corporate insurance buyers, of course, and it also boosts the performance of insurers' investment portfolios.

This is an ideal market for the buyer. However, a change in one or two of these factors could influence pricing and the state of the market.

Many buyers realize this and are interested in protecting themselves against a market change. At the same time, they are looking for ways to make their insurance program a part of their overall business strategy.

This is the time when clients should take control of their programs. This is also the opportune time for insurers to go to the market with a program structured for the long term.

Zurich Corporate Solutions (ZCS), a unit of Zurich Group, has designed such a long-term solution to help buyers take control of their programs. This co-operative initiative brings together Zurich Group units Zurich-American and Zurich Capital Markets to integrate their insurance and capital markets expertise into a single solution.

ZCS offers program structures to fit the needs of any large corporate buyer. The primary program is an integrated plan of multi-year, multi-line coverage. This program, offered through Zurich, can bring together virtually any kind of business insurance, including property/casualty, professional and environmental liability, executive assurance and political risk insurance. It offers a combined aggregate that applies to all the coverages and is cumulative throughout the term of the program, although it can be extended and modified.

I would say ZCS leverages the combined capabilities of the Zurich Group. Each of these units is a market leader, and when we integrate their expertise, we create a new range and level of solutions.

ZCS changes the approach to commercial insurance. Currently the purchase of insurance is a market-driven, transactional process. In other words, the corporate buyer can shop around among many suppliers, but whatever choice the buyer makes, he is always at the mercy of market pricing. And the ultimate agreement is simply an exchange of coverage for money.

With the ZCS approach, however, designing coverage becomes a strategic process that looks for demand-driven solutions. In this approach, the buyer works with a company to determine the risks, find a structure that complements the buyer's overall business strategy, and then implement that structure. Few companies can offer this long-term integrated approach, but those like Zurich that can are in a prime position to establish secure and ongoing relationships with buyers.

The integrated financial solution that ZCS offers involves three very important paradigm shifts, affecting each of the major players in the insurance and risk management arena:

* Buyers move from a transactional insurance-buying process to a strategic risk-financing process.

* Brokers move from the role of intermediary to that of consultant.

* Insurers move from being providers of product to being providers of capital solutions.

The key to this new approach is to develop a strategy that allows you to consider every aspect of financing and controlling risk.

We begin looking at risk more holistically, as a portfolio of risk. Then we help you manage that portfolio. First you decide how much you want to retain on an earnings per share or other relevant financial basis, and then you structure your program around that decision.

These integrated programs operate in the layer above a company's predictable risk, which is covered through a self-insured retention, traditional coverage, a captive or some combination of these. They are multi-year plans, written for from two to five years, although most are written for three years. They are multi-line, offering virtually any casualty or property coverage.

The programs are also flexible. For example, although the aggregate limit is for the term of the program, additional limits can be purchased for select lines, and the program can be structured to allow for extending the aggregate before the end of the term. In addition, lines of coverage can be added or modified during the course of the program.

The ZCS approach has several advantages for buyers. First, it allows a buyer to lock in coverage and rates while the market is favorable. As I noted earlier, a few changes - such as big catastrophe losses or an economic downturn - could affect market pricing and capacity significantly. By reaching a multi-year agreement, the buyer manages that risk.

In addition, the ZCS programs save buyers the time it takes to place coverage on an annual basis; in fact, buyers report time savings as high as 45% over the traditional insurance approach. This time can be used to concentrate on controlling risk rather than shopping around for coverage.

Although cost savings are a secondary consideration to improved coverage and greater flexibility, the programs can save buyers money. Of course, they could offer substantial savings if the market were to change and prices were to go up.

Even if the market remains the same, though, buyers can save the costs associated with administering multiple insurance policies, including the possible elimination of redundant minimum premiums. Buyers of ZCS programs have saved from 5% to 15% annually, depending on the design of the program.

Most important, though, the programs offer buyers an opportunity to take a comprehensive look at managing their risk. Buyers can design a program that allows them to retain as much or as little of the underlying risk as they choose. Then they can tailor the program to provide the amount of coverage for the types of risks that they choose. The overall aggregate avoids the need to set limits for specific coverage, and helps to eliminate gaps in coverage. Finally, the program is co-ordinated with the buyer's overall accounting and tax strategies.

Zurich is one of the few companies with the resources and foresight to develop such an integrated approach. Since Zurich began offering the ZCS program in 1997, the company has provided total insurance solutions for 15 corporate buyers, in virtually every industry and with virtually every coverage need.

I believe the ZCS solution represents the insurance approach of the future, as buyers become more financially sophisticated and demanding of holistic solutions, and insurers become more flexible and creative to accommodate the buyers' demands.

Our objective is to look at risk with new eyes. We believe this benefits our clients as well as our company and others that want to partner with us.

Randall Clouser is executive vice president, Zurich Corporate Solutions.