Gold Alexander Hamilton Award In Insurance

GOLD INSURANCE WINNER………Faced with the choice of paying significantly higher post-Katrina property insurance premiums or having its captive insurance company assume a much higher level of risk, Alcoa Inc.’s insurance risk management staff found a better option by looking beyond the usual suspects. The solution came from a class of insurers that weren’t even considered for this coverage in the past: a handful of overseas carriers that the company had established relationships with through a series of acquisitions and unique transactions. Not only did these carriers help the $26.2 billion aluminum producer avoid spending $1.5 million in higher-than-expected premiums this year, but Alcoa expects to save more in years ahead by continuing to use these new partners for future insurance needs.

Alcoa has manufacturing operations in 43 countries and with more than $60 billion in insurable values at risk, the company requires a large amount of commercial property insurance capacity. Its difficulties began to mount last November, when the insurance risk management department struggled to complete its property insurance renewal process at the price targets set months earlier. What lay in between were the massive hurricane-related losses along the Gulf Coast in August and September that drove industry prices higher and limited coverage options. Although Alcoa had not experienced any large losses from the storms, property insurance prices had climbed so high that it was estimated the company would have to pay $1.5 million over its earlier estimates. Among the concerns was that if Alcoa accepted the higher premiums, it would set a costly precedent that would carry on for years to come. Worse yet, Alcoa’s insurance broker informed the company that even at the new higher prices, the company’s usual insurance companies were seeking to limit coverage for certain layers of the insurance program. Should the company’s captive insurance company need to close the coverage gaps, it would expose Alcoa to far more risk than it was willing to assume.