Insurance Implications of Ebola
Dealing with an Ebola patient at your health care facility presents many risks. There are a few that stand out like employee safety, safety to the general public and patient population, environmental exposures, and even risk to your company’s directors and officers.
All of these could be tied together with one Ebola case, especially if the case isn’t properly handled.
First and foremost, update all your policies and procedures relating to infectious diseases. Stay current with the Centers for Disease Control and their requirements. Appoint a response team.
Train all those in your facilities to spot a potential Ebola patient and the proper procedures for isolation, treatment, and transfer. It’s likely your emergency department will be the front line and most exposed.
A general liability policy insures against third-party liabilities. In this case, third parties could claim they were infected at your facility and you failed to provide a safe environment in which to conduct regular business.
Your policy should have a duty to defend, however. I would suggest reviewing your coverage, paying close attention to wording associated with expected bodily injury and other policy exclusions.
Workers’ Comp Implications
Employee safety in treating infectious diseases is paramount to delivering effective care to patients. Have your employees practice taking on and off all appropriate protective gear.
In the event a health care worker contracts the virus, workers’ compensation would likely provide coverage. Review your policy and tie it to any umbrella or excess liability coverage. This is crucial because your work comp policy most likely has a disease limit, per claims and disease per policy limit.
An infected employee may also elect to file suit against an employer alleging negligence. If you have workers that work or volunteer outside the U.S. then you may want to look into foreign voluntary workers’ compensation and couple it with an accident and disability policy.
The hospital that treated the first casualty in the United States, Thomas Eric Duncan, and also had two nurses contract the virus is currently dealing with reputational loss and lost revenues.
The first place to look is your facility’s business interruption coverage. Be cautious, as coverage is typically triggered only when there is direct physical damage. Even more so, most contain a communicable disease exclusion or a severely sub-limited amount of coverage and require a governmental agency requiring limited or no access.
Allegations of Negligence
A directors’ and officers’ policy provides defense and protection for allegations of executive mismanagement. These claims can arise from a variety of sources: the state attorney general, financial donors, even employees.
Allegations could include failure to follow CDC protocol, not properly safeguarding the institution’s assets, or lack of proper training. A situation handled incorrectly could cause negative publicity thus leading to declining revenues and admissions as well as a loss of reputation.
In summary, updated procedures and training is crucial to avoiding the pitfalls of such high profile infectious disease situations. Check with your broker to ensure what, if any, coverage is available under your current program and what triggers the coverage.
Combating External Fraud Scams
The risk of fraud cannot be eliminated completely, but the opportunities to commit fraud can be reduced through effective awareness and internal training initiatives by risk managers.
Multiple surveys have highlighted that companies may be losing as much as 7 percent of their annual turnover as a result of fraud. There have been multiple “false CEO/President scams” and other attempts to defraud multinational companies.
In France, over 160 companies were victims of fraud scams in 2013. Some examples of successful frauds scams are:
• Payment by one company of over $2M to a fraudulent international transport company.
• Another company was targeted to transfer money “to buy urgent raw materials for business needs” resulting in a loss of $14M!
By training managers to be aware of the scams, avoidance of the risk can be achieved. Having better awareness and training in place can also help a company decrease insurance premiums for financial risk insurance.
These are red flags of the risk:
• Frequent calls: One international company was called 33 times by the same supplier in four days.
• Demands for payment are always urgent.
• Demands are exceptions outside of normal business procedures.
Fraudsters have developed creative schemes in order to obtain unjust enrichment. The external fraud success is the professional and legitimate appearance of the demand.
The most typical external fraud scams involve four steps:
• The fraudster obtains information about Company Y via the Internet or a publicly advertised conference.
• The fraudster calls Company Y pretending to be a supplier. The fraudster, acting as Supplier Z demands payment, stating that they are upset, and that Company Y owes them past due money. Often, multiple managers are targeted at the same time within Company Y.
• The fraudster obtains the logo and letterhead of the Supplier Z. Using this, the fraudster writes a demand for payment and sends it to Company Y.
• The fraudster then pretends to work in Company Y’s finance department and targets an actual financial controller within Company Y by emailing the forged supplier Z letter. An urgent wire transfer is requested to wire funds to countries like Switzerland, the Far East (China, India, Hong Kong), or Israel. When the funds are wired, the fraud scam is successful.
Preventing the wire transfer is the key to risk prevention. Prevention focuses on the elimination of one of the following:
• Pressure – Where the pressure felt by individuals is greater, the risk of fraud occurring is increased.
• Opportunity – If opportunity is removed altogether, there will be no fraud.
• Rationalization – Rationalization can generally be linked to a lack of ethical leadership within the organization.
If strict controls are not in place, increasing awareness of the risk is essential. Risk managers should consider adapting and applying practices used by global corporations in promoting awareness. These good practices are successful.
A Renaissance In U.S. Energy
America’s energy resurgence is one of the biggest economic game-changers in modern global history. Current technologies are extracting more oil and gas from shale, oil sands and beneath the ocean floor.
Domestic manufacturers once clamoring for more affordable fuels now have them. Breaking from its past role as a hungry energy importer, the U.S. is moving toward potentially becoming a major energy exporter.
“As the surge in domestic energy production becomes a game-changer, it’s time to change the game when it comes to both midstream and downstream energy risk management and risk transfer,” said Rob Rokicki, a New York-based senior vice president with Liberty International Underwriters (LIU) with 25 years of experience underwriting energy property risks around the globe.
Given the domino effect, whereby critical issues impact each other, today’s businesses and insurers can no longer look at challenges in isolation one issue at a time. A holistic, collaborative and integrated approach to minimizing risk and improving outcomes is called for instead.
Aging Infrastructure, Aging Personnel
The irony of the domestic energy surge is that just as the industry is poised to capitalize on the bonanza, its infrastructure is in serious need of improvement. Ten years ago, the domestic refining industry was declining, with much of the industry moving overseas. That decline was exacerbated by the Great Recession, meaning even less investment went into the domestic energy infrastructure, which is now facing a sudden upsurge in the volume of gas and oil it’s being called on to handle and process.
“We are in a renaissance for energy’s midstream and downstream business leading us to a critical point that no one predicted,” Rokicki said. “Plants that were once stranded assets have become diamonds based on their location. Plus, there was not a lot of new talent coming into the industry during that fallow period.”
In fact, according to a 2014 Manpower Inc. study, an aging workforce along with a lack of new talent and skills coming in is one of the largest threats facing the energy sector today. Other estimates show that during the next decade, approximately 50 percent of those working in the energy industry will be retiring. “So risk managers can now add concerns about an aging workforce to concerns about the aging infrastructure,” he said.
Increasing Frequency of Severity
Current financial factors have also contributed to a marked increase in frequency of severity losses in both the midstream and downstream energy sector. The costs associated with upgrades, debottlenecking and replacement of equipment, have increased significantly,” Rokicki said. For example, a small loss 10 years ago in the $1 million to $5 million ranges, is now increasing rapidly and could readily develop into a $20 million to $30 million loss.
Man-made disasters, such as fires and explosions that are linked to aging infrastructure and the decrease in experienced staff due to the aging workforce, play a big part. The location of energy midstream and downstream facilities has added to the underwriting risk.
“When you look at energy plants, they tend to be located around rivers, near ports, or near a harbor. These assets are susceptible to flood and storm surge exposure from a natural catastrophe standpoint. We are seeing greater concentrations of assets located in areas that are highly exposed to natural catastrophe perils,” Rokicki explained.
“A hurricane thirty years ago would affect fewer installations then a storm does today. This increases aggregation and the magnitude for potential loss.”
On its own, the domestic energy bonanza presents complex risk management challenges.
However, gradual changes to insurance coverage for both midstream and downstream energy have complicated the situation further. Broadening coverage over the decades by downstream energy carriers has led to greater uncertainty in adjusting claims.
A combination of the downturn in domestic energy production, the recession and soft insurance market cycles meant greatly increased competition from carriers and resulted in the writing of untested policy language.
In effect, the industry went from an environment of tested policy language and structure to vague and ambiguous policy language.
Keep in mind that no one carrier has the capacity to underwrite a $3 billion oil refinery. Each insurance program has many carriers that subscribe and share the risk, with each carrier potentially participating on differential terms.
“Achieving clarity in the policy language is getting very complicated and potentially detrimental,” Rokicki said.
Back to Basics
Has the time come for a reset?
Rokicki proposes getting back to basics with both midstream and downstream energy risk management and risk transfer.
He recommends that the insured, the broker, and the carrier’s underwriter, engineer and claims executive sit down and make sure they are all on the same page about coverage terms and conditions.
It’s something the industry used to do and got away from, but needs to get back to.
“Having a claims person involved with policy wording before a loss is of the utmost importance,” Rokicki said, “because that claims executive can best explain to the insured what they can expect from policy coverage prior to any loss, eliminating the frustration of interpreting today’s policy wording.”
As well, having an engineer and underwriter working on the team with dual accountability and responsibility can be invaluable, often leading to innovative coverage solutions for clients as a result of close collaboration.
According to Rokicki, the best time to have this collaborative discussion is at the mid-point in a policy year. For a property policy that runs from July 1 through June 30, for example, the meeting should happen in December or January. If underwriters try to discuss policy-wording concerns during the renewal period on their own, the process tends to get overshadowed by the negotiations centered around premiums.
After a loss occurs is not the best time to find out everyone was thinking differently about the coverage,” he said.
Changes in both the energy and insurance markets require a new approach to minimizing risk. A more holistic, less siloed approach is called for in today’s climate. Carriers need to conduct more complex analysis across multiple measures and have in-depth conversations with brokers and insureds to create a better understanding and collectively develop the best solutions. LIU’s integrated business approach utilizing underwriters, engineers and claims executives provides a solid platform for realizing success in this new and ever-changing energy environment.
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.