The right focus: Vince Donnelly of The PMA Insurance Group addresses the challenges of a workers' compensation and disability market changed by terrorism, current economic conditions, and a tighter market

Risk & Insurance, April 1, 2002 by Denise Myshko

Q: Do you think the federal government will step in and allow terrorism exclusions?

A: I hope so. I'm cautiously optimistic. This goes beyond workers' compensation to affect all lines of insurance. I hope the government doesn't wait for another event. There are enough insurance organizations and insurers and employers and businesses trying to make sure they understand the major impact this can have on them. Without federal legislation, it will have an impact on the economy. A lot of people on January 1 thought there would be this tremendous unavailability of insurance. That sort of doomsday didn't happen, but I do think it would be short sighted to think that there isn't going to be an effect. Hopefully, the people in Washington are fully sensitive to the negative impact that this could have on the economy and also understand that this is not a bailout of the industry. The industry is paying its loss.

I wonder if terrorism is an insurable event in the sense that if you go back to the definition of insurability, you have to be able to calculate a potential loss. A lot of firms are trying to design actuarial models to do so and we may reach a point where we can do that. The cost of terrorism is an extremely difficult thing to predict. Secondly, the size of future events, if they are anywhere near of the magnitude of the World Trade Center, will threaten the capital structure of the insurance industry. This is something I believe the federal government needs to play a role in.

Q: What are your recommendations for policyholders in light of a tighter market?

A: I'll speak about comp in particular. The advice we give to clients is continue to work with us in trying to mitigate losses so that ultimately total costs will be as optimal as possible. A second piece of advice is for clients to look at their insurance costs in total. While the premium is important, it's also important to look at what you're getting for the premium in terms of financial protection and in terms of the services provided.

Q: Is there still interest in integrated disability and where do you see IDM products heading?

A: This is a product that is here to stay even though there a number of sales challenges. These have caused some carriers not to be as aggressive in trying to continue to pursue this as a product line. The challenge is that depending on the size of the customer, you often have two different buyers within an organization. A human resource executive buys the disability insurance and you have a risk manager or a CFO buys the workers' comp side. Sometimes it's difficult to bridge the turf issues within an organization to bring them together to understand the benefits.

On the distribution side, while many of the brokers and agencies have property casualty producers and people who sell the employee benefits and health care and life insurance producers. Sometimes bringing these people together is a challenge as well.

I believe that it makes absolute sense to have one carrier providing the management of all of disabilities. While we believe there is what we call a "hard" savings, there is also "soft" savings, in terms how the injured person is treated. With IDM, there is no disputing between a comp carrier and a disability insurer about who is covering this loss. We are immediately working with the injured employee in terms of getting this person better and back to work to be as productive as they can be as quickly as is safe and medically possible.