Mitigating the Difficulties
In few sectors does true proportional risk management come into sharper focus than in midstream and downstream energy and process industries.
“We have always had a very difficult placement from an umbrella standpoint,” said one risk manager. “We have always had serious carrier issues because they don’t like the things we make and sell.”
Never mind that the client is a major global company with a significant volume of business; some carriers have treated that worldwide scope as just a greater exposure. For that client, Monica Brecka, Aon’s umbrella and excess casualty practice leader for the southern region, “came in and shook things up. She rearranged things in our large global placement. She coordinated all the various pieces into one cohesive program that was very different from what we had before. That drove significant savings,” the client said.
Another client was facing a renewal in which its carriers insisted upon an exclusion for one of its product lines, noting accurately that such an exclusion was widespread in the industry.
“Monica was able to secure our renewal without the exclusion,” said the insurance buyer.
“We did have to accept a higher integrated occurrence, but at a lower attachment level, which in the end, reduced our premium.”
Brecka also handled a spin-off for the same client. The outgoing operations were sold to another company, so there was no need to create interim structures, but “Monica effectively got an upfront return of premium for us on an anticipated but not assured basis.”
Informed insight is necessary to win the Power Broker® designation, and it is indicative of Tandis Nili’s work this past year.
“We had an umbrella carrier who was wanting to move up and we needed to understand what our options were,” said one risk manager.
“I wanted to know whether it would be best to take our current primary carrier up, replace the umbrella carrier, replace the primary carrier. Tandis provided this guidance, and with her law degree, I always feel comfortable with the contract review provided.”
The risk manager continued, “Tandis also kept us to zero collateral increase for our [workers’ comp policy] for five years straight. Exposures have certainly increased and the insurer has requested an increase most years.”
In another situation, Nili saw changes at a carrier obviate what had been a relationship so close that the carrier had accepted a personal letter of guarantee from the CEO of the insured in lieu of some standard requirements.
In the middle of renewal, new leadership took over and the underwriter balked at such a handshake agreement. Nili had to present the client as a new prospect, running actuarial analyses and modifying retentions and credit risk for the client. After long negotiations, the new management accepted the existing personal guarantee.
In a successful end to that tense and complex negotiation, Nili’s double challenge was not just to win for the client, but to win over the client.
Almost any broker can handle trouble, but it takes a Power Broker® to head it off at the pass.
“Mike was able to show us a problem with our property policy,” said one risk manager of Mike Perron, an energy and engineered risks team leader at Willis.
“The policy had a limit of $25 million per occurrence, which looked sufficient. However, the coverage was limited to the values reported at a given location.” Perron pointed out that the previous broker should have requested the carrier remove the limitation. Then he engaged colleagues to review the values reported on the insurance schedule at a handful of locations, to see if the values adequately represented true replacement cost values.
“This analysis suggested that the replacement cost values of several properties was larger than what was reported on our schedule,” the risk manager said. “Consequently, these properties were underinsured. This finding and analysis was instrumental in choosing to appoint Willis as our new broker.”
Another client noted, “Our situation is a little different as a lot of our policies are reverse flow. We have some local placements and some legacy issues. Mike has done well in trying to hunt down people to resolve really old items like remnants of failed insurers or the last collateral issue related to long-closed projects.
“Sometimes the ability to find the person that has the right connection from a previous life is a very valuable skill from the client perspective,” the client said.
A Key Team Member
Risk managers often say that Power Brokers are key members of their teams. One director of insurance said that David Robinson is “an essential part of our risk management department” who has helped minimize costs with fronting policies and the use of a captive.
The client cited a project that called for construction affecting public-works infrastructure.
“The governmental body was adamant about requiring a separate GL policy with dedicated limits and a very low deductible. The limits were high and the premium was also high.
“After weeks of discussions, the governmental body accepted a fronting policy, which was much cheaper and fell within our corporate philosophy of taking high retentions. David was instrumental in helping us persuade the governmental agency to accept the front and also working with our insurance company to provide the fronting policy,” the client said.
Despite the best efforts of Power Brokers and their clients, however, losses will occur.
One risk manager credited the smooth resolution of a significant claim to his broker.
“It was a large loss, and came just before our renewal,” said the risk manager. “David set up the whole recovery process, from cost center to work orders to handling key adjusters. And then he had to turn around and face a very tough renewal.”
The client was particularly impressed with “how David was able to go from the very granular claims process to the theoretical consulting work needed to help me do the market recon I needed to do.”
Crafting Custom Solutions
Creativity is a hallmark of Power Brokers, and Aon’s Stephen Stoicovy is a prime example. That came into play recently when navigating the endorsement language on one client’s commercial general liability policy.
“As a global company, these endorsements are not only used in the U.S. but worldwide,” the client said. “Stephen was able to broaden the additional insured endorsement on our commercial general liability policy.
“[That means] our carrier can now insure an entity who has an agency agreement with it under our liability program. In the past, those entities had to procure separate insurance even though our carrier indemnified the entity,” the client said.
One recent trend for energy companies is the growth of master limited partnerships (MLPs). The model works, but is a challenge for brokers in that ownership of assets, and their associated exposures, is often in flux among affiliated MLPs and the parent company.
“We had an original C-corp, and created multiple MLPs with different formats. It was a very significant reorganization,” said one client, explaining the changes Stoicovy helped to orchestrate.
“We wanted to approach the market as one organization, but each operating entity now had its own, very different risk profile. We wanted to gain as much economy of scale as we could, but still keep discrete risks separate,” the client said. “Also, the disposition of assets among the affiliated operating companies was frequently in flux.”
Integrated into Daily Processes
This past year was a tumultuous one in the energy sector. Outright takeovers gave way to frequent asset-based transactions. That put pressure on brokers to keep pace.
“From day one, René made it a point to understand all o2015f our operations and intimate business trading partners to ensure he was able to negotiate the best terms and conditions for us,” said one insurance manager of Aon’s René van Winden.
“He literally left no option off of the table when we challenged him for unique underwriting and coverage placements during recent acquisitions and divestitures for some of our sensitive risks. René has earned the complete support of our executive management who are very well versed in many different insurance levels,” the insurance manager said.
“That is important because we have a lean staff internally. René is able to anticipate our questions prior to being asked. He is integrated into our operations on our day-to-day processes and procedures.”
Other clients are a challenge because of their size. The oil and gas industry requires huge investments, and the capital spend for any major player pressures limits and placements. One client asked Van Winden to cut insurance costs by 30 percent, though the program was already competitive. Van Winden went to Bermuda and London for capacity but ultimately had to restructure retentions. He placed more burden on business interruption than on property damage. That change in structure ultimately yielded a cost reduction of 45 percent.
Broker’s Efforts Help Drive Expansion
At the same time a client was doubling the size of its holdings in the U.S. and in the Middle East, Aon’s Clayton Corbett pulled off quite a coup.
“[He] was able to negotiate enhanced coverage for our expanded global business,” said the client, “largely with our existing insurance providers, and increased some of our policy limits to reflect the market demand, yet broadly maintained the overall dollar premium cost we paid last year.”
The client completed its annual renewal late in 2014, a year that included acquisitions in Europe and Southeast Asia.
“Clayton has gone the extra mile,” the insurance manager said, “achieving fantastic results in securing enhanced cover for our company during our renewal this year at substantially improved rates, while retaining continuity across our providers.
“Clayton is always very responsive to our requirements, knowledgeable about the market in which we operate and a great source of advice on what level of cover is appropriate for our business as it develops.
During our recent renewal program he was very supportive in guiding the team regarding the information requirements and managed the process effectively.” He said that Corbett was also able obtain some specific coverages required by the bank, at no additional cost to the company.
Said another client, “Clayton does not avoid discussing difficult topics with me or our executive management which is greatly appreciated as he is also able to anticipate our questions prior to being asked. He is integrated into our day-to-day processes and procedures.”
Guidance That’s Worth a Million
More than a few Power Brokers have helped new risk manager clients through their first renewals or claims. George Dougherty won his laurels for 2014 in part by supporting a risk manager who was not just new in his job, but the first ever to hold the office for his company.
“We never had a risk manager, and we never really had a good marketing plan,” said the client.
“I came into the newly created position and was asked to reduce costs. This was at a time of rising costs.”
That has been because energy-industry service providers and subcontractors have been under their own coverage exclusions, thus pushing exposures back to their customers.
“George took us to market, an area in which we had never done a good job. Once the full effects of his work were seen, he saved us about a million dollars. We had to take some higher deductibles, but he was able to explain that to senior management as a prudent approach.” The company was able to spend some of the savings on safety improvements, which are expected to pay further dividends at next renewal.
Risk transfer between companies also figured into Dougherty’s work for another client. The client carried exclusions for environmental liabilities, but because of the nature of its business, could be exposed to environmental claims or even litigation.
Dougherty coordinated an effort among carriers that was part integration and part gap analysis that aligns all the policies, clarifies abutting coverage and specifies exclusions.
Helping Small Players Gain Leverage
“We are an oil and gas company at a volatile time in the commodity cycle,” one client said.
“Adam has shown superior skill at handling a smaller size company that acts often like a larger company. I wouldn’t call us flippers of oil and gas properties, but we are certainly active and this year was an unusually active year on both the buy and sell fronts.”
It’s no small challenge buying assets with known environmental issues. Hall helped develop a program that covered the assets for claims on a go-forward basis and included assets with pre-existing conditions, the client said.
The risk manager noted, “with our carrier changing the way they are handling pollution — which is the major issue in our sector — [Hall] not only navigated us through the pros and cons of switching pollution carriers and style of coverage, but he also made it personal to a company our size that is family backed.”
The risk manager added, “He did this with the knowledge that we had done a full marketing of our liability coverages just two years ago and some carriers would be reluctant to quote us again.
“My favorite thing about Adam,” he said, “is the way that he uses his network, freely, to help his clients get together to mutually beneficial outcomes. In a year where we sold two of our larger properties and turned around and bought a few different properties, Adam has made sure we have had zero bumps.”
Unifying Approach the Key to Success
In many ways, the oilfield is the ultimate nightmare for risk management: heavy equipment operating 24/7 at height and high speeds, often with dangerous substances and usually far from emergency services.
Risk management is a challenge to say the least, and the next stage — disaster recovery — even more so.
One client charged Hollmann with integrating its disaster recovery program from disparate parts to an integrated whole.
“We called it the continuity project, because it covered our company itself as well as our field operations,” said the risk manager, “from a storm damaging our headquarters to an incident in the field affecting our equipment or crews. We had separate programs, but really needed to put all the plans and resources and coverage together. We were with another broker, but heard that Lee was an expert in this area. He really delivered for us.”
Hollmann was able to accomplish that despite rapid growth by firm that meant a large number of new and variable unknowns in the equation. There had also been losses, some with open claims. Markets were reticent, to say the least, but responded favorably to the holistic approach Hollmann took.
The client said that his previous efforts to address coverage, claim and cost issues individually had involved great exertion, but little progress. With relish, he added that once Hollmann’s strategic integration was underway, individual details fell into place. For example, $1 million of inaccurate reserve limits were discovered and corrected.
The Expertise Big Players Rely On
One of the defining characteristics of the upstream oil and gas sector is the size of the capital requirements for development.
New drilling and production techniques consume huge amounts of initial capital. One recent project had a total value of a billion dollars, and included a new physical plant, to be staffed by hundreds of new hires.
It could have been a bumpy road — the client, a start-up firm, was new to Hudler and to Alliant. But it only took a dozen meetings for Hudler to put all the ducks in a row and secure the placement.
Other clients are equally well versed in the way Hudler handles tough challenges. “We use Brian for all of our commercial insurance and well control policies,” said one risk manager.
“Brian helped us on four acquisitions of producing properties … as well as the disposition of two different producing properties. All of those individual transactions in the same year required revisions and updates to our insurance policies. With this level of activity for an exploration and production operator with a very lean staff, we relied heavily on Brian and Alliant for their expertise on insurance.”
Many brokers earn praise for winning new business, but for Power Brokers, the courtship never ends.
“We changed over to him a few years ago after not receiving the best service from our prior provider,” said one client. “I can’t say enough good things about him. We feel like he and his firm have done a great job of marketing our insurance program when necessary.”
A Reputation That Commands Respect
Brokers serving the technology category talk about how their sector is highly complex and fast moving.
But theirs isn’t the only one. Oil and gas production might seem prosaic, but the latest drilling and production techniques are nothing short of rocket science, two miles down in solid rock.
Above ground, the price of oil changes by the second, while the financial structure of operating companies and their investors evolve constantly.
“I am a former broker myself, and I keep my fingers on the industry,” said one of David Owen’s clients.
“Word was out that he was good, so we gave him a shot and were very pleased with the results. David thought he would be able to get carriers to compete head to head, and they did.
“David increased our coverage and reduced our premium by a significant amount by taking our program from a strictly domestic placement out to offshore markets,” the client said.
It’s no surprise that Owen’s reputation preceded him. Consider what he managed for another client, a privately held operator, backed by large institutional investors.
The client acquired actively producing assets from a large multinational, publicly traded, major energy company. Regulatory jurisdictions for both operational, insurance and financial rules ran the gamut. Owen arranged for multiple risk-transfer mechanisms, including contractual analysis, layered programs through Lloyd’s, and bespoke surety solutions.
A Modern Claims Philosophy: Proactive and Integrated
According to some experts, “The best claim is the one that never happens.”
But is that even remotely realistic?
Experienced risk professionals know that in the real world, claims and losses are inevitable. After all, it’s called Risk Management, not Risk Avoidance.
And while no one likes losses, there are rich lessons to be gleaned from the claims management process. Through careful tracking and analysis of losses, risk professionals spot gaps in their risk control programs and identify new or emerging risks.
Aspen Insurance embraces this philosophy by viewing the data and expertise of their claims operation as a valuable asset. Unlike more traditional carriers, Aspen Insurance integrates their claims professionals into all of their client work – from the initial risk assessment and underwriting process through ongoing risk management consulting and loss control.
This proactive and integrated approach results in meaningful reductions to the frequency and severity of client losses. But when the inevitable does happen, Aspen Insurance claims professionals utilize their established understanding of client risks and operations to produce some truly amazing solutions.
“I worked at several of the most well known and respected insurance companies in my many years as a claims executive. But few of them utilize an approach that is as innovative as Aspen Insurance,” said Stephen Perrella, senior vice president, casualty claims, at Aspen Insurance.
“We do a lot of trending and data analysis to provide as much information as possible to our clients. Our analytics can help clients improve upon their own risk management procedures.”
— Stephen Perrella, Senior Vice President, Casualty Claims, Aspen Insurance
Utilizing claims expertise to improve underwriting
Acting as adviser and advocate, Aspen integrates the entire process under a coverage coordinator who ensures that the underwriters, claims and insureds agree on consistent, clear definitions and protocols. With claims professionals involved in the initial account review and the development of form language, Aspen’s underwriters have a full sense of risks so they can provide more specific and meaningful coverage, and identify risks and exclusions that the underwriter might not consider during a routine underwriting process.
“Most insurers don’t ever want to talk about claims and underwriting in the same sentence,” said Perrella. “That archaic view can potentially hurt the insurance company as well as their business partners.”
Aspen Insurance considered a company working on a large bridge refurbishment project on the West Coast as a potential insured, posing the array of generally anticipated construction-related risks. During underwriting, its claims managers discovered there was a large oil storage facility underneath the bridge. If a worker didn’t properly tether his or her tools, or a piece of steel fell onto a tank and fractured it, the consequences would be severe. Shutting down a widely used waterway channel for an oil cleanup would be devastating. The business interruption claims alone would be astronomical.
“We narrowed the opportunity for possible claims that the underwriter was unaware existed at the outset,” said Perrella.
Risk management improved
Claims professionals help Aspen Insurance’s clients with their risk management programs. When data analysis reveals high numbers of claims in a particular area, Aspen readily shares that information with the client. The Aspen team then works with the client to determine if there are better ways to handle certain processes.
“We do a lot of trending and data analysis to provide as much information as possible to our clients,” said Perrella. “Our analytics can help clients improve upon their own risk management procedures.”
For a large restaurant-and-entertainment group with locations in New York and Las Vegas, Aspen’s consultative approach has been critical. After meeting with risk managers and using analytics to study trends in the client’s portfolio, Aspen learned that the sheer size and volume of customers at each location led to disparate profiles of patron injuries.
Specifically, the organization had a high number of glass-related incidents across its multiple venues. So Aspen’s claims and underwriting professionals helped the organization implement new reporting protocols and risk-prevention strategies that led to a significant drop in glass-related claims over the following two years. Where one location would experience a disproportionate level of security assault or slip & fall claims, the possible genesis for those claims was discussed with the insured and corrective steps explored in response. Aspen’s proactive management of the account and working relationship with its principals led the organization to make changes that not only lowered the company’s exposures, but also kept patrons safer.
World-class claims management
Despite expert planning and careful prevention, losses and claims are inevitable. With Aspen’s claims department involved from the earliest stages of risk assessment, the department has developed world-class claims-processing capability.
“When a claim does arrive, everyone knows exactly how to operate,” said Perrella. “By understanding the perspectives of both the underwriters and the actuaries, our claims folks have grown to be better business people.
“We have dramatically reduced the potential for any problematic communication breakdown between our claims team, broker and the client,” said Perrella.
A fire ripped through an office building rendering it unusable by its seven tenants. An investigation revealed that an employee of the client intentionally set the fire. The client had not purchased business interruption insurance, and instead only had coverage for the physical damage to the building.
The Aspen claims team researched a way to assist the client in filing a third-party claim through secondary insurance that covered the business interruption portion of the loss. The attention, knowledge and creativity of the claims team saved the client from possible insurmountable losses.
Modernize your carrier relationship
Aspen Insurance’s claims philosophy is a great example of how this carrier’s innovative perspective is redefining the underwriter-client relationship. Learn more about how Aspen Insurance can benefit your risk management program at http://www.aspen.co/insurance/.
Stephen Perrella, Senior Vice President, Casualty, can be reached at Stephen.firstname.lastname@example.org.
This article is provided for news and information purposes only and does not necessarily represent Aspen’s views and does constitute legal advice. This article reflects the opinion of the author at the time it was written taking into account market, regulatory and other conditions at the time of writing which may change over time. Aspen does not undertake a duty to update the article.
This article was produced by the R&I Brand Studio, a unit of the advertising department of Risk & Insurance, in collaboration with Aspen Insurance. The editorial staff of Risk & Insurance had no role in its preparation.