Brokers Seek NARAB Implementation
Insurance broker and agent groups are urging the federal government to expedite the formation of the board that would oversee implementation of the 2015 National Association of Registered Agents and Brokers Act (NARAB II), which is intended to make it easier for brokers to sell insurance on a nationwide basis.
The NARAB board would drive a more efficient and streamlined licensing process for agents and brokers operating in multiple states.
Bernd G. Heinze, executive director of the American Association of Managing General Agents (AAMGA), said the creation of the new organization would go a long way toward alleviating the current burden of firms having to keep up with varying individual state licensing laws and continuing education compliance requirements.
“This is sapping the innovation and creativity of the underwriting process because they are spending more time trying to comply with anachronistic regulations, which also adds more costs to transactions with policyholders,” he said.
The most important priority is to get the NARAB board positions filled, because “nothing can happen until that occurs,” Heinze said.
“It’s been eight months and the [Federal Insurance Office] still has not appointed a board, and that is extremely discouraging,” he said.
The AAMGA recently sent a letter to Federal Insurance Office Director Michael McRaith requesting “your immediate selection and appointment of the NARAB board members.”
Joel Wood, senior vice president of government affairs at The Council of Insurance Agents and Brokers, said he and other CIAB leaders have had “numerous conversations” with FIO Director Michael McRaith, who has spent “a tremendous amount of time” vetting candidates for the NARAB board.
“Everyone has to undergo criminal background checks, and then they have to figure out all of the funding mechanisms, when they will first meet and all of the other technicalities,” he said.
“I think the board will be an effective mechanism to achieve the long-sought goals of uniformity.”
Wood said that while he believes the timeframe for board appointment is reasonable, he also thinks AAMGA’s letter was appropriate.
“The point was to really underscore the surplus line sector – don’t forget about them,” Wood said.
“We tend to think about licensure in buckets – property and casualty, life and health – but there is also this very sophisticated line, and AAMGA is laying down its marker in a respectful and appropriate manner.”
Jennifer McPhillips, assistant vice president of federal government affairs at the Independent Insurance Agents & Brokers of America, said the “vetting process is taking longer than initially thought, though this is the first time a board like this has been established.
“This first board will be critically important to the success of NARAB as it will chart the course for the future of the law. Once the board is operational and agents are approved for membership, they will be able to operate seamlessly between states.”
The new law was attached to the Terrorism Risk Insurance Program Reauthorization Act and signed into law by President Barack Obama last January. It created a nonprofit membership organization, NARAB, to be governed by state insurance commissioners and insurance market representatives.
10 Years Later: Lessons From Hurricane Katrina
Businesses learned a great deal from the impact of Hurricane Katrina, but underwriters are concerned that institutional memories are fading and there may be “unintended complacency” about exposures to future catastrophic events.
It was Katrina that showed the impact of storm surge can often be more damaging than high wind speeds and that the physical size of the hurricane can affect the surge itself, according to Allianz Global Corporate & Specialty (AGCS).
There has been a steep rise in the cost of claims for extreme weather events — from an average of $15 billion a year between 1980 and 1989, to an average of $70 billion a year between 2010 and 2013, according to AGCS.
Windstorm losses account for approximately 40 percent of all natural hazard losses by number of claims and 26 percent by value, it said.
However, growth of exposure is far outpacing take-up of insurance coverage resulting in a growing gap in natural catastrophe preparedness, according to AGCS.
Jayanta Guin, executive vice president, researching and modeling at catastrophe modeling firm AIR Worldwide in Boston, said the damaging effects of storm surge convinced AIR of the need for a more detailed, hydrodynamic model as opposed to the simpler parametric approach that had been used.
Today, both AIR’s U.S. hurricane model and its recently introduced U.S. inland flood model use a physical modeling approach to capture flood risk.
“For both models, particular engineering attention has been paid to the current-day vulnerability of the levee system in and around New Orleans,” Guin said. “While that system has clearly been strengthened since Katrina, we maintain a healthy dose of skepticism about the levee systems’ longer-term upkeep.”
Katrina, which struck New Orleans on Aug. 29, 2005, also revealed new insights into the vulnerability of commercial structures, such as the large number of casinos built on barges along the Mississippi coast, he said. Now, there is greater recognition of the wide array of buildings that companies are insuring. As a result, underwriters’ view of the vulnerability of commercial assets has increased.
Video: National Geographic provides a day-by-day account of Hurricane Katrina’s wrath, from its birth in the Atlantic Ocean to its catastrophic effects: flooded streets, flattened homes, and horrific loss of life.
Lou Drapeau, director of risk management at the University of Kentucky in Lexington and vice-chairman of Disaster Recovery Institute International, said that before Katrina, most organizations did not have someone in charge of business continuity, but now many do.
Moreover, he said, Katrina “got a lot of people’s attention” on the need to coordinate risk management, emergency preparedness and emergency response, business continuity and disaster recovery.
“Those functions can’t exist in their own towers — they really have to work together,” Drapeau said. “Katrina really caused those four separate areas of an organization to work more closely than they have in the past.”
One of the lessons learned from Katrina is that the complexity — and losses — associated with hurricanes in highly developed areas with significant infrastructure are far greater than imagined, said Andy Castaldi, head of catastrophe perils Americas at Swiss Re in Armonk, N.Y.
Over time, carriers learned how to better estimate potential losses, but there are still “quite a bit of surprises,” Castaldi said, such as the damage due to storm surge from Katrina.
Thus, it’s important that manufacturers and other businesses be prepared not only to cover losses from property damage, but also from business interruption.
“People tend to forget how devastating events can be, and I’m not sure many companies have done enough to protect themselves financially with business interruption plans if they have extensive downtimes,” he said.
Losses escalate quickly due to the increased automation in manufacturing, Castaldi said. Thirty years ago, employees could come the next day after a hurricane, clean up and start working, but today, plants have robotics and other electronics, which are more susceptible to hurricane damage and more costly.
“It might take months for these highly specialized electronics to get repaired as there may be a long waiting list, which can cause bigger problems and bigger losses than ever before,” he said.
Monica Ningen, head of property underwriting U.S. and Canada for Swiss Re, said that the question commercial property owners often asked before Katrina was, “Can we afford to take steps to mitigate against these sort of events?” But the question after Katrina, is, “Can we afford not to?”
Ningen is concerned that many organizations are starting to forget about the disaster plans that were conceived after the hurricane.
“New risk managers are coming in and their organizations are forgetting the importance of response time and response in general,” she said. “Public and private entities need to figure out how to work together to find disaster preparation and mitigation solutions.”
Resiliency of an area after a catastrophic event can be measured in three ways: whether people have work, whether their home is habitable and whether children can go to school, Castaldi said.
“Corporations have to think beyond their four walls and make sure their workforce has adequate housing and schools that are properly protected,” he said. “There is such a thing as unintended complacency — the further time away from an earlier catastrophic event, the more people don’t prepare for another one.”
Cheryl Harper, president of RIMS’ South Louisiana chapter, lived through Hurricane Katrina — her house flooded and her employer had 8 feet of water in its offices.
Harper is operations manager for Catholic Mutual Group in New Orleans, the Louisiana office of the Roman Catholic Church’s self-insurance fund, which provides insurance and risk management services for the Archdiocese of New Orleans and two smaller Louisiana dioceses.
After Katrina, the organization set up temporary offices in Baton Rouge and didn’t return its operations to New Orleans until January of 2006.
Businesses must have a solid business continuity plan in place that is updated annually, including emergency contact numbers for all employees, she said. Fortunately, with hurricanes there are advance warnings, so if an event is forecast, Harper makes sure she reconfirms that information before any storm hits.
“It’s important to be able to reach your team by several different methods, as after Katrina we had no cell service, but we could text,” she said.
“You need to invest a little more money on the front end for a secure roof, which will help prevent substantial damage when the next storm does come.” — Cheryl Harper, operations manager, Catholic Mutual Group
Since the organization’s servers were damaged due to flooding during Katrina, the Catholic Mutual Group now has a back-up server in northern Louisiana that it can access remotely. If Harper and her team need to evacuate in the future, she plans to take the minimal amount of operational equipment to make sure she can access the remote server and provide services from any location.
Moreover, the organization published a hurricane manual, which includes emergency contact information as well as guidance on property protection, claim reporting, remediation, reconstruction, and templates for contractor bidding and other forms. Before any storm hits, her company puts remediation companies on standby.
Another crucial lesson learned after Katrina was to strongly encourage parishes and other members to install standing seam metal roofs in new buildings or replace outdated roofs with them, as those roofs typically hold up better during hurricanes, she said.
This is particularly important now that named storm deductibles are anywhere from 2 percent to 5 percent of the insured value of the building. Replacing with this type of roof can be very costly, but it will save the building from interior water damage and extensive remediation from typical roof damage in a storm.
“You need to invest a little more money on the front end for a secure roof, which will help prevent substantial damage when the next storm does come,” Harper said.
In addition to roofs, AGCS recommended examining and shoring up all “building envelopes,” including walls and windows, and making sure gutters and other drainage systems are clear of debris or vegetation, so water can properly run off during a storm event.
“These steps allow us to better support clients in determining potential repairs or maintenance needs,” said Thomas Varney, the company’s ARC regional manager for North America in Chicago.
Businesses should also make sure to adhere to four primary areas of windstorm loss mitigation, according to AGCS’ report “Hurricane Katrina 10: Catastrophe Management and Global Windstorm Peril Review,” released August 18:
- Pre-windstorm planning includes the development of a comprehensive, well-tested emergency plan, site and equipment inspections, and preparations for possible flooding.
- During a windstorm, response personnel should monitor for leaks, fire and damage.
- After a windstorm, the site should be secured to prevent unauthorized entry. An immediate damage assessment should be conducted if safe to do so.
- Business continuity management is crucial as just-in-time production, lean inventories and global supply chains can easily multiply negative effects. Property damage and business interruption are usually covered by insurance policies, but often there is loss of market share, suppliers, clients and staff. Businesses should develop and test business continuity plans and communication cascades.
No Room for Error
Everyone’s familiar with the traditional summertime risks of poolside slips, falls and drownings. But now a whole new cadre of water park risks is coming into play.
They include a heightened risk of active shooter situations or civil unrest, bacterial infestation and camera-equipped drones.
Exposures are also increasing because water parks continuously develop new features, and more and more are now open year-round, said Bob Murphy, global sports and events practice leader at Marsh in Philadelphia.
“Water parks are no different than any other entertainment organization — they are always looking for the next best attraction, the newest ride — it’s all about fun and excitement,” Murphy said.
Moreover, many water parks have become destination resorts not limited to outdoors venues, he said.
One new potential risk exposure that is entering the world of outdoor activity is the public’s growing use of camera-equipped drones, said Michael Greear, director, risk control at Aon Risk Services in Denver.
Technological advances in these flying cameras have made them more affordable and accessible to the general public, leading to concerns about drone collisions as well as invasion of privacy issues.
“Water park operators should consider the development of a drone use/non-use policy and communicate this to all staff and water park guests through training of staff to signs in the park to messages on websites,” he said.
“Operators need to have a very specific skills set on their management team if they are going into the water park business,” said Franceen Gonzales, executive vice president, business development at WhiteWater West Industries Ltd. in Richmond, British Colulmbia, Canada, a manufacturer of water park and amusement attractions.
The three biggest risks in the water park business are water quality, bather supervision, and attraction operations, she said.
Gonzales serves as a board member for various safety-related organizations, including the technical committee for the Centers for Disease Control-hosted Model Aquatic Health Code (MAHC).
For water quality standards, sometimes even separate counties within a state have their own code, so it’s important to review all applicable regulations, she said.
“The MAHC takes into account the scientific research and new technology that’s been developed since most state codes were formed over 30 years ago.” — Franceen Gonzales, executive vice president, business development, WhiteWater West Industries Ltd.
The CDC’s MAHC was recently created to provide model language for states to adopt, which could improve consistency across the country. “The MAHC takes into account the scientific research and new technology that’s been developed since most state codes were formed over 30 years ago,” Gonzales said.
“This is a great resource on how to manage water quality and other safety considerations in aquatic environments.”
One potential risk is water-borne illnesses from bacteria such as cyclosporidium, Murphy said.
The chlorine used in water park pools may kill 99.9 percent of the bacteria, but a minute risk remains, he said.
“Lifeguards also have to be hyper-vigilant about watching for people with open cuts, such as when a kid’s Band-Aid falls off, a bike scrape, or when somebody takes a spill and cracks their head open and bleeds,” he said.
“The entire area needs to be disinfected before they let anyone back into the area.”
Another risk is posed by common filtration and recirculation pump systems, such as when multiple pools are being operated at the same location, Greear said.
If blood or fecal matter contaminates one pool, water park operators need to respond to the reality that other pools could also be indirectly contaminated through the common filtration system, he said.
Regularly testing the water for the appropriate chemical balance is important, he said, noting that before a park is built, the design should take into account all water-borne risks.
Substantial Business Interruption
A major issue for water park operators is business interruption, especially if it is a seasonal park that makes virtually all of its revenue over a fairly short period of time, Murphy said.
Parks that depend on summer for their revenue cannot afford to be shut down, particularly for a contingent business interruption, such as in the event of a riot or water main break.
“We also get parks to think and train for the unthinkable catastrophic event, such as an active shooter situation,” Murphy said.
A more common exposure is slips, trips and falls, given the wet surfaces on pool decks, slide ladders, stairways and locker rooms, said Greear.
“We also get parks to think and train for the unthinkable catastrophic event, such as an active shooter situation,” — Bob Murphy, global sports and events practice leader, Marsh, Philadelphia.
They are often not high-dollar claims, but “frequency often breeds severity,” he said.
In addition to posting no running rules and trying to enforce compliance, some parks have installed abrasive strips to minimize accidents, Greear said.
This is particularly helpful when adults are the transgressors — “it can be tough for a young, 18-year-old worker to tell a 45-year-old what not to do.”
When risk managers and safety engineers are involved in the park’s design discussions, they can offer input on what sort of materials should be used on the decks, tiles and other surfaces, he said.
Water slides and other attractions also need to be well-designed and engineered, fabricated with quality, well-installed, and tested prior to opening to the public, Gonzales said.
They also need to comply with industry standards, state-specific codes and manufacturers’ instructions, she said.
Collapsing water slides can result in injury or death, Murphy said. Parks should document every inspection of their slides, and immediately fix every issue, no matter how minor.
Swimmers in Distress
As for bather supervision, parks should focus not just on prevention, but on managing the diverse risks posed by different types of aquatic venues. Training staff to be able to recognize someone in distress and have the ability to reach that person quickly is crucial.
The training organization credited with developing the 10-20 protection standard for lifeguards is Jeff Ellis & Associates Inc., said Richard Carroll, the firm’s chief operating officer.
“Lifeguards have a zone of protection — a defined area where they are able to scan the entire zone of water within 10 seconds, and be capable of physically reaching a distressed swimmer within 20 seconds,” Carroll said.
“Parks should overlap these zones so that multiple lifeguards are scanning areas that are adjacent to each other.”
Wave pools generally have such zones, but that’s not the case at most catch pools for slides and other attractions, which typically have a two- to four-person maximum bather load, depending on the depth of the water, he said.
“The single most important factor in being able to maintain a drowning-free environment is lifeguard vigilance and attentiveness,” Carroll said. It requires foundational and continuous vigilance training as well as proactive supervision of the lifeguards on duty.
Ellis’ vigilance awareness training program uses live employees or mannequins, putting them at the bottom of the pool in certain lifeguard zones during the day to see how fast lifeguards react and reach the object. The firm’s clients conduct hundreds of these drills throughout the season, and remediation is provided if needed.
“The drills become so commonplace, we have patrons who frequent our clients’ facilities going back to their community pools and telling managers they need to be doing the same things,” he said.
Operators should also ensure that lifeguard staff regularly rotate positions, said Charles Landrum, director of underwriting at Specialty Insurance Group in Carmel, Ind., because when lifeguards sit in the same place for a long period of time, their minds begin to gloss over important details.
“Unlike other amusement options, there really isn’t any margin for error when it comes to the water park business.” — Charles Landrum, director of underwriting, Specialty Insurance Group
He said the quality of management is the most important factor when underwriting policies for water parks.
“We clearly want an operation that has the latest state-of-the-art safety equipment, which could be devices that eliminate water-borne illnesses, or water suction lines to prevent hair or body entrapment, or the types of chemicals used to treat the water, how they are handled and stored,” Landrum said.
Having a robust aquatic safety management program is also very important to underwriters.
“Unlike other amusement options, there really isn’t any margin for error when it comes to the water park business,” he said.
“For an amusement park kiddie ride that has adequate restraints, if an operator has a momentary distraction there won’t be catastrophic consequences.
“But in the water park business, any distraction could have catastrophic results,” Landrum said.