A Special Broker
Aircraft clients are a varied group ranging from large airlines to small corporate fleets. However, a number of municipalities, especially on the West Coast, have significant risk associated with fleets of helicopters and other aircraft used for firefighting and other tasks.
“What makes Linda special,” a risk manager said, “is that for the past 15 years she’s been our broker, she’s been able to consistently beat back any kind of premium price increases from the excess casualty markets.”
He’s a big fan of hers, noting that if there is a problem with a claim, or safety or another issue, “she’s there. My people know she’s there for them.” Also, he said, “we’ve never had a major loss from an accident with the aircraft.” The commercial excess markets for aviation also remain competitive.
This client places about $200 million in liability ranging from aircraft coverage to property and liability coverage on the airports that they own. Workers’ compensation is also a significant risk and cost, but they are self-insured and self-funded.
The new wrinkle in the business is the commercial use of UAVs (unmanned aerial vehicles). We’re talking drones here. Two of Auch’s major clients in the entertainment industry needed coverage. Working with the traditional aviation insurers, Auch and the underwriters developed a manuscripted policy to cover the developing risks.
It’s also expected that as the use of drones becomes more common, the demand for coverage could dramatically increase.
Performance on Deadline
Aashish Chauhan and his client, one of the nation’s largest passenger airline companies, faced an insurance problem that could have grounded its operations if it were not resolved. The issue was the airline’s casualty program — a program that has a huge terrorism exposure. The airline’s insurance carriers relied on the federal Terrorism Risk Insurance Act (TRIA) to backstop possible losses. U.S. Congress, at the time of the company’s pending renewal, had not renewed the terrorism legislation and the airline’s insurance company failed to provide renewal terms for the policy that expired on Dec. 31 because it was becoming clear that the Congress might not act.
The airline and Aon lobbied Congress intensively, presenting legislators with the implications of what inaction would mean for the airline industry and the economy. It was a complex process with twists and turns. Although a new law was passed in January, without a solution the airline might have shut down in December. With a series of multiple negotiations completed before year-end, lots of sweat and some help from some senior leadership, Chauhan and the client were able to fashion a solution for a full renewal that became acceptable to the insurer, regardless of whether or not TRIA was renewed by December 2014.
Chauhan also has a background as an environmental broker, which proved to be of value to his airline client. In a contract, the airline was required to furnish an environmental policy. Chauhan created a manuscripted policy for use by the company’s captive that met the needed requirements and prevented a breach.
On Top of It
The challenge for a company that owns a fleet of more than 50 aircraft is the spectrum of risks associated with the different kinds of charter relationships it manages. When issues arise — as they do almost every day — one client of Nancy Gratzer’s said she and her team are always at the ready.
The client’s requirements can range from obtaining a certificate for closing on a new aircraft to handling a claim on a damaged aircraft to responding to an insurance-related issue raised by a customer.
“She’s always there,” the risk manager said. “It’s an essential role that isn’t always handled well by brokers, especially after the placements are completed.”
With another client, a major energy company with a fleet of jets and helicopters, the risks are varied and changing. “She’s been great on keeping us on top of the changing issues,” the risk manager said of Gratzer. That can range from international issues or contractual issues with charter companies to what may be their newest risk — drones and how to identify and manage the insurance risk associated with their different uses.
Gratzer also works hard to get new business. Recently, she submitted more than 50 recommendations to a consumer food products company on their aviation risk, as part of the process when the company went looking for a new broker. She used their data, and additional benchmarking data, to examine the company’s total cost of risk. The result: She received an immediate appointment as the aviation broker.
Somebody has to insure the manufacturers of rocket fuels and pyrotechnic systems used in satellites, missiles and other applications. One such client of Nilza Santos requires substantial and costly product liability insurance. Santos and her team secured about $300 million in coverage.
It’s a highly specialized market, almost entirely reached through the London market. There are only a handful of underwriters familiar with the risk and who have the ability to write coverage. Because of market conditions, the client’s business and revenues had recently declined, so the cost of the insurance was even more important.
For the renewal, the company was coming off a two-year policy. Santos pushed to have the terms of the policy reviewed. In the process she was able to achieve a 7.5 percent premium reduction. “Because she had recognized that our revenues had declined, she was able to negotiate the decrease,” the risk manager said.
For another client, a defense contractor, there were ongoing demands to adjust or add coverage because of special and new projects. In most of the cases, Santos was able to add the coverage to an existing program and also reduce a portion of the overall costs.
Another client, an aerospace manufacturer, had relatively high insurance costs attributed to a past loss history. The client wanted to see a significant reduction especially because the loss history had improved. In negotiations with the incumbent carriers, Santos was able to obtain an 18 percent premium reduction and added a new insurer to the placement.
A Star in Space
Willis Inspace, established in 1979, provides placement, consulting and risk management services to the space industry. Among Robert Scheige’s clients is a global satellite operator with accompanying ground facilities that serves a variety of markets and industries. Recently, in two launches, it deployed a low-earth orbiting (LEO) satellite constellation to support a global communications system.
Scheige tailored a state-of-art coverage structure and completed the placement in the global space insurance market. Satellite technology is constantly changing and must be addressed with custom coverage. The heart of the coverage was a manuscripted policy that addressed insurance issues related to satellite technology and the demands for a high degree of performance accuracy.
The network had to be able to communicate on a satellite-to-satellite basis and to ground facilities, adding further risk and performance standards to the assignment. Also, there were significant loan covenant requirements with insurance implications.
The policy that was developed defined a loss formula based on five different parameters including a number of performance-related parameters. The deductibles were adjustable and were calculated dependent upon satellite performance and loss experience. Also, the policy included a flexible coinsurance structure.
According to the client, the coverage for these unique and demanding exposures was placed to their complete satisfaction.
Big Project, Big Savings
Airports present large risks, especially during the construction phase of an expansion. These projects also have varied and complicated risk and insurance requirements and can be difficult and time consuming to arrange. The use of outside contractors is an additional complication. Delays are not unusual and can be costly.
For an airport authority, Richard Terlecki needed to secure a builder’s risk policy to cover the completion of the construction, including risks of property losses resulting from a fire or other events. The project included an intermodal train facility, an automated people mover, parking garage and other renovations — all at a cost approaching $1 billion. At the last minute, Terlecki was also brought in to secure owners’ professional liability coverage. All policies were needed to get construction underway on time.
Terlecki got it done in 57 business days. Coverage was obtained through the London and Bermuda markets, with five proposals coming through. The objective was to obtain substantial limits, lower deductibles and very broad coverage.
The result of Terlecki’s negotiations reduced the project’s cost by several million dollars. Because the facility was in a hurricane zone, windstorm coverage was required. Terlecki secured the needed coverage with lower windstorm deductibles. He also negotiated a modification to a “pilings conditions” exclusion that the risk manager said was a challenge. The whole package, the risk manager said, came in at a significantly lower premium than expected and it was completed on time without any delays to the major construction project.
FAA: Do Your Job
It is time for the U.S. Federal Aviation Administration to stop dancing around its duties by sending out policy and guidance documents and issue the aviation industry some well-considered UAV regulations.
The FAA earlier this month released a document to local law enforcement agencies providing guidance on how to handle investigations concerning suspected unauthorized unmanned aircraft systems operations.
The document identifies the legal authority for the FAA to regulate all aircraft within the U.S. National Airspace System. The regulated aircraft range from the very large aircraft that carry passengers and cargo all the way down to model aircraft flown by hobbyists for recreation.
The antediluvian document that provides guidance for unmanned flight operations is FAA Advisory Circular 91-57 Model Aircraft Operating Standards, dated June 9, 1981. In this circular, the FAA established the minimum standards which unmanned aircraft hobbyists have followed ever since.
These standards are using good judgment, flying in unpopulated areas, climbing no higher than 400 feet above the ground, giving way to full-sized aircraft, and notifying an airport operator or control tower in advance of flying closer to three miles of the airport. Note that there is some confusion with this distance as the FAA’s webpage now states the airport distance is five miles, contradicting AC 91-57.
Of particular note in the latest guidance for law enforcement is the requirement for all unmanned aircraft, including model aircraft, to be flown in compliance with any airspace restrictions required for national security. This means that remote-controlled airplane and helicopter flyers must review the FAA’s Notices to Airmen, or NOTAMS, prior to flying.
More specifically, they must be familiar with any airspace restrictions, known as Temporary Flight Restrictions or TFRs. This requirement is absent from the FAA’s long-standing guidance.
Licensed aviators know to review NOTAMs before each flight. Flight instructors teach this requirement in ground school and reinforce it with each training flight.
However, there is no ground school and flight instruction required before flying that freshly unwrapped birthday or holiday gift. So when Little Jonny takes his fully-charged remote-controlled helicopter down to the unused hometown baseball field, is he going to be rolled up and booked by law enforcement for flying when the President of the United States drops into his town for a last-minute visit?
Who taught Little Jonny to check the NOTAMS?
Even more puzzling, who taught Little Jonny or his mom and dad how to read and decipher the cryptic text of a National Security NOTAM?
The intent behind this latest FAA communique seems to be for keeping unauthorized commercial use of UAVs in check by leveraging the long arm of local law enforcement, not tossing Little Jonny and his folks in the hoosegow.
However, the weave of the FAA’s guidance-in-lieu-of-regulation is too fine and nets both whales and minnows. It is the unintended consequences of such guidance that creates risks both to legitimate, law-abiding aviation operators and unforeseen exposures to the insurers who underwrite the flyers.
What Is Insurance Innovation?
Truly innovative insurance solutions are delivered in real time, as the needs of businesses change and the nature of risk evolves.
Lexington Insurance exemplifies this approach to innovation. Creative products driven by speed to market are at the core of the insurer’s culture, reputation and strategic direction, according to Matthew Power, executive vice president and head of strategic development at Lexington, an AIG Company and the leading U.S.-based surplus lines insurer.
“The excess and surplus lines sector is in a growth mode due, in no small part, to the speed at which our insureds’ underlying business models are changing,” Power said. “Tomorrow’s winning companies are those being built upon true breakthrough innovation, with a strong focus on agility and speed to market.”
To boost its innovation potential, for example, Lexington has launched a new crowdsourcing strategy. The company’s “Innovation Boot Camps” bring people together from the U.S., Canada, Bermuda and London in a series of engagements focused on identifying potential waves of change and market needs on the coverage horizon.
“Employees work in teams to determine how insurance can play a vital role in increasing the success odds of new markets and customers,” Power said. “That means anticipating needs and quickly delivering programs to meet them.”
An example: Working in tandem with the AIG Science team – another collaboration focused on innovation – Lexington is looking to offer an advanced high-tech seating system in the truck cabs of some of its long-haul trucking customers. The goal is to reduce driver injury and fatigue-based accidents.
“Our professionals serving the healthcare market average more than twenty years of industry experience. That includes attorneys and clinicians combining in a defense-oriented claims approach and collaborating with insureds in this fast-moving market segment. At Lexington, our relentless focus on innovation enables us to take on the risk so our clients can take on the opportunities.”
— Matthew Power, Executive Vice President and Head of Regional Development, Lexington Insurance Company
Power explained that exciting growth areas such as robotics, nanotechnology and driverless cars, among others, require highly customized commercial insurance solutions that often can be delivered only by excess and surplus lines underwriters.
“Being non-admitted, our freedom of rate and form allows us to be nimble, and that’s very important to our clients,” he said. “We have an established track record of reacting quickly to trends and market needs.”
Lexington is a leading provider of personal lines coverage for the excess and surplus lines industry and, as Power explains, the company’s suite of product offerings has continued to evolve in the wake of changing customer needs. “Our personal lines team has developed a robust product offering that considers issues like sustainable building, energy efficiency, and cyber liability.”
Most recently the company launched Evacuation Response, a specialty coverage designed to reimburse Lexington personal lines customers for costs associated with government mandated evacuations. “These evacuation scenarios have becoming increasingly commonplace in the wake of recent extreme weather events, and this coverage protects insured families against the associated costs of transportation and temporary housing.
The company also has followed the emerging cap and trade legislation in California, which has created an active carbon trading market throughout the state. “Our new Carbon ODS product provides real property protection for sequestered ozone depleting substances, while our CarbonCover Design Confirm product insures those engineering firms actively verifying and valuing active trades.” Lexington has also begun to insure new Carbon Registries as they are established in markets across the country.
Lexington has also developed a number of new product offerings within the Healthcare space. The Affordable Care Act has brought an increased focus on the continuum of care and clinical patient safety. In response, Lexington has created special programs for a wide range of entities, as the fast-changing healthcare industry includes a range of specialized services, including home healthcare, imaging centers (X-ray, MRI, PET–CT scans), EMT/ambulances, medical laboratories, outpatient primary care/urgent care centers, ambulatory surgery centers and Medical rehabilitation facilities.
“The excess and surplus lines sector is in growth mode due, in no small part, to the speed at which our insureds’ underlying business models are changing,” Power said.
Apart from its coverage flexibility, Lexington offers this segment monthly webcasts, bi-monthly conference calls and newsletters on key risk issues and educational topics. It also provides on-site risk consultation (for qualifying accounts), access to RiskTool, Lexington’s web-based healthcare risk management and patient safety resource, and a technical staff consisting of more than 60 members dedicated solely to healthcare-related claims.
“Our professionals serving the healthcare market average more than twenty years of industry experience,” Power said. “That includes attorneys and clinicians combining in a defense-oriented claims approach and collaborating with insureds in this fast-moving market segment.”
This article was produced by the R&I Brand Studio, a unit of the advertising department of Risk & Insurance, in collaboration with Lexington Insurance. The editorial staff of Risk & Insurance had no role in its preparation.