In an article written by Stuart Collins in the latest issue of Business Insurance, the point is made that awareness of an insurer’s financial strength has risen among company executives, so buyers are “building relationships directly with insurers and tapping internal resources to increase their own scrutiny of insurers.”  The article talks further to the point by describing what is currently being done by one major US corporation:

Having seen the negative effects of the financial crisis on some insurers, Coca-Cola now asks more questions to establish insurers’ true counterparty risks, [Laurie R. Solomon, director, risk management at Coca-Cola Co.] said.  For example, the company wants to know how its risk is transferred within the insurer-owned entities and how much is laid off to reinsurers.  In addition, Ms. Solomon now uses the financial risk management expertise in Coca-Cola’s treasury management unit, which provides a better understanding of insurers’ investments, debt structures, liquidity and ability to raise capital, she said.  Coca-Cola has analyzed its data to measure total aggregation of limits by insurers across all lines, said Ms. Solomon.  “We did a lot ourselves with our own data to generate a report on total aggregation by carrier. This was a complicated task because a lot of the information is not recorded in the same way. So we customized our existing information and added data to create a report on the total aggregate policy limits.”

One discussion point in the article relates to what sort of relationship should be had between the client and insurer.  As recognized by several risk managers quoted in the article, it is important to develop more of a direct relationship with insurers.   Having such a relationship in place will allow companies to see behind the numbers to better understand the business and appetite of the insurer.  Interestingly, insurers are also very keen to develop a strong relationship with their clients – it is one very important way to retain business.  Unfortunately, some brokers tend to jealously guard the insurer relationship given it adds more to their value proposition. 

Although insurers should be considered no different from any other credit risk, the traditional means of measuring  credit risk may not be sophisticated enough to take on insurers.   Risk manager, Trygve Imsland, is quoted in the article as saying, “A company’s internal risk management or credit risk departments cannot analyze insurers with the hands-on, daily oversight that is required.” 

Whether it is derived from the building of a direct relationship or increased financial analysis from internal resources, clients are wise to dig deeper on what is standing behind the paper.  And, given that the credit departments of most companies are not sophisticated enough to analyze an insurer’s financial wherewithal, companies should be more creative in their approach.    In fact, there ways to do this sort of analysis that would neither require increased reliance on your broker nor taxing the treasury department’s resources.