Congress: Let E&S Underwrite Unique Flood Risks
I strongly support revisions to the current federal definition of private flood insurance contained in the Flood Insurance Modernization and Market Parity Act of 2014 introduced in the 113th Congress. I believe it is necessary for Congress to amend the current definition to ensure that surplus lines insurers are eligible to offer private market solutions and alternatives to consumers with unique and complex flood risks.
The surplus lines market plays an important role in providing insurance for hard-to-place, unique or high capacity risks. Often called the “safety valve” of the insurance industry, surplus lines insurers fill a need for coverage in the marketplace by insuring risks that are declined by the standard underwriting and pricing processes of admitted insurance carriers.
Surplus lines insurance is used to cover risks that are difficult to place, where the standard market is unwilling or unable to provide the level of coverage needed, such as flood coverage in coastal areas.
The Biggert-Waters Flood Insurance Reform Act of 2012 sought to expand the ability of private insurers to offer flood insurance solutions as alternatives to the National Flood Insurance Program (NFIP). However, its definition of private flood insurance should be clarified to ensure that surplus lines insurers are part of the solution.
Any misinterpretation of the existing definition could unintentionally limit the surplus lines market’s historical effectiveness as a supplemental market for risks that exceed the capacity of the NFIP.
It is important to note that surplus lines insurers currently underwrite private insurance flood policies primarily in commercial lines and, to a very limited degree, in personal lines.
Well before the Biggert-Waters Act of 2012, surplus lines flood insurance policies were underwritten as a supplemental option for insureds seeking flood insurance coverages in excess of the capacity of the NFIP.
Often called the “safety valve” of the insurance industry, surplus lines insurers fill a need for coverage in the marketplace by insuring risks that are declined by the standard underwriting and pricing processes of admitted insurance carriers.
The Flood Insurance Modernization and Market Parity Act of 2014 intended to preserve the surplus lines market’s ability to provide the supplemental coverage it has historically provided and to provide insureds with coverage options for unique and complex risk that exceeds or differs from the options available through the NFIP or the standard market.
The purpose of the 2014 Act was to clarify that a surplus lines policy is an acceptable private flood insurance option. Its definition of private insurer includes any insurer that is licensed, admitted or otherwise “eligible” to engage in the business of insurance in the state or jurisdiction in which the insured property is located. Its use of the term “eligible” is important because of its consistency with the nationwide surplus lines insurer eligibility standards established by the Nonadmitted and Reinsurance Reform Act (NRRA) of 2010.
The Flood Insurance Modernization and Market Parity Act of 2014 continues to be the right solution. It preserves an effective supplemental market, provides options for insureds with unique and complex risks, and it provides mortgage lenders with more clarity regarding the acceptance of private flood insurance policies.
I therefore encourage Congress to enact legislation in 2015 to accomplish the goals of the 2014 Act.
Taking Down Trolls
Patent trolls are a thorn in the side of many companies.
Even when infringement claims are weak, many firms opt to settle just to avoid having to spend millions defending them in court, experts said.
To be sure, the terms “patent troll” or “non-practicing entity” (NPE) are often used to paint with too broad of a brush, as some NPEs have legitimate reasons to sue for patent infringement, said Rudy Telscher, a partner at Harness Dickey & Pierce law firm in St. Louis.
Many individuals, smaller companies and universities that innovate don’t have an interest or resources to bring products to the market, Telscher said. Alternatively, they may have tried to make a go out of commercializing their patent, but found the competition too stiff. These entities determined that they would be better off having other companies pay them a royalty to use their invention or patented technology in their own products, and if others refuse to pay but still use their patent, then the NPEs rightfully sue.
An example of true patent troll abuse stems from when firms bought broadly worded patents that were issued by the U.S. Patent Office during the dot.com bubble of the late 1990s and early 2000s.
Those patents were analyzed by the government under less strict standards than those used today, Telscher said.
Patent trolls typically sue 20 or more companies to lower their own filing costs, then settle with individual defendants.
“Patent troll companies invest significant time and money to pan for gold, by trying to find these old, broadly worded patents and then assert them against industries to get royalties not reasonably owed by using the high cost of patent litigation as a coercive weapon,” he said.
Fortunately, the Supreme Court’s 2014 Octane decision made it easier for defendants to get their court fees paid by trolls if they choose to defend patent cases, Telscher said.
Moreover, the Supreme Court’s 2014 Alice decision has been used by district courts to strike down software and other patents having claims drawn to “abstract ideas,” and its 2014 Nautilus decision has been used to strike down patent claims that are vague and indefinite regarding claim scope coverage.
“While the Supreme Court cases of the last year have deterred some patent trolls from asserting the weakest of patent cases, many entities are still filing such cases,” Telscher said.
“In no case do we give NPEs any money, since we believe paying NPEs only ‘feeds the beast,’ ” — Shawn Ambwani, chief operating officer, Unified Patents
The 2011 Leahy–Smith American Invents Act (AIA), which determined how many defendants could be sued in a single case, has also had some impact on patent infringement litigation — but not as much as defendants in such cases would have liked, said Brian Howard, a legal data scientist at Lex Machina, a Menlo Park, Calif., firm that tracks district court litigation.
Insignificant Decrease in Claims
Since the new rules generally caused plaintiffs to sue defendants in separate cases rather than in a single combined case, Lex Machina counted the combinations of defendants and cases after the AIA became effective (a lawsuit by one plaintiff against three defendants is now counted as three cases for the purposes of tracking).
The company found that the new rules did not drastically reduce patent case filings. The statistics from late 2011 to mid-2013 followed a trajectory consistent with that of 2009 to early 2011. Overall, 2014 saw a steady increase in case filings through April, followed by sharp drop in May and a flat remainder of the year, leaving total filings down 21 percent from 2013.
That was “not the dramatic reduction that many were expecting,” Howard said.
Intellectual Property Insurance Services Corp., based in Louisville, Ken., offers a patent troll defense policy, said President Bob Fletcher.
If a policyholder is sued by a patent troll, the insured can solicit counsel of their choice to determine whether they would have a 51 percent chance of winning “by a preponderance of evidence,” in which case the policy would then pay for the defense. The policy covers “non-core activities” because that is the focus of many of the “bad” broadly worded patent lawsuits.
“Let’s say a firm has an Internet connection, a computer and they email something — a patent troll would sue for infringement,” he said. “For that kind of case we would not pay a settlement but would fight it to the end, because those patents never should have been granted and we would likely win. We want to teach trolls that when a client has insurance they will not settle, which will destroy the trolls’ livelihoods.”
London-based CFC Underwriting offers a variety of insurance products based on infringements of any type of intellectual property, including patents, said Erik Alsegard, intellectual property practice leader. The policies cover lawsuits regardless of whether it is a non-practicing entity or a competitive company that is suing the insured.
Before insuring, CFC reviews how companies operate, their patent risks, whether they work with a patent attorney and, where suitable, whether they run “freedom to operate” searches to mitigate the risk of patent infringement and intellectual property claims, Alsegard said.
“However, risk management and IP searches can’t 100 percent prevent claims, so that’s why insurance is really important,” he said. “The lawmakers and the courts are trying to change the behavior of patent trolls, but it is unlikely to entirely remove this risk to operating companies as the more sophisticated entities will adapt.”
Often companies will ask their suppliers to indemnify them on patent infringement lawsuits based on the product they supply, but the ability to transfer such indemnity to a supplier will depend on the strength of each party in the negotiation.
“Smaller companies are less likely to be able to negotiate away risk through contracts,” Alsegard said. “On the other hand, if a company does have to indemnify its customers, then this contractual indemnity can be insured so in a sense the insurance works as a business enabler.”
Mary Castiglia, a senior vice president at Hub International Ltd. in San Francisco, said that in the past she had been unsuccessful getting her clients to consider coverage because it had been a “fairly cumbersome underwriting process.” But now there are more options in the marketplace and firms have eased both the underwriting and claims processes. Castiglia typically works with RPX Insurance Services in San Francisco, which offers a holistic insurance and claims-settling service solution.
“We’re starting to see more interest in the marketplace to offer this type of insurance because more people are getting hit with letters from trolls,” she said.
Unified Patents in Los Altos, Calif., protects technology companies from NPE assertions using various tools, challenging patents they consider invalid using the AIA’s new “inter partes review” process, said Shawn Ambwani, chief operating officer. Since starting the challenges in 2012, United has invalidated two patents and has settled two others in which the NPEs agreed to not sue Unified’s members.
“In no case do we give NPEs any money, since we believe paying NPEs only ‘feeds the beast,’ ” Ambwani said.
Problems for Startups
Lori Johnson, a shareholder and intellectual property lawyer in the Atlanta office of law firm Chamberlain Hrdlicka, works with several large companies that budget for patent infringement claims by trolls and other entities rather than buy insurance.
However, startups should consider buying insurance, because many troll suits target the software within their websites.
“The asserted patents may have little to do with the underlying business the startup is engaged in,” Johnson said.
“It’s very easy to name call and put everyone in the same category,” he said. “But we say, hold on a second! Let’s not throw away 225 years of patenting innovations that have built value in the economy.” — Phil Hartstein, president and chief executive officer, Finjan Holdings Inc.
Startups should also consider requesting indemnification from their web development company, she said. If the development company is using off-the-shelf software, they may feel comfortable providing indemnity, but if they’re using cutting-edge software, “it’s a red flag if they do not even want to talk indemnification.”
“Most firms don’t want to indemnify if they can help it, but if they’re not even willing to talk about it, that would make me nervous,” Johnson said. “I would recommend shopping for another web developer that might be more willing to indemnify or more capable of handling a suit.”
One NPE that is fighting against the patent troll stigma is Finjan Holdings Inc. in East Palo Alto, Calif., said Phil Hartstein, president and chief executive officer. Finjan was formed in 1997 first as a software company and then as a hardware company, raising $65 million in capital over a number of rounds between 1998 and 2006 to develop content inspection technologies.
In 2005, the company struck its first licensing deal with Microsoft, without having to litigate, Hartstein said. Finjan ultimately divested the technology company. Today, it’s a publicly traded entity that seeks first to make licensing deals with companies using its patents before litigating. Major funds and companies have invested in Finjan, including Cisco Systems Inc.
“It’s very easy to name call and put everyone in the same category,” he said. “But we say, hold on a second! Let’s not throw away 225 years of patenting innovations that have built value in the economy. Let’s focus instead on giving those that exhibit positive, ethical behaviors the freedom to continue down this road.”
Finjan has posted four core values and seven best practices based on such behaviors on its website, and is working with the American Intellectual Property Law Association and the Licensing Executives Society to build certification programs for licensing entities. The American National Standards Institute has agreed to be the governing body for the “LES Standards Pilot Program.”
“If there is an opportunity for us to participate in establishing credibility in the licensing industry by disseminating best practices, that enables us to move out of the shadows of litigation arbitrage and back into the credible exchange of ideas for invested capital,” Hartstein said.
RIMS Recap: Tech Trends that Could Change Everything
Last month, Gordon Clemons, CEO and Chairman of CorVel Corporation, presented at the RIMS Conference in New Orleans, La. about emerging technology and how it is impacting risk management and workers’ compensation. The discussion served as a springboard for new insights on how technology will change the industry, and reaffirmed the need for integrated systems and human interaction for the best results.
The presentation noted the future is here – and technology is constantly evolving in hopes of outpacing tomorrow’s needs. As these technology platforms become more inherent in daily life, the gap in translating their utilization to workers’ compensation will begin to close.
Technology in Healthcare
While many consumer-based technology advancements exist in other industries, perhaps most notably in the retail space helping vendors to reduce various delays in the sales experience, people may forget that healthcare, too, is a consumer industry. And as such, healthcare also experiences workflow lags, which can be collapsed.
While patients and claims may not lend themselves as freely to mobile applications and technology that subscribes to the “Internet of Things” philosophy, the rapid rate of development foretells the not-too-far-off arrival of the “a-ha,” “wow factor”-type application that consumers are seeking in the healthcare industry.
Once we get there, we can only expect that the Pangea of resources will yield better outcomes. The potential impact to medical management includes more affordable/accessible healthcare, patient convenience, personal assistance, automatic inputs to claims systems and less administration from both patients and injured workers.
“Healthcare is stubborn about change. There are more data points in healthcare and there is a greater need for high quality and accuracy,” Clemons said.
Tech Trends for the Next Digital Decade
As an industry advocate in all things innovation, CorVel has been keeping tabs on emerging tech trends. As they begin to influence in other industries, it sparks the question – will they eventually change workers’ compensation?
Here are some of the trends on CorVel’s radar:
Smart phones and tablets were the first mobile devices to really start to gain traction across people’s personal lives. Since then, wearables (like Fitbits and smart watches) have been part of the next digital generation to be taken up by consumers.
As these personal devices quickly advance, wearables could offer payors and employers added insight into the wellness of claimants through the extent of their retrievable data.
Beacons are devices that use low-energy Bluetooth connections to communicate messages or triggers directly to a smart device (such as a phone or tablet). Retailers have started using this technology, sending offers to near-by consumers’ phones. Now the concepts of smart mirrors and smart walls offer a one-stop-shop with recommendations related to the preferences of the shopper – making a hyper-efficient business model. It is possible that we could see these devices adapted to being a catalyst for healthcare’s business model by reducing the delays of administrative work.
Formally known as unmanned aerial vehicles (UAV), drones can be remote-controlled or flown autonomously through pre-defined flight plans within their internal systems. Some carriers are testing the use of drones to potentially be used to evaluate property damage and responding to natural disasters.
As most injuries reported in workers’ compensation are musculoskeletal injuries, the industry lends itself well to the benefits of telecommunications and telemedicine. With the rise of electronic capabilities, telemedicine becomes another option to help guide an injured worker through their entire episode of care, reducing time delays.
In order to get to that point in time, implementing these trends (and those that are yet to be launched) will only be as successful as the population willing to accept them. Buy-in will require a commitment to the long-standing pillars of the industry. According to Clemons, “While technology can truly move the needle in workers’ compensation, it will take more than bells and whistles to maximize its impact.”
“People’s feelings are valid. The skepticism surrounding new technology is not misplaced, but neither is the enthusiasm,” Clemons said.
New Trends, Same Priorities
Beyond the buzzwords and hype surrounding the latest apps and devices, for new technology to succeed within the workers’ compensation realm, it boils down to the two primary concepts that drive the industry to begin with – effective infrastructure and a people-first philosophy.
The power of applicable resources and the actionable data that results from them is in the foundation of the systems themselves; that primarily being through the influence of integration. It is not a new concept; however, as technology advances and the reach of analytic capabilities broadens, it is important to find a provider that can harness this data and channel it into effective workflows to increase efficiencies and promote better outcomes.
CorVel’s proprietary claims management system has been developed and supported by an in-house, full-time information systems division to be intuitive and user-friendly. Complex, proprietary algorithms link codified data across the system, facilitating collaboration between services, workflows, customers, and technology and eliminating the risk that a crucial piece of information will be missed. The result is an active “ecosystem” providing customers with actionable data to provide the most accurate, comprehensive picture at any time, while also collapsing inherent delays.
For the injured worker, the critical human touch connection in the workers’ compensation process can never be minimized. By cutting lag time throughout the various inefficiencies underlying the industry’s workflows, CorVel can connect injured workers with quality care sooner. As systems advance, claims and managed care associates do not have to spend as much time on administrative work and will instead be able to devote more time to the injured workers, reviving the human touch aspect that is just as impactful within the industry.
Regardless of the technology that lies ahead, CorVel looks to the future with investments in innovation, while not losing sight of their role and responsibility to clients and patients. Dedicated to constant improvement for the services they provide injured workers and industry payors, CorVel is committed to improving industry services one app, click, drone (or whatever is yet to come) at a time – perhaps something to discuss in San Diego at next year’s RIMS conference.
For more information, visit corvel.com.
This article was produced by the R&I Brand Studio, a unit of the advertising department of Risk & Insurance, in collaboration with CorVel Corporation. The editorial staff of Risk & Insurance had no role in its preparation.