Infographic: The Risk List

6 Emerging Catastrophic Liability Risks

Unexpected liabilities create coverage challenges for employers. Presented by Travelers.
By: | March 2, 2015 • 2 min read
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The R&I Editorial Team may be reached at riskletters@lrp.com.
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Emerging Risk: Drones

Risky Flights

Drone risks include collisions with aircraft, invasion of privacy, aerial surveillance and data collection.
By: | March 2, 2015 • 2 min read
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The increasing use of drones for commercial purposes has become one of the biggest emerging threats to the future of airplane safety, according to Allianz Global Corporate & Specialty (AGCS).

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The use of unmanned aerial vehicles (UAVs) for a host of different applications may leave operators exposed to a whole new set of risks, including third-party damage or injury and liability, according to AGCS’s Global Aviation Safety Study.
One of the biggest risks, it said, was from radio frequency interference, resulting in loss of control, and, in the worst cases, fatalities.

Other problems include invasion of privacy, aerial surveillance and data collection.

“With the ability to collect massive amounts of unsolicited data, UAVs present an enormous threat to individual privacy and a significant challenge for insurance carriers,” said Vikki Stone, senior vice president at Poms & Associates Insurance Brokers. “In drafting policies, it is crucial for carriers to know how such information will be used.”

The production of UAVs has increased by double-digits year-on-year since 2007, according to AGCS, with applications ranging from news gathering and surveillance to sporting events and crop dusting.

Such has been the take-up that the Federal Aviation Administration (FAA) estimates that by 2020, there will be about 30,000 small commercial unmanned aircraft in our skies.

However, coverage is limited, with only about 21 insurers involved and those that do offer policies have been hampered by a lack of historical and analytical data, the study said.

“Annual utilization, number of accidents and repair costs are not readily available and unmanned aircraft are not presently flying at the rate that they will be in the near future in the national airspace,” the report said.

Another problem is that, despite FAA plans to integrate UAVs into the U.S. airspace in 2015, there is a “lack of international, regional and local regulations for the safe operation of UAVs,” said Henning Haagen, AGCS’s global head of aviation EMEA and Asia Pacific.

Stone said that the No. 1 concern among carriers was the lack of certification of UAV pilots.

“I think the bigger problems are going to be the people that don’t follow the guidelines required, so ultimately we’ll end up with a number of rogue flyers out there — that’s the scary part,” she said.

Peter Schmitz, CEO of global aviation specialty at Aon, outlined other major risks of drones.

“The biggest threat is clearly the taking down of a major aircraft in a mid-air collision,” he said.

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“The second issue is the application of these vehicles in urban areas where the risk of damage to properties and individuals is much greater than it would be in rural parts.”

Schmitz said that regulatory authorities across the world face an uphill task in coming to grips with these issues because UAVs are still a relatively new and unknown quantity in terms of repair costs and loss ratios.

Alex Wright is a U.K.-based business journalist, who previously was deputy business editor at The Royal Gazette in Bermuda. You can reach him at riskletters@lrp.com.
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Sponsored: Liberty Mutual Insurance

2015 General Liability Renewal Outlook

As the GL insurance cycle flattens, risk managers, brokers and insurers dig deeper to manage program costs.
By: | March 2, 2015 • 5 min read
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There was a time, not too long ago, when prices for general liability (GL) insurance would fluctuate significantly.

Prices would decrease as new markets offered additional capacity and wanted to gain a foothold by winning business with attractive rates. Conversely, prices could be driven higher by decreases in capacity — caused by either significant losses or departing markets.

This “insurance cycle” was driven mostly by market forces of supply and demand instead of the underlying cost of the risk. The result was unstable markets — challenging buyers, brokers and carriers.

However, as risk managers and their brokers work on 2015 renewals, they’ll undoubtedly recognize that prices are relatively stable. In fact, prices have been stable for the last several years in spite of many events and developments that might have caused fluctuations in the past.

Mark Moitoso discusses general liability pricing and the flattening of the insurance cycle.

Flattening the GL insurance cycle

Any discussion of today’s stable GL market has to start with data and analytics.

These powerful new capabilities offer deeper insight into trends and uncover new information about risks. As a result, buyers, brokers and insurers are increasingly mining data, monitoring trends and building in-house analytical staff.

“The increased focus on analytics is what’s kept pricing fairly stable in the casualty world,” said Mark Moitoso, executive vice president and general manager, National Accounts Casualty at Liberty Mutual Insurance.

With the increased use of analytics, all parties have a better understanding of trends and cost drivers. It’s made buyers, brokers and carriers much more sophisticated and helped pricing reflect actual risk and costs, rather than market cycle.

The stability of the GL market also reflects many new sources of capital that have entered the market over the past few years. In fact, today, there are roughly three times as many insurers competing for a GL risk than three years ago.

Unlike past fluctuations in capacity, this appears to be a fundamental shift in the competitive landscape.

SponsoredContent_LM“The current risk environment underscores the value of the insurer, broker and buyer getting together to figure out the exposures they have, and the best ways to manage them, through risk control, claims management and a strategic risk management program.”
— David Perez, executive vice president and general manager, Commercial Insurance Specialty, Liberty Mutual

Dynamic risks lurking

The proliferation of new insurance companies has not been matched by an influx of new underwriting talent.

The result is the potential dilution of existing talent, creating an opportunity for insurers and brokers with talent and expertise to add even greater value to buyers by helping them understand the new and continuing risks impacting GL.

And today’s business environment presents many of these risks:

  • Mass torts and class-action lawsuits: Understanding complex cases, exhausting subrogation opportunities, and wrangling with multiple plaintiffs to settle a case requires significant expertise and skill.
  • Medical cost inflation: A 2014 PricewaterhouseCoopers report predicts a medical cost inflation rate of 6.8 percent. That’s had an immediate impact in increasing loss costs per commercial auto claim and it will eventually extend to longer-tail casualty businesses like GL.
  • Legal costs: Hourly rates as well as award and settlement costs are all increasing.
  • Industry and geographic factors: A few examples include the energy sector struggling with growing auto losses and construction companies working in New York state contending with the antiquated New York Labor Law

David Perez outlines the risks general liability buyers and brokers currently face.

Managing GL costs in a flat market

While the flattening of the GL insurance cycle removes a key source of expense volatility for risk managers, emerging risks present many challenges.

With the stable market creating general price parity among insurers, it’s more important than ever to select underwriting partners based on their expertise, experience and claims handling record – in short, their ability to help better manage the total cost of GL.

And the key word is indeed “partners.”

“The current risk environment underscores the value of the insurer, broker and buyer getting together to figure out the exposures they have, and the best ways to manage them — through risk control, claims management and a strategic risk management program,” said David Perez, executive vice president and general manager, Commercial Insurance Specialty at Liberty Mutual.

While analytics and data are key drivers to the underwriting process, the complete picture of a company’s risk profile is never fully painted by numbers alone. This perspective is not universally understood and is a key differentiator between an experienced underwriter and a simple analyst.

“We have the ability to influence underwriting decisions based on experience with the customer, knowledge of that customer, and knowledge of how they handle their own risks — things that aren’t necessarily captured in the analytical environment,” said Moitoso.

Mark Moitoso suggests looking at GL spend like one would look at total cost of risk.

Several other factors are critical in choosing an insurance partner that can help manage the total cost of your GL program:

Clear, concise contracts: The policy contract language often determines the outcome of a GL case. Investing time up-front to strategically address risk transfer through contractual language can control GL claim costs.

“A lot of the efficacy we find in claims is driven by the clear intent that’s delivered by the policy,” said Perez.

Legal cost management: Two other key drivers of GL claim outcomes are settlement and trial. The best GL programs include sophisticated legal management approaches that aggressively contain legal costs while also maximizing success factors.

“Buyers and brokers must understand the value an insurer can provide in managing legal outcomes and spending,” noted Perez. “Explore if and how the insurer evaluates potential providers in light of the specific jurisdiction and injury; reviews legal bills; and offers data-driven tools that help negotiations by tracking the range of settlements for similar cases.”

David Perez on managing legal costs.

Specialized claims approach: Resolving claims quickly and fairly is best accomplished by knowledgeable professionals. Working with an insurer whose claims organization is comprised of professionals with deep expertise in specific industries or risk categories is vital.

SponsoredContent_LM“We have the ability to influence underwriting decisions based on experience with the customer, knowledge of that customer, and knowledge of how they handle their own risks, things that aren’t necessarily captured in the analytical environment.”
— Mark Moitoso, executive vice president and general manager, National Accounts Casualty, Liberty Mutual

“When a claim comes in the door, we assess the situation and determine whether it can be handled as a general claim, or whether it’s a complex case,” said Moitoso. “If it’s a complex case, we make sure it goes to the right professional who understands the industry segment and territory. Having that depth and ability to access so many points of expertise and institutional knowledge is a big differentiator for us.”

While the GL insurance market cycle appears to be flattening, basic risk management continues to be essential in managing total GL costs. Close partnership between buyer, broker and insurer is critical to identifying all the GL risks faced by a company and developing a strategic risk management program to effectively mitigate and manage them.

Additional insights



For more information about how Liberty Mutual can help you manage the total cost of your GL program, visit their website or contact your broker.

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This article was produced by the R&I Brand Studio, a unit of the advertising department of Risk & Insurance, in collaboration with Liberty Mutual Insurance. The editorial staff of Risk & Insurance had no role in its preparation.




Liberty Mutual Insurance offers a wide range of insurance products and services, including general liability, property, commercial automobile, excess casualty, workers compensation and group benefits.
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