Tag Archives: business interruption

How to Develop Plan on Terrorism Risks

Terrorist and other mass violence attacks, which occur with alarming regularity around the world, can threaten your people, operations and assets. Many companies look to insurance — mainly property terrorism and political violence coverage – to help manage the financial impact of these risks, which can include property damage and business interruption losses.

Terrorism Insurance or Political Violence Coverage?

Property terrorism insurance provides coverage for the physical damage and business interruption that can result from acts that are motivated by politics, religion or ideology. Political violence insurance provides coverage related to war, civil war, rebellion, insurrection, coup d’état and other civil disturbances.

Choosing which coverage – or combination – is best for your organization can be tricky. The line between what is considered “terrorism” and what is considered “political violence” is often blurry. For example, should attacks by particular groups be classified as acts of terrorism, or another form of political violence?

To help determine the best insurance program to manage these risks, here are a few things to think about:

  • Ensure the limits of insurance that you buy provide enough protection for multiple loss scenarios.
  • Review the location of your assets to determine the appropriate insurance solution.
  • Understand the policy terms, conditions and limitations of terrorism and political violence insurance.
  • Work with your advisers to understand your property and employee exposures so you can make an informed decision or mitigate potential losses.

Addressing the Risks

Along with insurance considerations, of course, you need to ensure the safety of your employees with integrated and well-practiced crisis and continuity plans in the event of a disaster. Events from terrorist attack to natural catastrophes can cause significant business interruption (BI) losses. Steps to take to manage BI risk include:

  • Develop and test business continuity plans.
  • Conduct scenario testing.
  • Coordinate BI insurance with other coverages, including political violence and terrorism insurance.
  • Be prepared to gather appropriate information in the event of a claim, including recording damage via photographs and video.
  • Maintain separate accounting codes to identify all costs associated with the potential damage.

For more information on these topics, read Marsh’s 2015 Terrorism Risk Insurance Report and our political risk insurance report, Strong Capacity Drives Buyer’s Market for Political Risk Insurance.

What to Learn From an Executive Chef

Howard Karp, a chef at the Waldorf Astoria and instructor at the California Culinary Academy who cooked for four U.S. presidents, once told me the secret of cooking: “It’s all in the technique. There are no shortcuts.”

Exquisite food comes from a highly trained, coordinated and cohesive kitchen operation that involves culinary skills such as slicing, dicing, searing and sautéing. Chef Karp added: “One must also understand the chemistry of cooking.”dwdwdw He explained that the order and manner in which all the ingredients are “introduced to one another” makes all the difference.

Watching him cook a five-course dinner for a small group of us was like watching an artist paint a masterpiece. I never followed a recipe card again.

In my world, risks are a common ingredient and need to be handled just as expertly as the fish, meat and other ingredients that Chef Karp works him magic on. The risks to business ventures include:

  1. Damage to reputation/brand
  2. Economic slowdown/slow recovery
  3. Regulatory/legislative changes
  4. Increasing competition
  5. Failure to attract top talent
  6. Failure to meet customer needs
  7. Business interruption
  8. Third-party liability
  9. Cybercrime/viruses
  10. Property damage

Some organizational risk management programs I’ve seen follow a recipe of sorts that seems to have been passed down from one risk manager to another — but only good wines and spirits improve with age.

Clearly, the prevention of accidents (workforce, property, fleet, customer, etc.) establishes the basis for sustained profitability. So, boards demand that senior management have robust involvement in the organization’s enterprise risk management (ERM) efforts. Risk management departments cannot operate outside the business flow and related decision-making processes. Management silos have no place here. Decisions about risk must be driven across all operational aspects of the organization in a consolidated, standardized fashion to build trust and meaningful partnerships with operations.

But the traditional corporate approach to reducing risks is one clever safety campaign after another. Risk management staff, especially those in workers’ comp, obsess on frequency and severity — cutting the number of claims and reducing reserves and settling claims. Risks are “managed” by things like: compliance enforcement; personal protective equipment (PPE); signs; and those safety contests. Risk management operations are often buried in finance, HR or legal departments.

But these loss controls, from my experience, are no match to the potential losses that may occur under a bureaucratic, disliked supervisor.

Senior management must raise its game and focus on the strategic components of risk, such as: alternative risk financing, market economics, reputational risks and human capital. In turn, management needs to know the true costs in each business unit. Relevant risk factors may be buried in a ream of statistics, but corporate executives need to know if their risk management program is making an impact. How is information collected, managed and disseminated? Are your analytics predictive?

After 38 years of directing risk management, I believe that organizations must embrace what some friends and colleagues are calling a culture of safety (COS). This is the pièce de résistance.

COS involves using embedded risk management teams in each business unit to send signals up and down the corporate ladder that loss control is much more than a motto or simple list of steps to take. COS requires developing loss-control programs that are a product of the DNA of a specific organization. COS builds strong, binding partnerships among business units that allow the development of a platform for data analytics, volatility analysis, forecasting and reporting that allow for continual improvement through ERM/Six Sigma. COS has demonstrated significant savings, in the tens of millions of dollars a year at a single company.

There are five essential stages to a viable culture of safety:

  1. Awareness, repositioning of responsibility and analytics
  2. Cultural sustainability through behavioral economics
  3. Behavioral change through positive observations
  4. Combined service, safety and engagement measures
  5. Extended service, safety and engagement measures to the community

An organization should have a vision to assess knowledge, skills and abilities and work with HR to train employees to bring about new levels of expectations. Old safety methodologies focused on inspectors; audit and regulatory-based decisions; checklists and processes; task completions; and frequency-based decisions. COS, on the other hand, is behaviorally focused using coaches, trainers and outside consultants who partner with teams of employees who are already technically proficient and operational savvy. In addition, key performance indicators (KPIs) can help shape behaviors.

To deploy a viable COS, companies should consider using qualified outside experts as a diagnostic tool to identify and quantify risks using meaningful analytics. Companies need to know how they stack up against the competition. This type of analysis by reputable firms can provide practical insights for senior management and lead to the building blocks for a fine-tuned corporate risk strategy and an enhanced culture of safety.

One such consulting firm, Operant Solutions, inspired me to write this article with stories on risk management successes it presented at the RIMS Western Regional Conference in Lake Tahoe recently. (If you’re interested in getting a copy of the presentation, you can contact Sue Antonoplos at 650-336-3144.)

I am inspired by the words of Julia Child: “Cooking well doesn’t mean cooking fancy.”

5 Questions to Ask About Cyber

Cyber security placed first in a list of emerging casualty risks among insurance buyers, according to a survey of 135 insurance professionals conducted by London-based specialty lines broker RKH Specialty. 70% of respondents put cyber risk in the top spot. According to a Best’s News Service article about the survey, healthcare and retailers have been the major buyers. Logic will tell you that the reason for the growing demand for specialized cyber coverage is the simple fact that losses stemming from cyber-related attacks and business interruption can be catastrophic.

Of course, not all policies are created equal, so here are some things to consider when purchasing cyber security coverage to help ensure that policyholders are adequately protected from the losses after a cyber attack.

#1 If your business has a cyber attack, will your operations cease or be interrupted? If so, you need to make sure the cyber coverage you procure has “business interruption coverage.”

#2 Does your cloud contract stipulate that your third-party cloud vendor must meet all the federal regulatory requirements in encrypting personally identifiable information (PHI) and healthcare records? If not, you need to verify how the third-party vendor is protecting your employees’ and patients’ information from cyber attacks and whether its cyber coverage will protect you.

#3 Do all mobile devices – such as smartphones and tablets – have proper encryption software to protect personally identifiable information and healthcare records? HIPAA security regulations require healthcare providers to use encryption as a means of protection for their patients electronic PHI. If they don’t do so, healthcare providers can be heavily penalized by federal regulators. Most cyber policies have a stipulation that, to be covered, all insureds must adhere to the most recent encryption requirements for electronic protected health information (ePHIs).

#4 Does your legal counsel have experience responding to cyber attacks? Businesses often have their own attorneys and use them frequently for everyday operations. However, the likelihood is that the in-house counsel does not specialize in the legalities of cyber attacks. Having an attorney who specializes in data breaches can make the process run more smoothly and ensure that important details are not missed or mishandled – such as notifying regulatory agencies, properly setting up notification of employees and patients as well as advising PR staff on all media inquiries and other external communications.

#5 Does your business have an expert consultant they can call on to make recommendations on cyber coverage or risk management strategies to reduce the risk of attacks – or to help manage the crisis after an attack? Enlisting the help of a cyber-liability expert and mapping out a plan can help mitigate the potentially catastrophic losses related to a data breach event.

Don’t Do It Yourself on Property Claims

It’s okay to get help!

Recently, we hired a business development professional. In learning our business model and marketing strategy, he asked, “Who is your biggest competitor?” We said: our customers — the “do-it-yourselfers.” This struck him as odd, but it is the absolute truth.

We are in the business of preparing property claims that usually involve physical damage and business interruption. This is a very specialized practice that is part accounting, part insurance and part art. However, the companies we approach often feel they are in the best position to handle this process and do not need outside assistance.

Why is that?

When a claim is reported, the insurance company will assign an adjuster to the claim — either an inside adjuster or an independent adjuster — sometimes both. The adjuster is hired by and paid for by the insurance company to make sure the claim fits within terms and conditions of the insurance contract. The adjuster will rely on specialists of his own — usually forensic accountants and forensic engineers. The specialists allow the adjuster to focus on his job of interpreting the coverage, reporting back to the insurance company and negotiating settlement on behalf of the insurance company. The specialists are there to verify the details of the claim that is presented to them by the policyholder. The insurance adjuster alone cannot and does not take on all of the responsibilities. The adjusters are the experts at this process — it is their business and they do it every day — but they still get specialized help.

So if the insurer handles claims this way, why would the insured not get expert help?

Think of the “do-it-yourselfer” project at home. Let’s say you’re pretty handy around the house, so you look at that bathroom that needs remodeling and decide, “I’ll do it myself this weekend.” Technically, you CAN do it yourself — you can take your crowbar and sawzall and do the demolition; you can handle laying the tile; and, with a little research, you could figure out the plumbing. The first weekend you go out to buy the extra tools you need and some supplies, and you get to work. Maybe the demo will go easily, but if you’ve ever tackled a home project, you know nothing is as easy as it seems, and it always takes more time than expected.

If you make it through the demo, you spend the rest of the weekend figuring out your strategy for the new bathroom. Because you have a day job, each evening that next week you try to make progress, but by the end of the week you are bleary-eyed from the stress of this unfamiliar work and the late nights of trial and error. The next weekend, you cannot get back to the work, because you have family activities. When the vanity arrives, you realize it does not quite fit the way it should. Next, you realize you need more tools. Your weekend project turns into months of disarray. If you stay the course, months later you’ll have a functional bathroom, but there are usually a few steps that you decide you’ll have to get to eventually. At this point, you’re getting busier at work, and you just don’t have the bandwidth to get back to the myriad of subsequent bathroom issues, so you consider bringing in an expert to bail you out.

Preparing a claim is very similar, if you do it yourself. In addition to saving time, stress and compromising the results, your claim preparation expert has the tools of the trade, the skills and the experience to achieve an accurate and timely recovery. In contrast to the home improvement example, though, your claim preparer’s fees should be covered, in part or in full, by your property policy. So, if you’re not saving time or money by doing it yourself, and an expert will get you a better result, why would you not engage a professional claim preparer?

That question seems like a no-brainer, yet so many still take the DIY approach to property claims.

To sum up, it is okay to ask for help. The policyholder is not expected to be able to “do it yourself.” That is why you have professional fees coverage. The insurance company assigns its experts to adjust and audit your claims, and they’ll be better-equipped to meet their objectives than you will if you take the DIY approach. They are the insurers experts, so it is advisable for you to bring in your experts to represent your interests.

Here are a few suggestions of what to look for in a firm to prepare your claims.

  1. A loss accounting specialist, because insurance accounting is a unique trade. Typically, the firm will identify itself as forensic accountants.
  2. Experience with the types of property claims you have, in your industry or similar ones, and with at least 10 years in the field.
  3. Independence. This will ensure the firm is on your side with no conflicts of interest. Avoid allowing your insurer’s accountants to calculate your losses. The same hold for any other party that may have a conflict.
  4. A firm that qualifies for professional fees coverage. The fees should be based on an hourly rating scale, not on contingencies. Property policies will have specific exclusions, such as public adjusters and broker affiliated services.
  5. A firm that is respected by insurers, adjusters and brokers. Your accountants should not threaten your relationships to achieve the result.

If you see the benefit of engaging a team to prepare your property and business interruption claims, do your due diligence ahead of a loss. Interview any qualifying candidates and make your choice. The firm should be involved in your claim from the very beginning.

If you take this advice, your claims will go much smoother, and the claim will be free of leaks and loose tiles.

Insurance at a Tipping Point (Part 3)

This is the last in a series of three articles. The first is here. The second is here.

From the impact of analytics, digitization and more exacting customer expectations to the disruptive effect of regulation, geopolitical instability and two-speed global economic growth, the insurance marketplace will look very different in 2020. With the industry at a tipping point, the future belongs to businesses that can make sense of the gathering transformation and act strategically rather than simply reacting to events.

While some of the drivers of change in the insurance industry are common to all business lines, we believe that the impact will be seen in different ways and occur at different speeds. So what are the implications for each key insurance segment and how can businesses capitalize on them?

Property and casualty personal lines

  • A combination of automated underwriting and competition from aggregators and new entrants will drive down prices and accelerate the commoditization of motor, property and other core business lines. At the same time, new opportunities
 will continue to open up through new information-based models, both within traditional areas of insurance coverage and new fields, such as maintenance and concierge services. This “home intelligence” could pave the way for a broader range of concierge services built around a combination of customer knowledge and sensor technology.
  • Some customers might go further by giving the insurer – or information company, which might be a better description for this evolving business model – access to much of their personal data, which the company would use to tender for a range of personalized services on customers’ behalf.
  • Pressure on costs will make agency channels less economically viable and could lead to digital becoming increasingly dominant. But there will continue to be 
a strong role for agents in helping people to understand and manage what can often be complex protection needs. People may own more but have less time to manage the risks, be this damage, theft or breakdown, making the agent a valuable partner.
  • Opportunities for partnerships exist with travel companies and motor manufacturers, with insurance forming part of a bundled service. However, such partnerships could limit the insurer’s opportunities to build customer relationships and take advantage of policyholder data.
  • Data from car and equipment diagnostics, along with user behavior, will be exchanged with manufacturers and repairers, breaking down commercial boundaries and opening up further opportunities in design and maintenance. Further instances of this new ecosystem of information and assets include the integration of home sensor data with utilities’ and emergency services’ systems.
  • We estimate that the reduction 
in accident, personal injury and
other auto-related claims as advanced driver assistance systems (ADAS) technology becomes more widespread could reduce annual auto insurance losses in a developed market such as the U.S. by at least 10% by 2025. But the risk and claims profile would be more complex as the driver switches between self-driving (and hence driver liability) on the one side and ADAS driving (and hence product liability) on the other. While there 
are regulatory prohibitions on autonomous driving at present, it may eventually not just be permitted in many countries, but even be obligatory, especially in high-risk situations.
  • Revenue models will shift from premiums to premiums plus subscriptions in offerings such as maintenance, prevention and vehicle management.

Commercial lines

  • As the risk environment and client demands continue to evolve, commercial lines insurers have considerable growth opportunities in areas such as cyber risk and supply chain risk. Holistic analyses open the way for broader risk prevention and mitigation discussions with both agents and policyholders.
  • Alternative risk transfer will continue to develop and expand, moving beyond catastrophe into areas such as cyber and supply chain risk.
  • Advanced analytics that help to quantify exposure change patterns could help to mitigate the frequency of accidents, business interruption and other losses.
  • Given the potential for sharply rising losses and ever more complex loss drivers, there will be a growing need for coordinated risk management solutions that bring together a range of stakeholders, including corporations, insurance/reinsurance companies, capital markets and policymakers across the globe. For some of these risks, such as cyber risk, some form of risk facilitator, possibly the broker, will be needed to bring the parties together and lead the development of effective solutions.

Life, annuities and pensions

  • The focus of life coverage will shift from life benefits to promoting well-being and quality of life. This new model will combine digital data and partnerships with gyms, diet and fitness advisers and healthcare providers. Well-being benefits are likely to appeal to typically affluent segments that tend to focus on staying fit and healthy, including both younger and active older customers. For a sector that has had significant challenges attracting young, single, healthy individuals, this represents a great opportunity to expand the life market, as well as attract older customers who normally would think it is too late for them to purchase life products.
  • Advanced analytics will enhance
 the precision, customization and flexibility of financial planning and risk protection, paving the way for solutions that easily adapt to life changes and stretch beyond insurance to cover a comprehensive range of financial needs.
  • Sensor technology will lead to increasing integration between insurers and healthcare providers, marked by information exchange, better understanding of risks and costs and the potential to not only make cover for people with pre-existing conditions more accessible but also improve health and prolong life.
  • Life coverage will shift to shorter-term contracts. At present, typical life insurance contracts are for the long term. However, this is a deterrent
 to most customers today. Moreover, behavioral economics shows us 
that individuals are not particularly good at making long-term saving decisions, especially when there
 may be a high cost (i.e. surrender charges) to recover from a mistake. Therefore, individuals tend to delay purchasing or rationalize not having life insurance at all. With well-being benefits, contract durations can be much shorter – even only one year.

To help dramatize how the different markets may look, here are three possible scenarios:

Scenario One: Property and Casualty in 2025

All-’round prevention and protection

“I got a text in the morning saying there’s a potential fault with the boiler. But by the time I got home it was fixed,” says Akil Badem from Istanbul. “I don’t worry about breakdowns anymore, because I know that my insurer will have it all sorted out.”

Akil’s boiler, security and other home equipment are all connected to automated sensors that optimize performance and minimize fuel usage. The connected devices can also detect potential faults and, if they can’t be put right automatically, alert the nearest repair and maintenance team. No more breakdowns, no more waiting. The comprehensive coverage provided by market leader, There When You Need It, also takes care of all Akil’s transport requirements, including best-price bus and rail fares, a car when he needs one and insurance that automatically adjusts to how far he travels, his speed, the road type and other risks, and whether he or the automated driving system is in control of the car. “It’s just so easy. A couple of clicks on my mobile, and it’s all up and running. I can’t believe how people got along before,” he says.

Grace Nkomo, CEO of There When You Need It, says, “In 2015, we saw that everything was changing in our marketplace, be this how auto insurance is underwritten or the possibilities opened up by the Internet of Things. We knew that if we use the technology to change how we connect with and serve our customers, we could create an early-mover advantage that we’ve maintained ever since.”

Scenario Two: Life, Annuities and Pensions in 2025

Fit for the future

“I’ve never felt better,” says Karen O’Neil from Seattle. “Every time I go to the gym, the cost of my health insurance and life coverage comes down. My insurance company even got me a great deal on trainers.”

Karen’s lifestyle, health and financial planning coverage is designed to make it easier to stay healthy, manage her finances and plan for the future. A wearable sensor monitors key aspects of her health and alerts her to fitness advice and any medical issues that need following up. The healthcare and life insurance package includes tie-ups with gyms, well-being counselors and sports-wear providers, putting the emphasis on how to stay fit and healthy, as well as medical and life benefits when they’re needed. There is also a savings plan that puts aside any money left over from the rent, food and other spending and automatically adjusts investments to market movements and Karen’s investment goals. “At 29, I thought that these kind of schemes were for people a lot older and wealthier than me,” Karen says. “But my personalized package helps me to feel good now – and I know I can adjust as my needs change.”

Scenario Three: Commercial Insurance in 2025

Advanced risk detection averts cyber attack

Remote monitoring centers operated by a major insurance company have thwarted a coordinated attack on a retail group’s online network. Cyber gangs were planning to bring down the group’s server and then hack into the accounts of its millions of customers. The insurance company’s monitoring centers were able to not only detect the breaches but protect the server from damage and ensure business carried on as usual.

The cyber protection forms part of a comprehensive “business as usual” risk management package, which automatically anticipates and responds to any problems in supply, customer service and reputational integrity. The service is designed to zero in on any threats and take preemptive action. Advanced risk evaluation and pricing analytics enable the insurer to take account of multiple existing and emerging risk factors and determine a dynamic price based on the cost of reducing and mitigating the risks, as well as transferring the risks in alternative markets. Monitors continuously track real-time events (e.g. geo- political, technology, environmental and social events) around the world to build an accurate and evolving qualitative profile of the exposures facing clients and how they can be managed.

How to Design Your Strategy to Face the Future

For many – if not most – insurers, this changing market is likely to require a significant change in products and the redesign of long-established business models. This will not be easy. It’s important to develop a clear vision of where and how the business intends to compete.

For some, it could include a wholly new value proposition. For life insurers, this could include a broader and more compelling offering built around quality of life and well-being on the one hand and the targeting of untapped segments on the other. For P&C companies, this could include assessing opportunities to enhance data and risk monitoring and looking at how this information could apply to a broader range of risk-prevention and protection needs.

Having established strategic intent, it’s important to determine how to target individuals through different messages and channels, simplify product design and re-engineer distribution and product economics. Further considerations include how to reshape the underwriting process to capitalize on new analytics and sensor information, as well as steps to make the sales and policy administration process more straightforward and real-time.

Such is the speed of market developments that it’s virtually impossible to predict what customer demand will look like in a few years’ time. Old approaches to strategic planning and execution may be too slow to keep up with the pace of change. Instead, we propose a four-step LITE (Learn-Insight-Test-Enhance) approach to marketing, distribution, product design, new business, operations and servicing.

  • Learn your target segments’ needs
  • Build the models that can provide insight into customer needs
  • Test innovations with pilots to see whether they resonate with customers and refine the value proposition
  • Enhance and roll out the new value proposition for specific segments

Using this approach, developments that would have taken years can be brought to market in a matter of months, if not weeks, and then assessed, adapted, and discarded/expanded to meet changing market needs. The result will be a much faster and more responsive business, capable of keeping pace with customer demands and capitalizing on unfolding commercial opportunities.

In conclusion, the future should be bright for insurers. They have opportunities to engage more closely and become a much more valued and intrinsic part of people’s lives, be they individuals, families or businesses. Insurers will have more information upon which to base smart solutions and serve a broader range of needs.

The challenge is how to make sure insurers capitalize, as the marketplace will be much more open and potentially less loyal.

For the full report from which this article is excerpted, click here.