Property & Liability
Background
Burglaries and robberies represent a significant expense to pharmacies in the United States. Beyond direct insurance costs, which are driven by loss experience, pharmacists experience financial, business interruption and psychological costs. Pharmacists are concerned about armed robberies, and even finding that a store has been burglarized overnight can be upsetting and cause the expenditure of thousands of dollars in an effort to prevent reoccurrence. Beyond what is covered by insurance, customers pay deductibles that can easily be exceeded as a result of criminal efforts to gain entrance. Pharmacists that are victimized face hours of dealing with police, the Drug Enforcement Administration, board of pharmacy, contractors and their insurance company. As state and national efforts increase to address the underlying problem of prescription drug diversion, pharmacists face increasing administrative and regulatory compliance costs.
When we seek methods to effectively combat the problem, it is important to understand the larger problem of prescription drug diversion and how it fuels pharmacy burglaries and robberies. Described by the Centers for Disease Control as having reached epidemic proportions in the United States, demand for prescription narcotics, coupled with a widely available supply, create an environment that is ripe for criminal activity.
- While the U.S. represents only 4.6% of the world's population, we consume 80% of the global opioid supply.
- Five million Americans use opioid painkillers for non-medical use.
- We experience almost 17,000 deaths from prescription narcotic overdoses annually. In a 4 year period, that is more deaths than we experienced during the Vietnam War.
- Morphine production was at 96 milligrams per person in 1997. By 2009, that number increased eight-fold.
Part 1: Correcting a Distorted Insurance Market
For many condominium associations, the maintenance, repair, and reconstruction industry has devolved into a minefield of distrust and dysfunction. Countless lawsuits have taken their toll on the industry to the point of near dysfunction where many contractors simply walk away from condominium projects. The worst form of "capitalism" ensues where everyone acting in their own best interest is in fact acting in the counter-interest of their community. The Value Game promises to reset this negative incentives condition while enhancing community resilience.
Here's How The Problems Start:
The board of directors of a homeowner's association is entrusted by the residents to hire a contractor to perform a complicated reconstruction project. Unfortunately, condominium board members are not very good at writing contracts or issuing requests for proposal or collecting bids. When a contractor is selected, the scope of work is often poorly established. The expectations between the community and the contractor begin to diverge. Soon, a law firm is engaged my some residents to sue the contractor for damages. After a long battle, a settlement is awarded, but it is not enough to fix the problem after expenses are paid.
A Chain Reaction:
Fortunately, the contractor in the suit was insured, but this does not cover the personal, professional, and opportunity hardship of defending against the suit. The insurance company also increases the premium for coverage for condo projects. Most good contractors say, "it's just not worth the trouble." As the pool of available contractors dries up and the price for reconstruction increases, many condos are forced into deferring maintenance in a distorted market.
Cascading Failures:
After a while, a condominium springs a few leaks in their piping system. Each leak results in a relatively small water damage claim. When the insurance company notices several claims in the same building, they begin to fear that a mainline is about to rupture next, and threaten the condominium with cancellation of their policy unless the community replaces the entire system immediately. Now the insurance industry is in a double jeopardy: they force the contractor out of the market and they force the condo out of the market to basically avoid suing themselves.
This week's tragedy at the Boston Marathon has touched each of us on a very personal level and puts fear in our hearts that this could happen again. As the dust settles at the site, there will be many unanswered questions, and some of those issues will concern terrorism and insurance for terrorism.
What do we know at this point?
- It is being speculated that this is an act of terrorism.
- It is uncertain if it is an act of domestic or foreign terrorism.
- It is, also, unlikely at this point that this will be a Certified Act of Terrorism.
What are the immediate insurance issues that we see from this event?
- Severe injuries and death
- Direct damage to buildings and structures
- Direct damage to property (including vehicles)
- Closure of areas due to direct loss and civil authority
- Debris removal and damage
- Workers Compensation
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When I think about businesses/people working out of their homes, the first picture that comes to mind are people working on their computers — in virtual offices, remote offices, and oftentimes offices outside of the United States.
That is why it came to me as a surprise when Yahoo recently proclaimed all their employees had to "come back to work." One news line read "work at home and you will be fired." Clearly this is a change, especially for a high tech company. Marissa Mayer, the president and CEO of Yahoo as of 2013, defends her stance and says it will "separate out the truly productive workers from stay at home slackers who abuse the system." Needless to say, the news is buzzing about this, so time will tell if she sticks to her guns.
While Yahoo is "going back to the workplace," more and more people are choosing to work from their home. The current economy has redefined how people cope with the unemployment dilemma, and many businesses encourage staff to work from home to better maximize their production and as a means to better deal with the demands of work and family.
Copper theft presents a significant challenge for loss control.
Unlike other property crimes where "recovery" goes a long way toward mitigating the loss, such as the recovery of a stolen car in an auto theft, the recovery of the stolen copper seldom impacts the size of the claim.
Copper theft is different because the damage done to a building stealing a few hundred dollars' worth of copper can cost insurers tens of thousands of dollars to repair. The typical copper theft claim involves the damage done ripping wires and plumbing out of walls or the coils from a rooftop HVAC system. In vacant buildings, thieves target water lines and sprinkler systems as well as the electrical wiring. Once a vacant property has been hit, thousands of dollars must be spent to bring it back up to code before it can be occupied. It is this "collateral damage" that makes copper theft claims so expensive to an insurance company.
The key to reducing copper theft claims is prompt police response. The faster law enforcement arrives, the less time thieves have to damage the property. Faster police response is what wireless video alarms deliver and why they are a valuable tool for loss control against copper theft.
Copper theft has impacted insurance companies across North America, becoming a mainstream problem covered by television news. The following reports from television news underscore much of what this article is attempting to communicate — a new paradigm to mitigate risk and reduce claims impacting the real world from Virginia to Arizona.
There was a lot that changed with the Commercial Property Forms in the 2013 series. In fact, most forms underwent some sort of modification. One of the most interesting of the changes was the introduction of an optional coverage available on the Dependent Property Forms for Dependent Properties in the Supply Chain (Business Interruption).
By way of background, the Business Income and Extra Expense forms require that there is direct damage at the premises described by a covered cause of loss that gives rise to a loss of income or need to pay extra costs to operate during the period of restoration. In providing this form of coverage, we have been aware of the exposure to a loss of income due to a physical loss at a location that our insured depends on for various reasons. Recognizing that a loss to a dependent location could cause financial harm to our insured, ISO created Dependent Property Endorsements (CP 1508, CP 15 09, CP 1534) provided on a scheduled basis. What this means is that, for our insured, we identify what company(ies) they are dependent on and schedule those locations on the Dependent Property Form attached to their business income policy.
A scorned woman, a programmer with dual personalities, a rival executive literally in the closet and a double-crossing brother. That's a good foundation for a Greek tragedy or a modern-day telenovela, or the current season of Leap Year.
In a near perfect storm of personal and professional challenges, the C3D team is on the verge of a complete breakdown, and nowhere closer to getting their product ready for the launch. The Kiss continues to reverberate back at the C3D offices and the late nights there are more about loneliness and soul-searching than the all night programming sessions people normally expect at a startup.
Bryn's decision to take matters (and June Pepper) into her own hands will only up everyone's stress levels. It feels like the whole team is getting close to their breaking point, especially Aaron. Kicked out of his home and looking forward to sleepless nights at the office, he then finds out it was his brother Derek who's been spying on them and helping the enemy this whole time.
In April of 2013 the ISO modified the Commercial Property Forms. It was one of the biggest changes in forms that we have seen in years with the majority of forms taking on some type of change.
Effective April 2013, many of the Commercial General Liability forms also have a new edition date. Some of the changes are minor but carry new edition dates of existing form numbers, and there are some forms that are first being introduced. It is a multistate revision and some of the specific state forms have also taken a change or introduced new forms. Some of the ISO changes have already been adopted in insurance company forms while other changes represent clarification of the "intent" of the form.
There are new multistate endorsements that are being introduced:
- Primary And noncontributory — Other Insurance Condition Endorsement
- Additional Insured — Owners, Lessees or Contractors — Automatic Status for Other Parties When Required in Written Construction Agreement
- Total Pollution Exclusion For Designated Products Or Work Endorsement
- Liquor Liability — Bring Your Own Alcohol Establishments Endorsement
- Amendment of Personal and Advertising Injury Definition Endorsement
- Designated Location(s) Aggregate Limit Endorsement
Specifically we will highlight those changes that have any significant impact and new endorsements to the form series. It goes without saying that any form that narrows coverage requires that we notify our insureds to avoid any gap in coverage as they renew on the new CGL edition date. All of these changes will be discussed in more detail in the Insurance Community class on March 19th.
Epoxy is a magnificent substance used in many important applications where strength, hardness, moisture protection and strong adhesion are a requirement. Epoxy coatings are used to protect industrial applications from factory floors to reinforcement bar embedded in concrete. When applied correctly to a strong surface, few coatings are as tough as epoxy.
Recently, epoxy manufacturers have developed a lining process to coat the inside of an old potable water system with epoxy. This method is touted as a fast, 60 year, non-invasive, and inexpensive alternative to re-piping a whole building. However, when applied incorrectly, epoxy coatings can create a dangerous sense of false security especially where hidden from view such as the internal surface of a pipe.
Many epoxy failures are appearing in the field where litigation is often protected by gag orders thereby never reaching the public domain. This document identifies a wrinkle in the market that supports the rapid liner industry as well as the consequences of an unseen failure, should they occur.
This article arrives at the following conclusions:
- The potential for epoxy liner failures may be high in galvanized steel potable water systems.
- There is no reliable way to inspect the adhesion of epoxy inside a pipe.
- If an adhesion failure is found, there is no practical way to repair it except re-pipe — so, why not just re-pipe?
- Epoxy liner failures may typically occur at the precise location where the galvanized steel pipe is already at its weakest.
These observations are very important for the insurance underwriter who would otherwise classify a water system that has been repaired with epoxy liner as a "new" system. These observations are important for the forensic analyst that may determine the cause of a major water system failure on a condition other than being weakened by the epoxy coating. These observations are very important to the insurance broker who may inadvertently force a condominium community into an epoxy liner "solution" as a condition for maintaining coverage on their property.
The C3D team are facing a typical entrepreneurial reality. Just when they thought things couldn't get any tougher, yet another challenge presents itself. Thanks to Aaron and Bryn's spontaneous make out session at the bar, Bryn hopped on a plane back to San Fran and it's up to Aaron and Jack to make the TechStars presentation on their own. It might leave a bad taste in their mouths, but subterfuge is now the only way to win this contest, and save C3D. As usual, Jack smooth talks Aaron into going along and then the fun begins.
The sabotage takes many forms, including a Watergate-style meeting in a garage, Aaron as a fake driver and the old glass of water on the keyboard trick. Unfortunately, this is something that's happened by mistake before (the water on the keyboard that is). For example, say you accidentally spilled water, coffee, RedBull or some other liquid on a client's laptop, or even your own equipment. Would you be on the hook for the cost of the laptop and the cost of retrieving their data? Is there a way to protect yourself against these unfortunate circumstances? Of course there's a way to protect yourself. The Electronic Data package as part of your business owner insurance would help pay to replace the damaged equipment, costs to get the data back and any business interruption. A nice, inexpensive safety net to protect against unexpected problems.
Insurance Thought Leadership aggregates best practices from highly respected experts in their field. Insurance Thought Leadership provides knowledge and experience at a time when its needed most, times of sweeping change and market uncertainty.
Whether it’s Healthcare, Worker’s Compensation, Property & Casualty, Auto, Sophisticated Life Insurance designs, Directors & Officer’s, Safety, Risk Control or other Claims Management, Insurance Thought Leadership promises to deliver the most relevant mind share the industry has to offer.
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Dave Dias
David Axene
Jeff Pettegrew
Jennifer Weathersbee
Mark Webb