Building Upon Strengths
Craig Graham secured an unheard-of deal for a contractor that was building a tunnel underneath a rail yard for a railroad, while simultaneously constructing several high-rise buildings that rested on a platform over the yard, for a real estate developer. An owner-controlled insurance program covered the building project, but it was not economically feasible for Graham to roll the tunneling project into that program, as the railroad’s coverage demands did not give consideration to the world’s “most difficult” New York construction insurance market.
Graham, senior vice president at Alliant Insurance Services, then convinced the OCIP carriers to also participate in a “relatively affordable” contractor-controlled insurance program for the tunnel, by demonstrating how the contractor could enhance safety on both projects, and how claims management could be coordinated.
“Craig Graham crafted some really creative solutions to the more problematic markets, such as New York State with its challenging labor laws,” said Bill Buchan, vice president, risk management, at Tutor Perini Corp. “Often the coverages can be very expensive and placing them is a challenge, but he’s been very creative structuring a solution to minimize costs and maximize coverages.”
Graham was able to secure a comprehensive OCIP with “very fair pricing” for the Los Angeles Unified School District, by thoroughly explaining the district’s claims and safety services, said Robert Reider, director of risk finance.
Changing the Game
One of Paul Healy’s clients wanted to bid on construction projects on U.S. military bases in Japan, but the bid specifications referenced the Japan Ministry of Finance approved list of surety companies — which didn’t actually exist, making it impossible for non-Japanese companies to bid on the work. Given the U.S. Army Corps of Engineers was the ultimate owner for these projects and a U.S.-based company with a local office in Japan wanted to bid the work, Healy had to get the agency to change the bid specifications.
To accomplish this, Healy, national practice leader, Construction Services Group at Aon, prompted several U.S. surety companies and their industry trade association to lobby for some political pressure on the Corps’ head office in D.C., to prevail upon the agency’s Japan-based representatives to make the bid requirements reasonable. The agency eventually agreed to change the bid specifications to accept surety bonds from companies on the U.S. Treasury list of approved sureties, in addition to the referenced Japan Ministry of Finance list.
“Paul Healy has been very helpful getting us a bond in Japan,” the client said. “He’s also helped us evaluate various prospective joint-venture partners from a financial perspective.”
“Paul Healy is a strong advocate for us,” said Robert Alger, president and chief executive officer of Lane Construction Corp. “He’s been fabulous to work with and really has the clients’ best interests at heart.”
“Paul was very helpful in placing three new, fairly complex surety agreements for us,” another client said.
Last year, Keith Jurss was hired to help secure a cutting-edge professional liability policy for a Fortune 100 “diversified international family entertainment and media enterprise” that had started to use the integrated project delivery method on its capital improvement projects.
The IPD method, which requires a multiparty contract between the project owner, designer and contractor, incorporates mutual waivers of liability and financial incentives for the parties to work collaboratively to deliver the project on-time and on-budget.
However, because of select contractual provisions, the corporate professional liability policies of the design and construction team would not respond appropriately, thus requiring a project-specific alternative.
Jurss, senior vice president at Willis, was able to help underwriters understand the contractual incentives built into the program, and to convince them that the IPD team was truly committed to working collaboratively. Jurss then customized the project solution utilizing a variety of coverages from select carriers. The result was a solution that gave the design and construction team protection for rectifying design and construction errors without having to bring suit against each other. The solution also incorporated best-in-class professional liability coverage to protect against potential third-party claims.
“The challenging element of an IPD is the lack of a mature insurance marketplace,” the client said. “Since my organization has a very active creative and design process on some pretty unique projects, we had a short timeline to have something in place by May.”
En Route to Top-Notch Service
Jamie Pincus, vice president and account executive commercial at Wells Fargo, goes far beyond the call of duty.
For the Metropolitan Washington Airports Authority — which oversees the Dulles International and Ronald Reagan National airports, the Dulles Toll Road, and Dulles Corridor Metrorail Project in the D.C. area — Pincus helped with the transition of the aviation owner-controlled insurance program and the implementation of a rail OCIP.
On the authority’s projects, Pincus scheduled vendor, contractor and subcontractor information sessions to ensure that “clear, open communication occurs internally and externally.” She has also deployed a Wells Fargo Insurance loss control/safety specialist to ensure protocols are being followed at the authority’s numerous worksites. Pincus and her team provided similar attentive services for the OCIP of the Maryland Transit Administration.
“The scope and size of our projects and the amount of administrative detail is staggering, but Jamie does an excellent job,” a client said. “She’s very adept at coverage analytics and has superior technical abilities.”
For Swire Properties’ Brickell CityCentre construction project in Miami, Pincus advocated for the placement of webcams with 24/7 surveillance and a process to badge contractors for secure worksites. “Jamie Pincus is outstanding — she has been able to put in a very unique insurance program for us and she’s saved us a lot of money,” said David Gross, construction accountant for Swire Properties.
Wells Fargo’s Jamie Pincus is a firm believer that the best insurance policy is the one that you might never need.
“In the construction industry, it’s not just about the insurance placement, it’s about the people working on the construction site, providing a safe environment and seeing something develop that others will benefit from and there must be a business understanding of what our client is looking to accomplish,” Pincus said.
Pincus is a big believer in voice-to-voice communication with clients.
“Email is efficient but a lot gets lost in electronic delivery,” she said.
Pincus serves as a mentor to young professionals, not just handing down instructions but giving them the tools to do their jobs better.
“I lead by example. There is nothing I like better than digging into a policy to learn about what coverage is provided and researching a client’s exposure to have a complete understanding about their risk,” she said.
“I’ll do this as a mentor on a daily basis to demonstrate good service.”
In her community, Pincus involves her family in her efforts to help the less fortunate. Her eldest daughter recently joined her and other Wells Fargo team members to deliver groceries and prepared meals to 77 families in the Washington, D.C. area.
She brought all three of her daughters along for a more recent project, painting and repairing the house of a family in need.
Expertise in Action
One of Susan Schwartz’s clients partnered with two other contractors for a large construction project, but the disparity between the contractors on how to handle insurance for the newly formed limited liability company was holding up finalizing the contract.
To help get the $70 million project started, Schwartz, a director at Aon, discussed the completed operations extension with underwriters, negotiated more favorable coverage and pricing terms, met with the contractors and their brokers to discuss the insurance program, and worked out an equitable broker compensation solution.
Schwartz met regularly with another client to discuss estimates for coverage and pricing of a contractor-controlled insurance program at various loss ratio levels, and detailed the merits of project-specific coverage for various lines including professional liability, pollution liability, builders risk and contractor default insurance, potentially saving the client more than $500,000.
“With short notice, Sue was able to work with my company and team leaders from other companies and brokerage firms to develop a comprehensive strategy and risk solution for a complex joint venture project,” said Kathy Norris, director of risk management at Fred Weber Inc. “Her clear view and analysis of situations coupled with her can-do attitude, professionalism, and her willingness and ability to listen to the opinions of others and share ideas make her a valuable resource.”
“Sue Schwartz is by far the most knowledgeable when it comes to construction issues and coverage,” said Monica Settle, insurance risk manager at Western Construction Group.
Matthew Walsh was tasked to respond to a significant uptick in large, complex construction projects undertaken by both private and public sector clients throughout the world.
Walsh, managing director, brokerage practice leader, global/complex clients, Construction Services Group at Aon, built a unique analytics and brokerage platform to address the risks in these complex global projects, including rapidly changing laws impacting construction risk, geographic challenges from catastrophe, and increasingly complex project delivery methods that blur the lines of responsibility between project owners, designers and contractors. It can be used to address various unique legal challenges in some of the world’s most challenging construction liability jurisdictions, or structured for global responsiveness to a single owner undertaking projects simultaneously.
“Matt Walsh goes above and beyond to meet his clients’ needs,” said Ted Wickenhauser, vice president, risk management at McCarthy Building Cos. “He does a phenomenal job at being a client advocate as well as liaison between the markets and his clients. He is never afraid to confront any challenging situation head-on, take ownership of it and move it toward resolution.”
“Matt is very knowledgeable on construction management, as well as the insurance industry,” another client said. “I also think he’s extremely talented from a people skills standpoint, and he’s highly regarded at all levels of the insurance industry.”
The global upturn in commercial construction is, on the face of it, good news.
But many of our risk management sources caution that there is great risk in this upturn. Geographic challenges in catastrophe-prone areas and rapid changes in laws governing construction risk are just a few of these factors. Aon’s Matthew Walsh has built a unique analytics and brokerage platform tailored to address the risks of stakeholders in complex, global undertakings.
Walsh’s base in his 25 years in the business is Chicago, which as a venue ranks as either first or second in construction liability risk from year to year. He feels he’s learned a lot about the business, which is why he is so passionate about passing his knowledge on to a new generation of brokers.
“What has remained constant is that you need a vast team, with vast knowledge and access to vast resources to deliver in these environments,” Walsh said.
“Going it alone was, and never is, an option; it’s all about our team and always will be,” he said.
“At present, I am privileged to have a talented group of young people recruited from our career development program, and young leaders from the construction risk management community, to develop a new generation of construction risk tools delivered through a web portal environment.”
Driving Success for GM
Al Gier, GM’s director of Global Risk Management & Insurance, felt so strongly about Elisa Black’s work in 2013 that he nominated her personally as a Power Broker®. That’s quite an endorsement. In fact, Gier and Frida Berry, GM’s manager of Liability Risk Financing, agree that not only did Black manage that critical global juggling act, but she did it with her professional, focused style.
“Elisa was instrumental in helping reduce collateral requirements and improving the efficiency of the global claims handling process,” Gier said. “Her client philosophy focuses on being prepared and setting the marketing standard at the forefront of the negotiation.”
Gier explained that any broker can negotiate with a carrier post-quote. More impressive is doing the legwork so you come to the table prepared to negotiate ahead of time, a Black trademark. Also, for a large global enterprise, he said, timing is everything. So finalizing financial negotiations early allows the time to fulfill the administrative and contractual obligations of an insured — the lifeline of most international programs.
Gier said Black is great at articulating obligations and time constraints.
Bermuda Excess Market Wizardry
With the automotive market continuing to recover, the Bermuda excess market is looking to boost premiums come renewal time. To help alleviate that pricing stress, Chris Heinicke and his Aon team do their best to negotiate with markets to keep premiums from climbing.
In 2013, Heinicke faced a specific challenge for a client that was in the midst of a claims issue with one market that had a sizable amount of capacity on the excess casualty program. The issue was on a completely separate line of business, but was enough of a problem that the client had made the decision to cut this market from all of their lines of business. That decision was made after the entire program had already been quoted at the expiring premium and there was little to no capacity left in Bermuda. Heinicke and his team worked quickly by increasing capacity with the only market in Bermuda that had something available, and then worked with the U.S. and London teams to get the terms, pricing and capacity needed to replace the market. In the end, the client was pleased with the results and impressed at the quick response.
“Chris’ knowledge of the Bermuda markets helped us structure a program with the broadest coverage,” said the liability risk financing manager from another large automaker. “We have a very good risk profile, and Chris ensures we aren’t being charged improperly.”
A risk manager from a third automaker credited Heinicke with doing a “fantastic job” in helping the company identify critical areas the Bermuda markets focus on, as well as what is needed to communicate those key areas to underwriters.
Marshalling the Marsh Resources
In this case, the product over-shipment would create a much larger balance sheet exposure than the client would normally face. Also, the client’s treasury department wanted to use the large shipment to enhance cash flow as well as its borrowing base. Kowalski found a solution involving both private insurance and governmental support to manuscript a program that not only provided vital risk mitigation, but also enhanced this client’s cash flow management needs.
To make things happen, Kowalski often collaborates with Marsh brokerage teams on a global scale — from Detroit, New York, and Chicago to Bermuda, London, Zurich and various offices throughout Asia. Along the way, he has successfully placed complex risk finance programs involving more than 73 global markets and billions of dollars of capacity for a single line of coverage.
“Michael is our client executive and we have worked together for a number of years,” said Al Gier, director, Global Risk Management & Insurance at General Motors. “He has the skills we like to see in a broker — mainly, responsiveness and delivering the proper resources quickly.”
A New Dawn in Civil Construction Underwriting
Pennsylvania school children know the tunnels on the Pennsylvania Turnpike by name — Blue Mountain, Kittatinny, Tuscarora, and Allegheny.
San Francisco owes much of its allure to the Golden Gate Bridge. The Delaware Memorial Bridge commemorates our fallen soldiers.
Our public sector infrastructure is much more than its function as a path for trucks and automobiles. It is part of our national and regional identity.
Yet it’s widely known that much of our infrastructure is inadequate. Given the number of structures designated as substandard, the task ahead is substantial.
The Civil Construction projects that can meet these challenges, however, carry a unique set of risks compared to other forms of construction.
“The bottom line is that there is always risk in a Civil Construction project. If the parties involved don’t understand what risk they carry, then the chances are there are going to be some problems, and the insurers would ideally like to understand the potential for these problems in advance.”
– Paul Hampshire, Vice President – Civil Construction, LIU
The good news is that recent developments in construction standards and risk management techniques provide a solid foundation for the type and risk allocation of Civil Construction projects they are underwriting. Carriers need to be able to adequately assess the client and design and construction teams that are involved.
For Builder’s Risk Programs, a successful approach prioritizes a focus on four key factors. These factors are looked at not only during the underwriting phase of the project but also in the all-important site construction phase, under the umbrella of a Risk Management Program, or RMP.
Four key factors
Four key factors that LIU focuses on in underwriting and providing risk management services on a Civil Construction project include:
1. Resource knowledge and experience: When creating a coverage plan, carriers work to understand who is delivering the project and how well suited key staff members are to addressing the project’s technical and management challenges. Research has shown that the knowledge and experience of those key players, combined with their ability to communicate effectively, is a big factor in the project’s success.
“We look to understand who is delivering a project, their expertise and experience in delivering projects of similar technical complexity in similar working conditions, even down to looking at the resumés of people in key positions,” said Paul Hampshire, Houston-based Vice President with Liberty International Underwriters.
2. Ground conditions and water: Soil and rock composition, the influence of ground and surface water, and foundation stability are key additional considerations in the construction of bridges, tunnels, and transit systems. If a suitable level of relevant ground (geotechnical) investigation and study has not been undertaken, or the results of such work not clearly interpreted, then it’s a red flag to underwriters, who would then question whether the project risk profile has been adequately evaluated and risks clearly and transparently allocated via suitable contract conditions.
“As we all know, ground is very rarely a homogenous element within Civil Construction projects,” LIU’s Hampshire said.
“It tends to vary from any proposed geotechnical baseline specification with the consequential potential for changes in behavior during construction. We need to understand who has assessed the condition of the ground, its behavior and design parameters when compared with a particular method of construction, and all importantly, who has been allocated the ground risk in a project and the upfront mechanisms for contractual ground risk sharing, if applicable,” he said.
Knowing how much water is associated with the in-situ ground conditions as well as the intensity, distribution and adequate accommodation (both in the temporary as well as in the permanent project configurations) of rainfall for a site location and topography are also key. Tunneling projects, for example, can be hampered by the presence of too much or unforeseen quantities of groundwater.
“In major tunneling infrastructure projects, the influence of in-situ groundwater pressures and /or water inflows is a major factor when considering the choice of excavation method and sequence as well as tunnel lining design requirements,” LIU’s Hampshire said.
According to a recent article in Risk & Insurance, tunneling under a body of water is one of the most challenging risk engineering feats. Adequate drainage layouts and their installation sequence for highway projects and, in particular, the protection of sub-grade works are also important. “But under all circumstances, we need to understand how the water conditions have been evaluated,” Hampshire said.
3. Technical Challenges: This risk factor encompasses the assessment of the technical novelty or prototypical nature of the project (or more often, specific elements of it) and how well the previously demonstrated experience of both the design and construction teams aligns with the project’s technical requirements and the form of contract determined for the project. The client can choose the team, but savvy underwriters will conduct their own assessment to see how well-suited the team is to technical demands of the project.
4. Evaluation of Time and Cost: With limited information generally provided, we need to be able to verify as best as possible the adequacy of both the time and cost elements of the project. Our belief is simply that projects that are insufficient in either one or both of these elements potentially pose an increased risk, as the construction consortium tries to compensate for these deficiencies during construction.
Small diameter Tunnel Boring Machine designed for mixed ground conditions and water pressures in excess of 2.5 bar.
In the 1990s and early years of this millennium, a series of high-profile tunnel failures across the globe resulted in major losses for Civil Construction underwriters and their insureds.
In the early 2000s, both the tunnel and insurance industries worked together to create new standards for high-risk tunneling projects.
A Code of Practice for the Risk Management of Tunnel Works (TCoP) is increasingly relied on by project managers and underwriters to define the best practices in tunnel construction projects. This process ideally starts at project inception (conceptual design stage or equivalent) and continues to the hand-over of the completed project.
LIU’s Hampshire said alongside TCoP, the project-specific Geotechnical Baseline Report and its interpretation and reference within the project contract conditions gives the underwriter greater clarity as to who recognizes and carries the ground risk and how it’s allocated.
“The bottom line is that there is always risk in a Civil Construction project,” Hampshire said. “Is the risk transparently allocated or is it buried? If the parties involved don’t understand what risk they carry, then the chances are there are going to be some problems, and the insurers would ideally like to understand the potential for these problems in advance,” Hampshire said.
Paul Hampshire can be reached at Paul.Hampshire@libertyiu.com.
To learn more about how Liberty International Underwriters can help you conduct a Civil Construction risk assessment before your next project, contact your broker.
This article was produced by the R&I Brand Studio, a unit of the advertising department of Risk & Insurance, in collaboration with Liberty International Underwriters. The editorial staff of Risk & Insurance had no role in its preparation.