Recent events and the insurance industry's responses to them will have lasting global effects on how risks that previously were regarded as "insurable" will be assessed and mitigated in the 21st century.

While most attention has been focused on the massive property and business losses resulting from the Sept. 11 terrorist attacks, the potentially greater liability exposure of such attacks, of debacles such as the Enron Corp. collapse and of other man-made disasters, has overwhelmed our traditional concepts of insurance capacity and acceptable corporate risk retention.

Reactions throughout the industry have been dramatic but, for the most part, conventional-advocacy of temporary government intervention, along with massive rate increases and new policy exclusions. Such factors have led to a frantic search by brokers for affordable capacity and a greater reliance on self-insurance. This has been followed by a highly selective return to the market by major insurers in certain lines and regions.

In our view, though, this response is not enough.

First, we must realize that the fundamental problems we now confront will not be eliminated by a gradual return to softer markets and broader coverage. The contraction of the insurance markets is directly attributable to the recognition that much of this new exposure is well beyond the capacity of the global insurance industry. Insurers cannot and should not be blamed for their dramatic reaction to the threat to their survival, any more than their corporate clients should be faulted for trying to protect their shareholders in the face of potential ruin.

Second, we should recognize that, historically, the pendulum never fully swings back to its original position when the insurance market inevitably softens. Whether corporate risk managers and their advisers develop new risk retention groups-such as the proposed airline consortium-or new audit standards to protect investors, creative mitigation strategies will change the risk management landscape permanently.

Third, working with major insurers, brokers and management consulting firms confirms that each of these entities has a significant and interconnected contribution to make in solving this current problem. Risk mitigation in today's environment requires all their disparate skills.

As the industry adjusts to this new world, the question arises as to where risk management leadership will emerge that can effectively deal with problems that now seem insurmountable. How much risk can the insurance industry, with its limited capacity, absorb? What new markets or structured financial products can brokers develop? What services might be provided by other corporate advisers, such as information technology security and engineering consultants, relocation services, outsourcing organizations and others?

In the long term, the answer lies in a total shift in the relationship among policyholders, brokers, insurers and other advisers. All must work together creatively to mitigate loss by taking a broader and more collaborative approach to risk management.

This approach will have to encompass all aspects of risk mitigation-from decisions on where and how facilities are built, to the pooling of uncorrelated exposures, to the efficient recovery after disasters occur. Optimal approaches are likely to develop from the unprecedented alignment of specialized organizations with core competencies in operational risk evaluation, global security management, outsourcing services, engineering and human relationship management.

Whether all parties can and will meet the challenge is a less critical question than who will lead the way out of the current untenable situation. The precedent provided by other risks that were historically seen as "uninsurable" suggests that answers will come from those who are willing to go beyond conventional responses.

In many instances, when insurers balked at providing coverage, the affected industries responded by solving their problem themselves, through self-insurance mechanisms such as risk retention groups and captives; through risk engineering, such as the development of modified grain or chemical storage facilities; through aggressive safety engineering, such as that provided by the lumber industry; and through new alternative risk transfer and structured financial products. All of these approaches developed out of a need to manage risks that were "uninsurable" except at unacceptable costs.

Perhaps the current "uninsurable" terrorism and other man-made catastrophe risks will result in similar developments, generated by the affected industries themselves. That is particularly likely to be the case if the insurance industry does not respond creatively to play a key role. Ample evidence exists that the commercial insurance risk transfer market share has not been not returning to its prior level after every major underwriting cycle; corporate risk managers and their advisers have been making use of alternative risk mitigation.

Insurers will be integral participants in the process of handling these most recent "uninsurable" risks. It is hoped that such participation will not consist solely of a return to loss-leading, soft-market pricing of the type that historically has served only to distort the benefits of other, more sustainable risk mitigation strategies.

But corporate risk managers also will rely much more heavily on the expanded risk management services of brokers and others not historically included in the process.