The traditional insurance cycle of hard and soft markets means a lot of volatility for both insurers and risk managers, forcing them to come up with new ways of generating business.

During the last extended soft markets, premiums reached such lows that ACE Bermuda executive Klaus Gebhardt says "We had to rethink how we could productively do business in that environment."

What he and his colleagues came up with was definitely outside the box of conventional thinking.

Knowing that the cycle would eventually mean a reversal of fortunes and a return to higher pricing, they came up with a new product, ACE futures, which offered risk managers some certainty about the rates they would have to pay for their commercial property cover.

In basic terms, customers were offered a `put' option for insurance contracts. They could pre-agree terms and conditions, including rates, and take an option to exercise them at a future date.

Until they decided to call the option, they would pay a flat option premium at only a fraction of the quoted rate. Mr. Gebhardt figured that customers would want to hedge themselves against lean times to come.

"To limit the potential downside of what the coming hard market might mean without giving up on the up side."

But initially, the concept did not take off, says Mr. Gebhardt: "The reason why it didn't sell was that the environment was such that no-one could conceive of prices rising." Now in the midst of a global hard market, there must be many insurance buyers regretting that decision.

"Can you imagine how much money they would have saved if they had bought the product prior to September 11? It would have been worth a fortune." Perhaps it's another example of how risk managers and insurers can sometimes take up opposing positions and "never the twain shall meet."

A similar kind of gap in perception is currently appearing with the issue of terrorism cover. Risk managers are still finding it difficult to find cover at prices they can accept.

Mr. Gebhardt says that cover is available - for example the ACE group of companies offer a full range of terrorism cover, explaining: "We can sell you TRIA, non-TRIA and foreign cover with a 50 million limit."

But he believes that take-up rates are very low due to pricing difficulties. And while on the one hand, insurers are unsure how much to charge for cover and have only one loss event on which to base their assessment, customers are still of the mindset that terrorism cover should not be excluded from their property and casualty policies.

"The misperception came from the fact that in the past, terrorism cover came free of charge and was part of the regular insurance contract. for the customer, anything but zero is too much." He says that insurers are generally conservative and are pricing the cover high, to be on the safe side. "At the moment, that gap in expectation is prohibiting cover from being issued."

Mr. Gebhardt is responsible for ACE Bermuda's global property and first party specialty lines of business. He joined the ACE Group in June 1999 and is based in Bermuda. He is originally from Stuttgart in Germany but has spent much of his career working in the US. He retains a European dry sense of humour, however and a fair dose of cynicism.

Asked whether he agrees with the RIMS theme of "New world - new risk - new solutions", Mr. Gebhardt says: "Apart from terrorism, I don't see much new risk. D&O was always there - it has just materialised"

But the world has certainly changed. "I went to the AON building - it's like visiting the Pope. You have to constantly show your ID. you can't do a cold call any more." He agrees that since September 11, insurers have learnt security "dos and don'ts." Which as well as affecting pricing assessments may also be passed on to clients as advice.

However ACE has not followed the crowd who recruited intelligence and security experts.

"It's not exactly rocket science," he says, reeling off some examples of what they expect companies to do to protect themselves.

Building parameter controls are highly important. People have to be prevented from entering the building and parking outside the building. Closed circuit T.V. is now considered a must. Most of this falls within the realm of the security companies and ACE is not anxious to duplicate those services.

Asked whether property insurers like ACE have considered grading companies they insurer by how effective their security systems are, he says that there was some discussion of that.

"For years people have been asking, shouldn't there be a universal highly protective risk rating for things like sprinkler systems and carbon dioxide systems." But although Mr. Gebhardt thinks it makes sense, he says it would commoditise the industry even further and appears to prefer a more individual approach to underwriting.

As for the Property ACE futures, in the current climate of ratings downgrades, these contracts have now come into their own. Companies which have multi level policies and various different insurers on their panels can hedge themselves against the possibility of one of the insurers being downgraded or even going out of business.

The option guarantees both future capacity and rates, so even if one insurer drops away, risk managers know that ACE will step into the breach at predetermined rates. Like their new marketing campaign asserts - it's about having enough protection to continue with whatever you need to do. In the current climate where ratings downgrades far outpace ratings upgrades, it seems that "the other insurance companies" may become the biggest new risk of all.