But adopting the wrap-up program required some customization: For instance, wrap-up programs usually include both liability and workers compensation coverage, and Cendant–looking for a low-maintenance solution–only wanted to buy liability coverage. "We didn't want an insurance program to become an administrative burden, which is something that happens with wraps that involve workers comp," Iervolino says. Workers comp typically involves a lot of claims, but partly because of those claims, it's also the part of the wrap where insurers realize most of their profits. "[Insurers] will almost never write just general liability, because they're not making any money," he says. Nevertheless, Cendant managed to get the liability coverage it wanted, without workers comp and without certain exclusions that often show up in construction liability coverage, like exterior insulation finish. "We did it with all the coverages we need," says Iervolino. "And we did it without having to include workers comp and we did it at such a great cost."

Iervolino says the key to the project's success was Cendant's relationships with insurers–which Cendant declined to name–as a result of both the coverage that it buys for itself and third-party coverage that customers arrange through it. "There's leverage there that we were able to exert on big insurers," he says. "Sixty percent of the success of this project had to do with leverage. Twenty percent had to do with the willingness of underwriters to take a risk, and 20% had to do with good program design." Iervolino adds that insurers "saw the risk the way that we saw the risk, which is that we don't have a lot of risk." There has only been one claim so far, he says, and that one was filed erroneously.

Cendant credits the program, negotiated in late 2004, with cutting insurance pass-through expenses on timeshare projects, excluding workers comp, to 0.6% of total cost, down from 2.5%. It estimates it will save $6.9 million in insurance costs over the three years of coverage, plus $3.85 million tied to increased competition from the bigger pool of contractors bidding on projects, for total savings of $10.8 million.

SILVER AWARD WINNER

Merrill Lynch & Co.

When Merrill Lynch & Co. surveyed its insurance coverage a couple of years ago, it decided it would like to increase indemnification protection for its directors, officers and employees, says Marlene Debel, co-head of treasury's corporate finance group and a first vice president at Merrill. Ensuring indemnification can be tricky if a company becomes insolvent. Side A directors and officers coverage (D&O) is an expensive solution, and one that can get tied up in bankruptcy court and indemnification trusts, in which money is set aside against that eventuality. Not surprisingly, Merrill turned to the financial markets for a fix. Its treasury worked with legal, tax, debt capital markets and investment banking teams to devise a structure called Credit Related Employee, Director and Officer Protection (CREDO), in which an indemnification trust is funded via credit default technology, as a supplement to its D&O coverage.

Merrill, which has an investment grade rating of Aa3/A+, sold credit-linked notes to fixed-income investors, at an interest rate it declines to specify, in November 2004 and then invested the proceeds in Treasury securities, which are held in a trust. The way CREDO works: If Merrill were to become insolvent, a portion of the money in the trust would be used to cover indemnification claims, and the rest would be returned to the investors. If the company remains solvent, investors would get back all their money. Debel says the CREDO offering was "oversubscribed by a large margin." CREDO generated a fund of $140 million that will last for the next five years, at a cost that Merrill estimates was only half of what that would have cost in the insurance market. Debel also notes that the amount of indemnification was much more than could have even been purchased in the insurance markets.

Putting the deal together took about six months. Debel says the biggest challenge was working through the documentation and ensuring that all the legal questions about the deal had been addressed. Merrill has a patent pending on CREDO and plans to market the structure to other companies. Debel says CREDO's multiyear term was attractive given the annual renewals on insurance policies. "If you think of [CREDO] as a supplement to insurance, it's nice to have protection that you don't need to renegotiate every single year," she says.

BRONZE AWARD WINNER

J.B. Hunt Transport Services Inc.

When J.B. Hunt Transport Services Inc. of Lowell, Ark., saw its insurance costs jump more than 150% in 2003 from 2002 levels, it vowed to get those costs below what it paid in 2002 within twelve months' time. Given the $1 million increase in its retention in 2003, the $2.7 billion trucking company wanted to see improvement in claims costs as well as in premiums. David Mee, senior vice president of tax and risk management at J.B. Hunt, says that 9/11 was an element in the 2003 price increases, but the biggest factor was a jump in the cost of auto liability coverage after some big jury awards in cases involving the trucking industry.

J.B. Hunt decided to stem costs by focusing on its safety culture. "It became very apparent that the way that we add to our bottom line is to not have the claims, not have the accidents out there, which is where the preventive side got the big push," Mee says. The company's safety group developed a loss prevention program that included increased communication with front-line managers about the previous day's accidents; a ramp-up of loss prevention programs, including defensive driver training for all the company's drivers; and pre-employment screening for drivers to avoid workers comp claims on pre-existing conditions. The company's screening already included a medical exam and a driving test; it added tests like having workers lift 50 pounds and climb in and out of a truck. J.B. Hunt also developed an incentive pay system to reward managers for reductions in insurance and claims cost and started taking a more active role in overseeing workers comp claims.

The results: Claims for major accidents dropped to 39 in 2004 from 75 in 2003 and the costs of such accidents fell to $10.3 million from $13.7 million. Workers comp claims declined to 362 in 2004 from 415 in 2004, and workers comp costs fell to $4.6 million from $6.6 million. Insurance premiums plunged to $6.5 million from $10.7 million. Overall, J.B. Hunt's safety risk costs fell to $73.2 million in 2004, from $96.2 million in 2003, and those savings accounted for about half of the company's 53% increase in 2004 net income. Mee says the company is continuing its efforts on the safety front, and recently decided to put all its drivers through defensive driver training again this year, since that had been so successful the first time.