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2014 Risk All Star: David Hershey

Standing up for Insureds

In 2009, commercial property insurers collectively decided that they were no longer obligated to notify certificate holders or other designated insured third parties that policies naming them as insureds had been cancelled or not renewed.

That did not sit well with David Hershey, risk manager at Sprague Operating Resources in Portsmouth, N.H., who needed to know the insurance status of hundreds of vendors, partners and suppliers coming onto the premises of the company’s busy oil and gas terminals and other facilities that are open around the clock.

David Hershey, risk manager, Sprague Operating Resources

David Hershey, risk manager, Sprague Operating Resources

First, Hershey and his team reminded Sprague’s vendors, suppliers and customers of their contractual obligations to have their insurer notify Sprague of any cancellation of a policy on which it was a named insured or certificate holder, or else they wouldn’t be allowed to enter Sprague’s facilities.

But simply putting the onus on those business partners and customers was not enough. Hershey created another full-time position, a risk management compliance coordinator, to help vendors and suppliers obtain policy endorsements from their carriers, restoring the insurers’ obligation to provide notice of cancellation within 30 days.

Doing so also required extensive work with insurance agents, brokers and underwriters.

Since then, Sprague has received roughly 80 sample endorsements from various insurance companies reinstating the insurer’s notice obligation.


“This allows us to either maintain or raise our self-insured retentions in the absence of knowing whether or not individual firms that come on our property have current compliant insurance,” Hershey said.

“We would have to have lower deductibles or self-insure retentions in order to compensate for that deficiency.”

Hershey said that many insurance agents try to negotiate the notice of cancellation provision out of contracts, but “that’s easier said than done.” He reviews roughly 35 contacts a week, and the vast majority contain such notices.

“Commerce is not in business to justify the insurance industry, insurers, agents and brokers,” Hershey said.

“They are there to facilitate commerce, not to manage it to suit their own perceived business risks.”

Hershey’s “insistence” on the notice of cancellation certainly brought more focus and attention to this issue, and now brokers and carriers know that they must insure their clients’ policies are properly endorsed “to meet a very necessary and important requirement of our contracts,” said Jaime Michaud, who was hired as Sprague’s risk management compliance coordinator.

Moreover, Hershey has been helpful in pointing out common exclusions to some insurers’ existing notice of cancellation endorsements, such as notice of cancellation for non-payment, she said.


“Making sure that the notice of cancellation requirement is enforced has afforded a higher percentage of security for our company should a loss occur,” Michaud said.

Ronnie Mordan, director of marketing at Anderson Kill P.C. in New York City, said that Hershey “employs a practical approach to problem-solving.”

“His experience in risk and insurance is particularly evident in his ‘plain English’ approach to presenting on the sometimes complex topics of environmental insurance, policy language, and risk management,” Mordan said.

Responsibility Leader

David is also being recognized as a 2014 Responsibility Leader.

Making a Difference

David Hershey is a prolific speaker and writer on risk management topics. The list of industry awards he has won and industry leadership positions he occupies runs longer than most restaurant menus.

He has also volunteered his creativity and passion about risk management by serving on the External Affairs Committee and Standards & Practices Committee of the national RIMS organization.He serves as a board member, president, vice president, and committee member — both now and in the past — for the New Hampshire chapter of the CPCU, the Massachusetts and Delaware Valley chapters of RIMS, the Philadelphia Area Risk Managers Association, the Governor’s Council on Insurance Fraud, and the Association of Certified Fraud Examiners.

Sharing his knowledge with others, Hershey taught classes for the Insurance Society of Philadelphia and the Independent Insurance Agents & Brokers of New Hampshire.

In challenging insurance carriers to restore their obligation to inform named insureds when a policy is cancelled — and establishing a process to make sure his company was protected — Hershey made a difference to countless others in the risk management community, not just himself or his company.

“Notification is one of the core concepts of risk management,” he rightly noted.


350px_allstarRisk All Stars stand out from their peers by overcoming challenges through exceptional problem solving, creativity, perseverance and/or passion.

See the complete list of 2014 Risk All Stars.

Responsibility Leaders overcome obstacles by doing the right thing over the easy thing to find  practical solutions that benefit their co-workers and community.

Read more about the 2014 Responsibility Leaders.

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LNG Growth

Frozen Gas, Hot Market

Liquid natural gas exports represent a huge market for insurers.
By: | September 15, 2014 • 7 min read

In September 2008 the insurance industry couldn’t stop talking about the federal bailout of AIG. At the same time, another major event — Hurricane Ike — was unfolding in the Houston region.

The storm blew through an area that extended from Texas and into the Louisiana Gulf Coast, including a small nook of lowland that was home to an under-construction liquid natural gas (LNG) terminal. Ike’s storm surge overwhelmed the facility’s defenses.


When Risk & Insurance® arrived to report on the story a week later, the water had receded. Those in control were scrambling to find workers in the (previously evacuated and flooded) region, and those workers they did contact were busy cleaning debris and stinking mud, and chasing away snakes and alligators.

The job for the insurance adjuster and the facility’s risk professionals and engineers was how to get the site construction back underway. Construction interruption can be as onerous a loss as business interruption, particularly for multibillion-dollar industrial facilities.

Why, then, would any company build such a plant in America’s hurricane alley?


Tony Carroll

Fast-forward six years, and multiple billion-dollar LNG terminals are in the works, along the Gulf Coast and around the country. But whereas LNG plants historically have been built to import natural gas, today’s terminals are being designed to export the fossil fuel. Thirty-one LNG terminal projects, to be exact, have applied to the U.S. Department of Energy to export.

They are part of America’s energy revolution — albeit a niche part. The boom in domestic gas production begins upstream from the coast terminals and storage facilities, from the midstream transportation and processing facilities, to the wells where the raw materials are extracted, often through hydraulic fracturing (aka fracking) wells.

“The opportunities are endless and phenomenal from what I see for the next 25 years,” — Tony Carroll, executive vice president for marine, energy and construction, Aspen Insurance

The United States is exploding with domestic energy, not literally but figuratively, especially with natural gas. So much so that, with natural gas prices driven so low in the States, energy firms are looking to ship gas abroad — particularly to Asia.

The LNG facilities themselves are awe-inspiring to the layperson, with their gigantic storage tanks and their massive exposures. In early July, the state of Alaska and four energy firms entered into a joint-venture agreement for a $45 billion to $65 billion project on the North Slope. The project involves an 800-mile pipeline and an LNG export plant, due to “feed Asia’s rising demand for LNG” by the mid-2020s, according to a Reuters article.


Sabine Pass LNG Terminal, a former import-only terminal owned by Cheniere Energy Partners near the Texas-Louisiana border, is under construction to add a processing plant on-site, valued initially at $6 billion. The plant is credited with kicking off the LNG export craze and is the first plant of its kind to gain licensing approval for both export and import (with first exports expected to occur in 2015).

LNG is a proven technology with plenty of history — the first LNG plant was built in 1912, the first marine terminal in 1971.

How will this play out? According to the “Annual Energy Outlook 2014” from the U.S. Energy Information Administration, net exports of LNG will increase by 3.5 trillion cubic feet from 2012 to 2040, which will account for 48 percent of the total increase in U.S. natural gas net exports in the timeframe.

Beside energy companies and their investors, other stakeholders set to benefit from the domestic natural gas bonanza are energy underwriters.

On the phone, Aspen Insurance executive Tony Carroll’s optimism at the possible size of the market was palpable. The range of premiums to be collected is vast — from the marine risk involved in delivering equipment and supplies to construct and operate facilities; to upstream wells; to the construction risk on the dozens of processing plants being built midstream; to the petrochemical facilities turning the gas into plastics; to the buildup of LNG export terminals on the coast — involving all lines, from property to casualty, from environmental to business interruption and everything in between.

“The opportunities are endless and phenomenal from what I see for the next 25 years,” said Carroll, Aspen’s executive vice president for marine, energy and construction.

Capacity is ready, plenty of it, Carroll reported. Exposures are massive enough to offset the price drops you’d expect when supply increases.

Yes, said brokers we spoke with, energy underwriters are getting the word out that they can and will write any and all lines of business for the energy boom.

Berkshire Hathaway Specialty Insurance is one market seeking opportunities in the property construction line.

“We are targeting. We do like it. We are excited about that market growing,” said Rob Tricamo, vice president, construction for BHSI.

Energi is another new player — a Peabody, Mass.-based provider of specialized insurance and risk management solutions for the energy business — willing to write up to $200 million in limits — though not yet LNG.

“We’re writing just about everything but,” says Jim Bowles, chief underwriting officer.

That could soon change. One Energi insured, added Justin Russo, senior vice president and head of claims and loss prevention, is in the process of developing a multi-fuel facility, with LNG as the final phase.

Risk Onshore, Risk Offshore

Of course, when energy companies submit a risk, underwriters may not be unconditionally eager to write each one. Upstream, where raw materials are extracted, underwriters appear to be facing a groundswell from landowners claiming some sort of damage (from water pollution, ground movement, earthquake).

A heat exchanger and transfer pipes at Dominion Energy’s Cove Point LNG Terminal in Lusby, Md. Federal regulators concluded that Dominion Energy’s proposal to export liquefied natural gas from its Cove Point terminal on the Chesapeake Bay in Maryland would pose “no significant impact” on the environment.

A heat exchanger and transfer pipes at Dominion Energy’s Cove Point LNG Terminal in Lusby, Md. Federal regulators concluded that Dominion Energy’s proposal to export liquefied natural gas from its Cove Point terminal on the Chesapeake Bay in Maryland would pose “no significant impact” on the environment.

“To date, very few cases have settled with these types of allegations, but the volume of claims is unprecedented and there are few laws in place to mitigate this trend,” said M. Adam Hall, senior vice president at Alliant Energy and Marine.

For LNG, Hall’s point of view is that the largest exposure is in the processing, given the complex industrial plants, the highly flammable liquid gas, and the high and low temperatures involved.

Such appears to be the case for LNG processing, or fractionation, facilities being built on-site at import/export terminals along coasts.

“For the export facilities being constructed at existing import locations, the fractionation facilities being constructed represent a higher degree of fire and explosion potential,” wrote Tim Kania in an email.

Kania is senior vice president of construction and energy for Liberty International Underwriters, which insures LNG facilities around the world.

Coast-bound LNG terminals also face natural catastrophes — perils with names like Ike and their fierce winds and high seas — and that surely represents an exposure.

Even the optimistic Carroll foresees the possibility of a bottleneck in “nat-cat” coverage in the Gulf. Everyone is buying separate limits for differing perils, so accumulation could become an issue.

David Mittelholzer, managing director with Aon Risk Solutions’ energy practice, does not see an accumulation problem yet for underwriters, with the exception of natural catastrophe capacity for windstorm and flood.

He is familiar with several of the LNG projects on the Gulf coast at varying stages of permitting, development and planning: Each with its own operators, financial arrangements, risk appetites and insurance requirements — often dictated by lenders.

As concentrations of energy-related projects and investments increase in the area with additional oil, gas and petrochemical projects being commissioned — each requiring fairly significant limits for flood and named windstorm — they may strain catastrophe capacity, he said. After all, as soft as the property market is, there is still a finite amount of catastrophe coverage.


For example, on the construction of a $2 billion plant, Mittelholzer usually sees “full-value coverage” — or $2 billion in insurance, fully syndicated across a coterie of carriers. For CAT coverage, on the other hand, only $200 million to $300 million in limits may be available at reasonable prices.

Streaming Risk Management

Yet, added Aspen’s Carroll, these LNG terminals are not being built willy-nilly.

“They are building these things with significant protection for potential windstorm and flood,” he said, including massive storm walls. Older import facilities — perhaps like the one hit by Ike — are being upgraded.

Out of the 33 LNG plants that Carroll counts out there, seven to eight have come through Aspen as submissions for underwriting.

“If you’re putting $18 billion into a facility, there are going to a be a lot of controls,” agreed Jason Pugi, vice president of general casualty at Allied World Assurance Co. — not the least of these being the regulatory oversight for such complex, industrial operations.

Risk professionals for these energy operators are also no strangers to contractual risk management. They mitigate risk by signing long-term (20- to 25-year) purchasing agreements with clients, for instance, Mittelholzer said.

“They’re required to effectively pay regardless of market conditions,” he said of buyers.

Up and down the natural gas stream, operators and service firms enter into master service and processing agreements, outlining operational risk, expectations and responsibilities, said Hall. Operators are hiring full-time counsel and contract advisers to tap their expertise on a regular basis.

Still, losses will happen — one issue brought up by several experts we interviewed. It’s simple math. The more natural gas operational activity, the more construction of processing, storage and import/export terminals, the greater the exposure.

Matthew Brodsky is editor of Wharton Magazine. He can be reached at
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Sponsored: Liberty International Underwriters

A New Dawn in Civil Construction Underwriting

Civil construction projects provide utility and also help define who we are. So when it comes to managing project risk, it's critical to get it right.
By: | September 15, 2014 • 5 min read

Pennsylvania school children know the tunnels on the Pennsylvania Turnpike by name — Blue Mountain, Kittatinny, Tuscarora, and Allegheny.

San Francisco owes much of its allure to the Golden Gate Bridge. The Delaware Memorial Bridge commemorates our fallen soldiers.

Our public sector infrastructure is much more than its function as a path for trucks and automobiles. It is part of our national and regional identity.

Yet it’s widely known that much of our infrastructure is inadequate. Given the number of structures designated as substandard, the task ahead is substantial.

The Civil Construction projects that can meet these challenges, however, carry a unique set of risks compared to other forms of construction.

SponsoredContent_LIU“The bottom line is that there is always risk in a Civil Construction project. If the parties involved don’t understand what risk they carry, then the chances are there are going to be some problems, and the insurers would ideally like to understand the potential for these problems in advance.”
– Paul Hampshire, Vice President – Civil Construction, LIU

The good news is that recent developments in construction standards and risk management techniques provide a solid foundation for the type and risk allocation of Civil Construction projects they are underwriting. Carriers need to be able to adequately assess the client and design and construction teams that are involved.

For Builder’s Risk Programs, a successful approach prioritizes a focus on four key factors. These factors are looked at not only during the underwriting phase of the project but also in the all-important site construction phase, under the umbrella of a Risk Management Program, or RMP.

Four key factors

Four key factors that LIU focuses on in underwriting and providing risk management services on a Civil Construction project include:

1. Resource knowledge and experience: When creating a coverage plan, carriers work to understand who is delivering the project and how well suited key staff members are to addressing the project’s technical and management challenges. Research has shown that the knowledge and experience of those key players, combined with their ability to communicate effectively, is a big factor in the project’s success.

“We look to understand who is delivering a project, their expertise and experience in delivering projects of similar technical complexity in similar working conditions, even down to looking at the resumés of people in key positions,” said Paul Hampshire, Houston-based Vice President with Liberty International Underwriters.

2. Ground conditions and water: Soil and rock composition, the influence of ground and surface water, and foundation stability are key additional considerations in the construction of bridges, tunnels, and transit systems. If a suitable level of relevant ground (geotechnical) investigation and study has not been undertaken, or the results of such work not clearly interpreted, then it’s a red flag to underwriters, who would then question whether the project risk profile has been adequately evaluated and risks clearly and transparently allocated via suitable contract conditions.

SponsoredContent_LIU“As we all know, ground is very rarely a homogenous element within Civil Construction projects,” LIU’s Hampshire said.

“It tends to vary from any proposed geotechnical baseline specification with the consequential potential for changes in behavior during construction. We need to understand who has assessed the condition of the ground, its behavior and design parameters when compared with a particular method of construction, and all importantly, who has been allocated the ground risk in a project and the upfront mechanisms for contractual ground risk sharing, if applicable,” he said.

Knowing how much water is associated with the in-situ ground conditions as well as the intensity, distribution and adequate accommodation (both in the temporary as well as in the permanent project configurations) of rainfall for a site location and topography are also key. Tunneling projects, for example, can be hampered by the presence of too much or unforeseen quantities of groundwater.

“In major tunneling infrastructure projects, the influence of in-situ groundwater pressures and /or water inflows is a major factor when considering the choice of excavation method and sequence as well as tunnel lining design requirements,” LIU’s Hampshire said.

According to a recent article in Risk & Insurance, tunneling under a body of water is one of the most challenging risk engineering feats. Adequate drainage layouts and their installation sequence for highway projects and, in particular, the protection of sub-grade works are also important. “But under all circumstances, we need to understand how the water conditions have been evaluated,” Hampshire said.

3. Technical Challenges: This risk factor encompasses the assessment of the technical novelty or prototypical nature of the project (or more often, specific elements of it) and how well the previously demonstrated experience of both the design and construction teams aligns with the project’s technical requirements and the form of contract determined for the project. The client can choose the team, but savvy underwriters will conduct their own assessment to see how well-suited the team is to technical demands of the project.

4. Evaluation of Time and Cost: With limited information generally provided, we need to be able to verify as best as possible the adequacy of both the time and cost elements of the project. Our belief is simply that projects that are insufficient in either one or both of these elements potentially pose an increased risk, as the construction consortium tries to compensate for these deficiencies during construction.

Small diameter Tunnel Boring Machine designed for mixed ground conditions and water pressures in excess of 2.5 bar.

New standards

In the 1990s and early years of this millennium, a series of high-profile tunnel failures across the globe resulted in major losses for Civil Construction underwriters and their insureds.

In the early 2000s, both the tunnel and insurance industries worked together to create new standards for high-risk tunneling projects.

A Code of Practice for the Risk Management of Tunnel Works (TCoP) is increasingly relied on by project managers and underwriters to define the best practices in tunnel construction projects. This process ideally starts at project inception (conceptual design stage or equivalent) and continues to the hand-over of the completed project.

LIU’s Hampshire said alongside TCoP, the project-specific Geotechnical Baseline Report and its interpretation and reference within the project contract conditions gives the underwriter greater clarity as to who recognizes and carries the ground risk and how it’s allocated.

“The bottom line is that there is always risk in a Civil Construction project,” Hampshire said. “Is the risk transparently allocated or is it buried? If the parties involved don’t understand what risk they carry, then the chances are there are going to be some problems, and the insurers would ideally like to understand the potential for these problems in advance,” Hampshire said.

Paul Hampshire can be reached at

To learn more about how Liberty International Underwriters can help you conduct a Civil Construction risk assessment before your next project, contact your broker.

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.

LIU is part of the Global Specialty Division of Liberty Mutual Insurance.
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