From the editor.

• Author: Marshall, Jeffrey
• Position: Editorial

Catastrophes, natural and otherwise, have been occurring at a record clip in recent years, as writer Gregory Millman points out in our cover story. The 2005 hurricane season in the U.S. was a terrific example, but there have been earthquakes, typhoons and terrible floods, as well as a spate of terrorism incidents. The predictable result: insurance has become far more pricey, and scarce.

Obviously, that complicates risk management. Millman discovered in talking to a number of companies that they've effectively been priced out of the insurance market. Many have subsequently decided, or been forced, to "go bare," or operate without catastrophic coverage. Yet, as he notes, that isn't necessarily the end of the world. BP plc, the oil giant, has effectively gone without catastrophic insurance for many years, electing to insure against small risks whose claims are highly likely to be paid and use its equity base--billions of dollars--as a cushion against cataclysmic events.

And BP isn't alone. Millman traces the decisions by a health system in Florida, Memorial Healthcare, to go without catastrophic coverage and to lay the groundwork for a captive insurer that would allow it and other hospitals to pool risks and finance their sharply higher deductibles.

Millman concludes that what we may see not far off is a reduced demand for insurance amid more supply, as more companies look to various forms of self-insurance and risk mitigation. In the ever-changing world of risk management, that would represent another important cyclical change--though not necessarily a permanent one. If rates come down again, things could be different.

[ILLUSTRATION OMITTED]

Two articles in this issue deal with the threat of corporate wrongdoing, and how company policies need to be directed to respond. In one, three attorneys at McKee Nelson in Washington, D.C., examine the way the tougher regulatory environment is requiring companies to...