Tag Archives: liability insurance

Election’s Impact on Liability Insurance

It now seems clear that practically no issue will be left unaffected by the impending presidential election, including matters pertaining to insurance. And while health insurance has been the most dominant political talking point, the November election may also have consequences for certain aspects of liability insurance. To be sure, neither President Trump nor former Vice President Biden has made liability insurance part of their explicit campaign platforms, but some analysts believe the liability landscape may be altered by the winner in myriad implicit ways.

There is a big question about whether a new stimulus bill will include substantial liability protections for businesses that were harmed during the COVID pandemic, that have concerns about employees returning to work or that want to guard against lawsuits from customers and workers exposed to the virus. Dozens of state and federal officials have proposed reforms that would give employers additional protections from liability related to COVID, but it’s all still up in the air both locally and nationally.

Washington, D.C. Republicans—including President Trump—have been steadfast in their effort to include liability protections in the next stimulus bill, although the details are vague. As recently as Oct. 6, U.S. Treasury Secretary Steve Mnuchin proposed a $1.6 trillion stimulus package that would include $250 billion in state and local government relief as well as liability protections for businesses and workers, but a deal has not yet been struck with House Speaker Nancy Pelosi as Democrats continue to push back on several components, including those related to liability protection.

At the core of this issue is whether businesses, and even schools, will be given additional legal and financial protections against liability lawsuits resulting from COVID. By and large, Republicans evidently want to restrict a potential flood of COVID lawsuits against businesses. Otherwise, they believe that entities like businesses and schools and hospitals will see a wave of frivolous litigation that could further damage their ability to operate and that could harm the economy writ large.

Recognizing that liability protections may end up on the cutting room floor in stimulus negotiations, Senators Mitch McConnell (R-KY) and John Cornyn (R-TX) introduced the Safeguarding America’s Frontline Employees to Offer Work Opportunities Required to Kickstart the Economy Act, also known as the SAFE TO WORK Act, in late September. The bill includes a host of provisions that would make it much more difficult for plaintiffs to sue for injuries related to COVID infection.

In other words, a second term for President Trump will likely result in a more restrictive liability landscape, while a Biden presidency could find entities such as businesses, schools and healthcare facilities more vulnerable to liability suits.

See also: 5 Liability Loss Mega Trends

The problem, especially for small businesses right now, is this state of limbo, where they don’t know how this is all going to pan out. If liability protections aren’t pushed forward, either in the next stimulus or through SAFE TO WORK, businesses will most likely have to increase their liability insurance limits. But, according to analysts, they’re not going to spend that money until it becomes clear it’s absolutely necessary.

Space, Aviation Risks and Higher Education

What do you do when a group of precocious students decide to build a satellite and launch it into space? Or, when they decide to build an unmanned aviation vehicle (UAV)—more commonly known as a drone—and fly it over a busy urban market? Or, when they design and launch a few rockets October Sky-style from a training field on campus before heading to a NASA competition for a chance at $50,000 in prize money?

As a risk manager, considering the answer to these questions may cause a heart palpitation or two as you think about the potential effects of these educational opportunities on the educational institution. Not only does the institution face increased liability and property damage risks, but there is also the potential for increased risk to reputation and even regulatory compliance considerations.

Insurance was likely the last thing the students at St. Thomas More Catholic School in Arlington, VA, were thinking about when they began construction on a shoebox-sized satellite called Cubesat. According to a Washington Post article, the purpose of Cubesat, which was released from the International Space Station on Feb. 15, 2016, is to beam photos from 200 miles above the Earth back to computers in their school library. You can view pictures from the satellite here.

See Also: Should We Take This Risk?

Insurance was also, probably, the last thing students from the University of Wisconsin-Whitewater were thinking about in October 2015 when they launched their drone to capture aerial images of the new Whitewater City Market. According to the University of Wisconsin News, the purpose of the project was to respond to the market organizer’s request to geographically depict the organic growth of the Whitewater City Market. A video of the aerial images has been posted to YouTube and can be viewed here.

To the 54 college teams selected by NASA for 2015-2016 NASA Launch Challenge, insurance was likely pretty low on the list of considerations as the teams worked to design, construct, test, launch and successfully recover a high-powered reusable rocket and its payloads. The purpose of the challenge is to encourage participation in STEM fields and to examine innovative solutions to potential issues that may arise during space travel. There is also $50,000 in prize money for the top three teams that complete the challenge. For 2015-16, the competing rockets will be launched on April 16, 2016.

So, what are the risks associated with these types of activities, and how can insurance assist the college in transferring some of these risks?

According to a white paper recently published by Allianz, a large commercial insurer, these types of aviation/space risks can be bifurcated into two areas: (1) ground or pre-launch risks and (2) in-orbit or post launch risks.

Ground risks include:

  • Hazard or catastrophic risk to facilities because of fire. This type of risk can be significantly increased if someone is using flammable chemicals, such as nitrogen or any of the components present in rocket fuel. Keeping these materials on campus can create additional risk for the institution, which may not be contemplated in current insurance programs.
  • Transportation risk increases the risk of property and liability losses. Moving rocket components, including flammable materials, increases the potential for losses to (1) the components themselves and (2) a third party that may be injured as a result of an incident on the road.
  • Liability loss because of launch failure may result in damage to property near the launch site or even injury to a third party, faculty member or student. Failure to take adequate safety precautions during design/construction—working with chemicals, power tools and other materials—may result in increased potential for injury to students and faculty participating in the project.

Post-launch risks:

  • Loss of the object because of malfunction, damage or equipment failure, items that represent a significant investment of time, resources, and materials. Such a loss may result in the inability to participate in a competition, a loss of grant money or additional time spent rebuilding or reworking the project.
  • Liability loss due to in-air collision, falling objects or interference with another aerial object (such as a satellite signal or an airplane’s operating equipment)—these types of incidents may result in significant bodily injury or property damage of a third-party property.

Typical insurance policies maintained by most institutions may not provide adequate coverage for space/aviation risks:

Property policy—Provides coverage for loss or damage to property, equipment and materials of the university. Coverage is generally broad but may exclude: (1) hazardous materials, (2) property in transit or off premise, (3) property not owned by the university and (4) pollution because of the release of a hazardous substance or chemical.

General liability policy—Provides coverage for the injury or property damage of a third party because of the negligence of the institution or those operating on behalf of the institution. Coverage responds to a wide range of standard risks, but there may be exclusions for: (1) aviation risks, (2) loss caused by the acts of a third party, such as a student or contractor, (3) third-party liability related to a discharge of pollutants/chemicals, (4) loss of institutional reputation or cost of a crisis management team, (5) coverage for regulatory fines and penalties for failure to obtain proper permits, etc. and (6) the liability to a third party because of the failure of a vessel to perform as expected or because of a design flaw.

Automobile liability policy—Provides coverage for liability and property damage associated with the operation of a motor vehicle. Coverage responds to a wide range of standard risks, but there may be exclusions for: (1) pollution because of the discharge of a chemical substance transported on or in the vehicle, (2) liability for use of third-party transportation, such as a rental vehicle or bus charter or the use of a personal vehicle by a faculty member or student and (3) property damage to institutional property being transported on or in the vehicle.

There are additional types of coverage that may be needed, including:

Pollution coverage—Including premises pollution (to provide coverage for the institution’s own facilities) and pollution liability coverage (to provide coverage for third-party exposure to pollutants)

Aviation/space coverage—Specialized policies can provide coverage for losses to an aerial vessel or its equipment and, also, for the most common types of liability loss (collision, crash or interference). Note: Special endorsements may be required for drones.

Inland marine rider/policy—Provides coverage for scheduled equipment and property that may not otherwise be covered by the institution’s standard property coverage. This can include coverage for property that is being transported in a vehicle

Crisis management coverage—Provides coverage for loss or damage to the institution’s reputation; this may include coverage for the costs to engage a crisis mitigation team and public relations experts or the cost to take other steps to preserve and restore the reputation of the institution.

See Also: What Is the Future for Drones?

Professional liability—Provides coverage to professionals because of the failure of the design/construction or for the failure of the devise to perform as intended. This coverage may include coverage for damages not related to injury or to property damage— including the financial loss and the costs for rework and redesign.

Not all insurance policies are created equal—individual coverage and policies may respond differently. Please consult with an expert if you if you have questions about coverage for these types of institutional activities.

5 Limitations to CMS 5-STAR Ratings

When it comes to general liability insurance for long-term care facilities, ratings are often based on the CMS 5 STAR rating system. This is data that consumers view as the holy grail of quality metrics for skilled nursing facilities. It essentially says a facility rated 5 STAR is well above average, and a facility rated 1 STAR is much below average. This provides a good overview for nursing home quality, but there are flaws inherent to this system, whether it is inaccurately reported data, variation in quality standards between states and survey districts or facilities that specialize in higher acuity and have sicker patients in-house.

Here are some of the variables that I have noticed not only as an insurance underwriter but also as a licensed nursing home administrator for more than 20 years.

1. Health Inspections STARS – This is a three-year average of annual surveys and complaints surveys and is calculated based on the number of citations and their severity compared with the state averages. The average is not as important as knowing the facility is improving with survey compliance or getting worse.

2. Staffing STARS – This is based not only on the number of hours of care provided to each patient per day by nurses and nursing assistants but is also heavily weighted to the number of RN hours. What you need to know is that the staffing data used is only for a two-week period that is self-reported by the facility during the annual survey. This is a limited snapshot and may not be indicative of normal staffing patterns or could be inaccurately reported.

3. Quality Measures STARS – This is based on 18 quality measures (QMs) for short-stay and long-stay residents. Some of the more scrutinized are for the prevalence of pressure ulcers, falls and antipsychotic medication. What you need to know is, if the facility has a focus in caring for these types of high-acuity patients, the star ratings may be lower in comparison with state averages, and this is not necessarily an indication that the facility is deficient.

4. Overall Rating STARS – A rating of 1 to 5 stars is based on health inspections, staffing and quality measures ratings combined into one. The more stars the better. What you need to know about this is that the facility is being compared in relationship to other facilities in a geographic area. Why this is relevant is, if all the facilities around you are excellent operators, a low star rating may not be a good indication of that facility’s overall operation.

5. Trends – A facility that is improving or declining cannot be detected with just an overall 5 STAR score. The CMS 5 STAR system has many good points and provides a consistent rating for all 16,000 nursing home in the U.S. but should not be used without interpretation for insurance purposes. We need to first validate that the self-reported data used for each facility is accurate and also consider the types of residents the facility has chosen to admit and care for. Higher-acuity residents will have an effect on the three categories that drive the overall rating and could make the facility appear as an underperformer. Lastly, both the quality performance and performance improvement of a facility are becoming a heightened area of focus for centers. Effective quality improvement programs play a role in assessing risk that is easily overlooked.

Here’s a link the CMS website: CMS 5 STAR Ratings

industries

Outsiders Retreat From Insurance

Cargill, Monsanto, Wells Fargo and John Deere are officially out of the crop insurance business, according to a recent article from Bloomberg. Large companies like these expanded into different aspects of the agriculture industry over the past few years, and their debut in the insurance industry made quite an impact. With their newly acquired insurance operations, they were the market players to watch – and now we’re watching them leave the industry.

Behind this exodus is the matter of profit. Large companies, especially those that are publicly traded like Monsanto and John Deere, have a different perspective on risk and profit than the typical insurer.

Let’s take crop insurance profit and loss over the past couple years, which is driven by fluctuations in crop prices. As Bloomberg explained, “Bumper harvests have sent corn, the biggest U.S. crop, to less than half its 2012 peak, ratcheting down the premiums farmers pay to insure against loss. Other crops have also seen steep price declines.” At the same time, the broader insurance industry has been seeing lackluster results. The most recent numbers from the Congressional Research Service indicate an underwriting loss of $1.3 billion in 2012 and profit of $657 million in 2013. For insurers, although these are not welcome results, the reality is that there will be challenging years – and insurers are accustomed to anticipating them. They are in for the long haul. But large, diversified commercial companies such as Cargill, John Deere and Monsanto have a much harder time adjusting to these financial results.

So, were these big external players a collective blip on the map, or a real disruption? A pattern visible across many industries offers a possible answer. Large companies diversify around their current offerings, and, if the results are disappointing, they realize the expanded offerings are not core to their business. Google has been extremely successful in most of its diversification, but Google+, its social network offering, never became the powerhouse the compay had hoped would challenge Facebook. If these large companies are unsuccessful, they often leave the new industry.

This is not to downplay the role that new entrants have in the insurance ecosystem. They push our thinking and ways of doing business in directions that might otherwise have taken years for the industry to adopt. New players like Haven Life and Google are not attempting to be the same old insurer, only better. Their goal is to disrupt the business of insurance and to create something in a niche that the industry had not perceived. The disruption they cause can take many forms, from new solutions to new distribution channels. They can go after these markets without owning the entire process – and, in doing so, they create real changes in how the insurance industry has to operate.

Driverless cars will present similar challenges. Volvo and Ford have both mentioned the possibility of covering product liability insurance. How will this affect the insurance industry? Will automakers really cover the liability, or will they front it? Autonomous vehicles will change the insurance landscape by opening doors for these new thinkers. But will the insurance industry need to step in to present new insurance products that provide the necessary coverage? What role will insurers play in the new auto world?

Disrupters like Monsanto, Cargill and John Deere were not in the market for a long time, but they do have an impact. They invested in changing the claims process, and they applied data, analytics and automation in areas that were previously very manual – which causes us to rethink other processes. We can hope that their new ways of doing business opened some eyes in the industry. They did not change the game so much as establish that the game needs to be changed.