RIMS 2003 was witness to an historic speech from Maurice Greenberg. But the strong attendance over the three-and-a-half days of the conference was also a sign that demand for effective risk management is growing, says Dermott White.
The 2003 Risk and Insurance Managers' Society conference and exhibition might be remembered for several reasons: the warm, mid-Western friendliness of Chicago; the fact that over 10,000 people passed through the exhibit halls and sessions - over a thousand more than in 2002; some of the unusually impressive exhibits; or for the contacts made and business won.
But, collectively, the re/insurance and risk industries are likely to remember the event as the time when Maurice 'Hank' Greenberg drew the battle lines in the fight for tort reform - to reduce the massive payouts to plaintiffs in medical malpractice and asbestos-related civil lawsuits.
The chairman and chief executive officer of American International Group, the largest insurer in the world, was softly spoken but there was no escaping the intent of his message as he addressed delegates on the opening morning of the 41st RIMS rendez-vous.
"The issue that all of us confront, that the country confronts, is the legal system, the tort system in the US. Clearly, it is out of control... What good does it do to bankrupt companies and lose thousands and thousands of jobs in the economy? The major beneficiary has been the trial bar," he said.
Mr Greenberg acknowledged efforts for reform to the tort system in the US through the legislature. He said he hoped they would prove successful in establishing criteria for determining loss under asbestos, in deciding the manifestation of the disease before a claim could be lodged, and in agreeing on venues and caps for legal fees.
"If those things could be done, it would be a huge improvement over the current system, which now is out of control."
However, he said, it went beyond Federal legislation, and went on to describe a more aggressive approach to reduce the punitive damages awards that the re/insurance industry has blamed for sharply rising insurance premiums.
"We have to fight this battle on a state-by-state basis.... When we do business in a foreign country, we help create and rank countries by many things, including their legal system, how they treat foreign investment, their regulatory system, whether they have a preference against foreign investment and the like. We're going to do the same thing by state in the US on their tort systems, and you will see these rankings in full page newspaper ads ranking states by their tort system.
"Why would we want to invest, why would you want to invest, in a state that takes you to the cleaners after you've invested in it?" he continued. "What's the point in that? Why should we buy their municipal bonds? Most states, if not all, today are confronting a budget deficit. Every governor should be conscious of the fact that if they have a reputation that is viewed adversely by the business community, they'll do something to help bring about change. And I think this will be a wake-up call for many. These ads will go down into even counties because within states there are some counties that are just off the charts. You haven't got a chance if you're a defendant in those counties. The cosy relationship between the trial bar and the judge and the juries leaves very little room for an out-of-towner or an out-of-state insurance company defending their clients."
Mr Greenberg said the program would start within months and called for support from the insurance industry. He said this was not just a fight for the insurance industry but one to help the consumer too, because the costs of enormous payouts to plaintiffs would be passed on through higher premiums and narrower products.
"The tort system in the US cost almost 2.5% of GDP, $200bn in cost to the economy. We have an economy that's struggling and we hardly need this monkey on our back or on yours - unless we get a result, you're all paying for it as well and so I hope that this will get your support as we move along," he said.
Tort reform was not the only concern at RIMS. Mr Greenberg drew attention to worries about insurer and reinsurer solvency, and their ongoing struggle to mend their investment portfolios.
"I think it's very important today as to who you place business with ... it is important to look at a company's capital account. How much is goodwill? You can't pay claims out of goodwill. Do they have redundant capital? Because the likelihood of adverse development or loss reserves is real," he said.
"So the industry is in tough shape and hence you have to be very thoughtful as to where you place your business - companies that become insolvent are not a great place to try and collect a claim from. And if you look at the honour roll of companies that were great in the past and that are no longer around today, it should give you some pause as to where you place business."
Mr Greenberg also touched on terrorism and the recently created US Terrorism Risk Insurance Act (TRIA) of 2002. He said it was not perfect but that it had gone a long way to making it possible for companies like AIG to provide terrorist insurance.
Those thoughts were echoed by broker Aon at a separate press conference. Gary Marchitello, the managing director of Aon's national property syndication in the US described TRIA: "a very welcome event ... a flawed mechanism but nonetheless a much needed boost in the arm to the industry in terms of the federal government providing, in essence, a federal backstop or federal reinsurance."
However, he added that the take-up rate on terrorism insurance had been "anaemic".
"Clearly, insurance buyers seem to be saying the price is too high: 'We're not going to buy at that price.' Our prediction is through the year we'll hit a price equilibrium point and we think we'll see more purchases going on then," Mr Marchitello said.
However, Mr Marchitello added that independent of TRIA there was still a stand alone market for terrorism. "The companies that were writing it prior to TRIA are still in the marketplace, still providing up to, say, half a billion (dollars) in limits, and they provide both certified and non-certified coverage."
This is certainly the case with Hiscox, a major Lloyd's-market operator, which underwrites technology, media, D&O and terrorism risks in the US.
Robert Childs, the chief underwriting officer, said demand for Hiscox's terrorism cover had been strong.
"Even though we've had TRIA, there are still quite a few gaps in the cover, and we are aiming to supply a product which fills those gaps," he said. Part of the success of Hiscox's product, he added, was the distribution strategy that had been used.
"One of the ways of distributing the product is on a computer-based extranet.... We've put it into a number of brokers in the US and in the last month we've increased the amount of business that we've done five-fold."
He added: "Hiscox is here (at RIMS) because while so much of the market is stepping backwards at the moment, I think we're in a position to step forwards and accept more risk. I think we feel that the terms and conditions of the market are right ... and if we're prepared to write more business, then we ought to come and see our clients, who are both the risk managers and also the brokers."
Mr Childs and his Hiscox colleagues would have found no shortage of clients - existing or prospective - at this year's RIMS. Predominantly North American, the insurers, reinsurers, risk managers, captive managers, IT suppliers and other risk industry service providers came from around the world.
Brad Greer, the president of the Australian risk managers' association ARIMA, said attending the meeting was important because it helped him to gauge whether or not his organisation was keeping up-to-date with global trends in risk management.
"Visiting allows good opportunities for the development of ideas and activities," he said. "You get to look at the various programs that people have underway and you get an idea of the idiosyncrasies of the different laws and legislative requirements in different parts of the world - it makes you think outside the square and helps stop you becoming insular."
Lisa Watson, the marketing manager for Room Solutions, a London-based technology solutions and services supplier to the re/insurance industry, said the 2003 conference was a signal of a growing optimism in the business community.
"The fact that there are so many people here, despite the uncertainty in the world today, is a really positive sign," she said. "Nearly every type of business has a representative here. People have invested a lot of time and money travelling to Chicago and in making their presence felt. I think this means businesses are more aware than ever of the need for accurate risk management, and that our industry is responding."
By Dermott White
Dermott White is a journalist on Global Reinsurance.