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Steve Yahn

Steve Yahn is a freelance writer and based in Croton-on-Hudson, NY. He has more than 40 years of financial reporting and editing experience. He can be reached at riskletters@lrp.com.

International Studies

Universities Cancel Classes in Israel

Citing security concerns, many U.S. schools have cancelled study programs in Israel. Other travelers appear more cautious than scared.
By: | August 27, 2014 • 4 min read
Israel

Amid the turmoil in the Middle East, a number of major American colleges and universities have cancelled fall semester undergraduate study programs in Israel.

Although a cease fire was recently announced, UMass Amherst had already cancelled all study for undergraduates in Israel for the fall semester, due to the fighting in the Gaza Strip, university officials announced.

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The university said its International Risk Management Committee made the decision based on advice from the U.S. State Department, insurance companies, risk management consultants and other sources.

Insurance companies cover students for health, accidents, security and even evacuation, for some colleges.

New York University suspended its Tel Aviv program for the fall semester after being approached by some students and their families who expressed concern about the situation in the region.

“The safety of these 10 students was our foremost concern in our deliberations about whether or not to disrupt the academic program,” the university said. “We look forward to resuming classes at the Tel Aviv site in January.”

Other schools that have suspended programs in Israel or the West Bank include Trinity College in Hartford, the University of Iowa, the University of Michigan, Michigan State, Claremont McKenna College in California, and Penn State, according to the Associated Press.

Colleges told the AP that security was the top concern.

“The State Department recommends that U.S. citizens consider the deferral of non-essential travel to Israel and the West Bank,” according to the department’s latest travel advisory for the region.

“Israel is certainly on our list for civil unrest” at Middleburg, Va.-based Wallach & Co. Inc., providers of international travel insurance, said Belinda Smallwood, office manager.

“Basically, there are certain countries that go on the civil unrest list and underwriters can choose whether they want to add more war risk coverage,” she said.

John W. Cook, president of East Hartford, Conn.-based QuoteWright.com, said coverage for travel to Israel is still available, but the following exclusions are common to all travel insurance policies: declared or undeclared war, or any act of war; and any government regulations or prohibitions.

“So cancellations or interruptions caused either directly or indirectly by the military action will probably not be covered,” said Cook, whose firm’s website allows consumers to compare, review and buy travel insurance.

Thomas R. Petersen, vice president, Petersen International Underwriters

Thomas R. Petersen, vice president, Petersen International Underwriters

Thomas R. Petersen, vice president of Valencia, Calif.-based Petersen International Underwriters, said his firm has noticed that Israel has made an “incredibly strong push to say how safe it is to be in Israel.”

“When you get rockets lobbed near to the airport, it’s getting awfully close, but that doesn’t seem to penetrate a lot of people’s thinking,” said Petersen, whose firm is a Lloyd’s of London cover-holder that handles all forms of special risk insurance administration.

Petersen said his firm has not seen a decrease in sales of travel medical policies for Israel. “What we have seen is an increase in inquiries in war and terrorism coverage,” he said.

“I would say compared to normal it’s probably, on average, a 500 percent greater amount [of inquiries] compared to last year,” Petersen said. “Is that 50 more inquiries? Probably. I know it’s a significantly higher number of people asking about war and terrorism coverage than they ever have in the past.”

Indications are the same number of people in general still plan to travel and they don’t fear it, Petersen said. “They may be more cautious as opposed to scared,” he added.

Petersen noted that many of the requests his firm receives for travel medical policies are from fairly young people.

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“A lot of them in theory have to be students, because a lot of them stay for six months or nine months or a year at a time,” he said. “I mean they’re not going just to see the Wailing Wall and then getting back here. They’ll be spending time there.”

Wallach & Co.’s Smallwood said the firm’s global health care plan for undergraduate students studying abroad lasts up to six months.

“You purchase it by the week and it’s $250,000 in coverage with a $100 deductible per illness or injury,” Smallwood said. “It covers accident and sickness coverage, which includes medical evacuation and repatriation.”

The standard rate would be $9 per week. In Israel, Wallach would have to know where a student was going to be located to determine a quote, Smallwood said.

Israeli educational programs are not the only victims of civil unrest. UMass Amherst also suspended programs in Syria, and St. Lawrence University in New York called off its program in Kenya, citing a State Department travel advisory.

Steve Yahn is a freelance writer and based in Croton-on-Hudson, NY. He has more than 40 years of financial reporting and editing experience. He can be reached at riskletters@lrp.com.
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Global Expansion

India vs. China

India is poised to win the battle to increase market share for insurance companies.
By: | August 25, 2014 • 5 min read
IndiaChina

The governments of India and China are vying with one another to attract more foreign capital for their respective insurance industries.

Many observers say that India is best positioned to win that battle.

In a major development, India’s Finance Minister Arun Jaitley recently proposed that foreign companies be allowed to own up to 49 percent of insurance companies in the country. The investment cap currently is 26 percent.

This change could attract billions of dollars for the insurance sector in India, industry officials said.

The insurance sector in India is worth $41 billion and lately has achieved a yearly growth rate of between 32 percent and 34 percent.

The legislation still has to pass, but the change in ownership law is seen by many industry experts as likely to be enacted.

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“The industry has been waiting for this for a very long time,” Roopam Asthana, chief executive officer of Liberty Videocon General Insurance, told the Asian Business News.

India opened its insurance sector to private and foreign ownership in 2000, and most of the top international insurers have since entered the market.

The country also has implemented new accounting standards to bring India in line with the standards of the International Financial Reporting Standards.

“This would result in improved quality of financial reporting, which is critical for attracting foreign capital into the country,” Ashish Gupta, partner, Walker Chandick Co. LLP, said in an emailed statement.

Raising Premium Income

In China, meanwhile, the government has announced measures to develop its insurance industry, vowing to raise premium income to 5 percent of GDP by 2020.

The Chinese government has announced measures that will let insurers become “an important pillar of the social security system” instead of their previous role of playing “a supplementary function.”

The measures will let the insurance industry become “an important pillar of the social security system,” according to the State Council of the People’s Republic of China’s “Several Opinions on Accelerating the Development of the Modern Insurance Service Industry,” issued in July.

The state council said that commercial insurance providers will become the primary undertakers of individual and household programs and an important supplier of corporate pensions and health insurance.

Susan Munro and Amy (Yiting) Wang of New York-based Steptoe & Johnson LLP, said that “this is a significant change from the requirement that commercial insurance ‘play a supplementary function’ to the development of the social security system … and signals increased government expectations of insurers’ participation in tackling critical social issues.”

Additionally, insurance companies are being encouraged to support the development of urbanization, major infrastructure construction, and the long-term stable development of the stock and bond markets in China, the pair noted.

“The 2014 ‘Opinions’ also call for improved underwriting of risks for technology companies and research institutes, the vigorous development of credit insurance for small and micro enterprises, loan guarantee insurance for individual consumers and the development of export credit insurance and overseas investment insurance,” they said.

Consistent Growth

In India, the Confederation of Indian Industry stated that the insurance sector of the country has been witnessing a consistent growth rate and its present worth is $41 billion.

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The industry of late has achieved a yearly growth rate of between 32 percent and 34 percent, and this makes it the fifth best among emerging economies around the world, according to the CII.

A survey by CII found that 60 percent of non-life insurance companies in India would record an average growth rate of more than 10 percent.

The various entities of the industry are also bringing out newer products on a regular basis to attract customers, the CII added.

One of the major reasons the insurance market in India is attractive is the growing level of awareness about insurance. People nowadays value their lives, their health and their families even more than before, said the CII.

Another reason for the growing popularity of insurance policies in India is the benefit of tax exemption that is provided to family-oriented and individual plans, observed the CII.

Growth in the Indian insurance market is being fueled by the growing population base, rising purchasing power, increasing insurance awareness, increasing domestic savings and rising financial literacy.

The Deloitte consulting firm said that, on the demand side, growth in the Indian insurance market is being fueled by the growing population base, rising purchasing power, increasing insurance awareness, increasing domestic savings and rising financial literacy.

Added Lloyd’s market intelligence team: “Remarkable economic growth is driving the development of new classes of business in the non-life insurance market in India and increasing demand for specialty insurance and reinsurance products.”

“From the period 2009 to 2012, Lloyd’s gross written premium in India grew from $164 million to $245 million,” the insurer said. “The opportunities which exist in India’s insurance market cannot be ignored.”

Chinese Market Participation

With the Chinese government encouraging increased foreign participation in its insurance market, several major international players are exploring the market.

Most recently, the Starr Cos., led by Maurice “Hank” Greenberg, former chief executive of American International Group Inc., has taken a 93 percent stake in Shanghai-based Dazhong Insurance Co. Ltd. of China.

The deal was described by Dazhong as the first foreign takeover of a state-backed Chinese general insurer. The Chinese insurer will be known as Starr Property & Casualty Insurance (China) Co. Ltd. or Starr China.

In a statement, New York-based Starr Cos. said it will expand the Chinese insurer’s product portfolio beyond its existing auto insurance programs “with an array of commercial property and casualty products. Chinese corporations and businesses will be able to access secure coverage for various exposures such as accident and health insurance, political risk, financial and management liability.”

Warren Buffett is also exploring the Asian market.

Buffett’s Omaha, Neb.-based Berkshire Hathaway has hired Marc Breuil, who previously headed AIG’s operations in Hong Kong and Taiwan, and Marcus Portbury, who was the head of casualty for the Asia-Pacific region, according to Dow Jones, citing persons with knowledge of the hires.

The hires “are part of the investment firm’s effort to build a commercial coverage business in Asia,” Dow Jones added.

Right now, though, the insurance battle between India and China is being won by India, most observers noted.

India’s diverse free-market private sector and relatively free legal and political system give the nation enormous advantages over China, said economist A. Gary Shilling, president of Springfield, N.J.-based A. Gary Shilling & Co., Inc., economic consultants and publishers of the monthly newsletter “Insight.”

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“India has the basis for a strong economic future,” Shilling said. “They’ve got a democratic government, they’ve got the rule of law and they’ve got corporations that are private businesses; they’re not huge state companies like in China.”

Shilling added that China is a top-down economy and that private companies, by and large, are very small and unable to compete internationally, whereas in India they are.

Shilling also noted that India is the world’s largest democracy in terms of numbers. “And they speak English, which in today’s world that’s where the action is,” he said.

“In the long run,” he said, “and it may be many years, but I’d bet on India over China.”

Steve Yahn is a freelance writer and based in Croton-on-Hudson, NY. He has more than 40 years of financial reporting and editing experience. He can be reached at riskletters@lrp.com.
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Cyber Risks

Preparing a Data Breach Plan

Putting together -- and practicing -- a data breach preparedness agreement can help save costs and reputation.
By: | August 19, 2014 • 5 min read
CyberBreach

With the constant threat of cyber security issues, organizations need to create an effective data breach preparedness agreement that has two overriding strategies.

First, establish a comprehensive, coordinated team approach. Having a breach preparedness team can help an organization act quickly when a data breach occurs.

Michael Bruemmer, vice president, Experian Data Breach Resolution

Michael Bruemmer, vice president, Experian Data Breach Resolution

“Acting quickly can help to prevent further data loss, significant fines and costly customer backlash,” said Michael Bruemmer, Austin, Texas-based vice president of Experian Data Breach Resolution, a data breach resolution firm, which is part of the Experian credit bureau.

Second, select an outside counsel as the team leader, he and others recommended.

“Eighty-five percent of the clients we work with have engaged outside counsel because they have the specific expertise in responding to data breaches,” Bruemmer said. “They understand the federal laws; they understand the 47 state laws for notification.”

Another reason to engage outside counsel is to create confidentiality under an attorney-client privilege for the fact-gathering, documentation and communications that occur after a breach, said Daren Orzechowski, New York-based partner at White & Case LLP international law firm.

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“The reason that is important — particularly in a situation where a class-action may arise in response to an actual breach, or a governmental investigation — is that the conversation between the outside counsel and the rest of the team can be protected by privilege,” Orzechowski said.

The C-suite should be involved in creating and overseeing a company’s pre-breach agreement, said Bo Holland, founder and CEO of AllClear ID, an Austin, Texas-based data breach response organization.

“Given the high stakes and challenging decisions a breach response calls for, it is imperative to have active engagement from the CEO and other C-level executives to drive a comprehensive response plan across business units from the start,” Holland said.

And, said Bruemmer , when you have a CEO or a chairman second-guessing decisions during a live response event, it always creates problems for the team that’s operationalizing the response.

Costly Mistakes

The stakes in creating effective data-breach preparedness plans are growing higher by the year.

Throughout the world, companies are finding that data breaches have become as common as a cold, but far more expensive to treat, according to the Ponemon Institute in its May 2014 “Cost of Data Breach Study: Global Analysis,” sponsored by IBM.

“Mistakes increase direct response costs, lost sales and significantly inflate the legal and regulatory expenses that follow a poorly executed response.” –Bo Holland, founder and CEO of AllClear ID

The study revealed that the average cost to a company per breach was $3.5 million dollars, which was 15 percent more than the previous year.

Bo Holland, founder and CEO, AllClear ID

Bo Holland, founder and CEO, AllClear ID

Unprepared companies make mistakes that increase breach costs by a factor of three to four times, said Holland.

“Mistakes increase direct response costs, lost sales and significantly inflate the legal and regulatory expenses that follow a poorly executed response,” he said.

“We’ve seen companies with the best intentions make costly mistakes in the first 72 hours of a breach response due to lack of planning and not calling the right partners early enough for help, resulting in uncoordinated decision-making, confusion and higher costs,” he said.

A Team Approach

“There are a lot of components in a pre-breach agreement and given the complexity of what a cyber security event could cover, it’s not just one person or one department that should be involved,” said Bruemmer.

“You have to have executive oversight, the C-suite, IT, HR, the chief information officer, PR, legal compliance, just to name a few that need to be involved and have input not only to the agreement itself but also the plan and the execution of the plan because each has an important role,” he said.

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Organizations should also work with data breach partners that have relationships on Capitol Hill to help communicate with and manage regulators, he said.

Orzechowski added: “When you do those projects, and I do a lot of them in my practice, looking proactively, you should get input from the IT professionals, the lawyers, the technologists and the privacy experts,” he said. “And it only makes sense that the same team that builds the plan helps prepare for a problem.”

Another important member of a data breach team is outside public relations counsel, Bruemmer said.

“One of the nice things in working with an outside public relations firm pre-breach is that they’re going to have thought out, ‘What are the eventualities that we need to cover?’ so we’re not reacting to events real time but you have different plans to be able to call on if those circumstances come up,’” he said.

The best thing about these pre-set media plans is that they’ve already been rehearsed, he added. “You find that the good public relations firms not only have good media advice but they have good pre-breach business advice, as well,” he said.

Transferring the Risk

Cyber insurance also plays an important role in pre-breach agreements.

Daren Orzechowski, partner, White & Case

Daren Orzechowski, partner, White & Case

“I think that more organizations have cyber security insurance these days,” said Orzechowski. “So in terms of some of the breach risk that exists, I think the insurance products that are out there are looking to give some kind of control over the liability.”

And, Bruemmer said, most companies (65 percent) that explore cyber insurance are better prepared to create a breach agreement. In addition, companies that have cyber insurance have generally practiced their plan on a quarterly or semi-annual basis, which makes plan execution go more smoothly.

The Ponemon report had a related conclusion: While it has been suggested that having insurance encourages companies to slack off on security, the report noted, “our research suggests the opposite. Those companies with good security practices are more likely to purchase insurance.”

AllClear ID’s Holland noted that while covering the financial risk through cyber policies is important, insurance “does not address the operational risks associated with executing a successful response. Unfortunately, you can’t just buy response competency — you have to prepare your organization.”

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“Customer service is the other critical element,” he said. “Poor customer service compounds the damage, whereas good customer service rebuilds the trust.”

The bottom line, the experts said, is that practice makes perfect.

“It’s not just good enough to have an agreement in place, but you need to have practiced that plan,” said Bruemmer.

Steve Yahn is a freelance writer and based in Croton-on-Hudson, NY. He has more than 40 years of financial reporting and editing experience. He can be reached at riskletters@lrp.com.
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