Risk Insider: Ernie Feirer

Rocks, Hard Places Meet Automated Loss Runs

By: | August 22, 2016 • 2 min read
Ernie Feirer, CPCU, is Vice President and General Manager, Commercial Insurance, at LexisNexis Risk Solutions, where he is responsible for developing a suite of solutions for the commercial insurance market. He can be reached at [email protected]

In the world of commercial insurance, I often use the phrase ‘Rock, meet hard place.’ This happens most often when describing how time-and labor-intensive manual processes, such as gathering loss runs, place commercial property and casualty carriers in the position of delaying time to quote or moving ahead with incomplete information.

Think about it this way. As a short-order cook, two orders for scrambled eggs come in. The first requires you to go to a farm, chase after chickens and collect three eggs. The second order directs you to the refrigerator. Which order will you fill first?

On average, manual loss runs add 5 to 10 days to a carrier’s time to quote. It’s not uncommon for underwriters to proceed without loss runs for small business policies, when the premiums don’t justify the time and cost involved.

Despite this, loss runs offer a fuller understanding of the risks, so you can either rate these policies differently, require coverage changes, or reject them all together. The results can equate to millions in potential or actual losses from just a small portion of business.

Would you rather evaluate John Contractor who installs residential flooring, or would you rather be the carrier who knows that John Contractor has a worker’s compensation claim and has been installing exterior siding, not just floors? You’d rather have all the information you can.

How do you get out from between the rock and the hard place? Avoid as much manual work as you can and get trusted information quickly with automated loss runs.


Here’s what I’ve found in studying automated loss runs:

Enhance ease of doing business – automated loss runs mean real-time access to loss history that can be accessed from an agent’s desk. No more request-for-loss-run letters, no more follow-up phone calls or scans. In addition to traditional searching by business name and address, automated loss run technology can search by an individual’s name to uncover business owners, claimants and drivers within a commercial fleet. Or, they might conduct a location search for historic claims history specific to the property location on policies requiring property coverage.

Would you rather evaluate John Contractor who installs residential flooring, or would you rather be the carrier who knows that John Contractor has a worker’s compensation claim and has been installing exterior siding, not just floors? You’d rather have all the information you can.

Think about this scenario – a management company seeks a commercial package policy for a strip mall with several retail occupants. The insurer conducts a location-based search to obtain loss histories. While no losses are found on the company, it shows that several of its tenants have reported fire losses due to maintenance issues.

Improve customer service – with automated loss runs, carriers get a complete understanding of their risk exposure and can quote an accurate price from the start. Like above, knowing there have been fire events are hugely beneficial for underwriting. From an agent’s perspective, it provides reassurance that their ability to deliver exceptional and consistent customer service won’t be compromised at point of renewal.

Attract appropriate business – agents prefer easy-to-work-with carriers. Using automated loss runs, carriers can realize efficiencies and attract more business from agents. The complete risk profile afforded by an automated loss run ensures that underwriters fully understand their risk exposure.

One last example, we found in a real world book of business review more than 700 in prior claims totaling $13M in prior losses that were not disclosed to the carrier. Using automated loss runs, the carrier discovered that 38% of those claims were attributable to only 5 policies (equating to less than 1% of the claims).

Which hurt worse in this scenario – the rock or the hard place?

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Risk Insider: Phil Norton

The New World of Global D&O Insurance

By: | August 16, 2016 • 3 min read
Phil Norton is President, Professional Liability for the retail brokerage division of Arthur J. Gallagher & Co., and is regarded as one of the world’s leading authorities in his field. He has been named a Risk and Insurance® Power Broker® seven times. He can be reached at [email protected]

Note: This is the first of a two-part Risk Insider look at D&O.

It’s less than 20 years since the concept of worldwide Directors & Officers Liability (D&O) insurance was introduced. Since that time, the world of international D&O changed dramatically.


In particular, there is much greater awareness that multinational firms may need to secure local D&O policies within their respective countries of operation. The global market for D&O coverage also evolved.

Multinational corporations face some significant emerging exposures that may not be adequately addressed by the traditional global [non-admitted] programs that have historically dominated the market. Several factors have contributed to this shift, including:

  • Increased D&O claim frequency and severity outside the United States.
  • Greater regulatory enforcement, especially with respect to tax collection.
  • A growing number of officers residing in or traveling through foreign operations.
  • Taxes on “non-admitted” claims payments.
  • Increased local capacity and local market availability in general.
  • Indemnification constraints in many countries that can be very significant.
  • The potential for undesirable publicity or harm to the corporate “brand.”

These recent market influences created a demand for foreign local [admitted] D&O policies in many countries.

Approximately a decade ago, carriers began to develop and promote their ability to offer and service foreign local D&O policies.

Multinational corporations face some significant emerging exposures that may not be adequately addressed by the traditional global [non-admitted] programs that have historically dominated the market.

Before these  programs emerged, the Difference in Conditions (DIC) program approach allowed local operating entities to insure their own operations on an admitted basis in each country of operation.

This led to some companies’ foreign operations determining their own level of exposure and then negotiating and binding coverage with a local carrier — sometimes a different carrier than the one writing the parent company’s “worldwide” policy. That resulted in a few problems but did offer an improvement.

Multinationals headquartered in the U.S. could then use their U.S. D&O program as a DIC policy to address various gaps, just as the local policies would customize themselves to local laws and regulations.

The new and improved DIC program follows the methodology of coordinating all D&O placements throughout the world. Sounds great, but it’s still quite complicated.

For example, a U.S. multinational with significant operations in 30 countries might have sufficient D&O exposure to decide to obtain local policies in each country.

Here is how that strategy might be executed, assuming the multinational’s primary D&O carrier has underwriting capabilities and local policies in all 30 countries:

  • 20 countries have an agreement with the U.S. carrier for centralized billing and policy issuance.
  • Two of those 20 countries ask for something like a “Know your Customer” [anti-money laundering] form to be completed and may also want a locally signed D&O application.
  • Eight countries require local payment and perhaps local policy issuance. One should use local brokers for this.
  • The remaining two countries require local applications completed for local underwriting.

A few countries will require payment upfront before binding or perhaps a local signature on the policy at the time of issuance.


Though challenging, there are many significant benefits to structuring this type of program:

  • Coverage is placed and premium taxes paid in compliance with local laws.
  • Coverage is customized to the unique exposures, yet can be broadened by the coverage written on the “worldwide” D&O policy [usually in the United States].
  • Economic leverage based on the size of the headquarters program may lead to lower deductibles in the foreign subsidiary locations.
  • Local claims-paying abilities will generate both better advice and greater protection for Side-A D&O liabilities in countries where indemnification is difficult to obtain.
  • Corporate gains quality control over the entire program as they direct all purchases.

Now that the need for a customized global D&O program is obvious, the risk can be assessed and prioritized in each country and purchased accordingly.

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Sponsored: Liberty International Underwriters

Cyber: The Overlooked Environmental Threat

Environmental businesses often don't see themselves as a target, but their operations are just as vulnerable to the threat of an industrial cyber attack.
By: | August 3, 2016 • 6 min read

“Cyber breach” conjures fears of lost or ransomed data, denial of service, leaked corporate secrets and phishing scams.

But in a world where so many physical operations are automated and controlled by digital technologies, the consequences of cyber attacks extend far beyond the digital realm to include property damage, bodily injury, and even environmental pollution.

Industrial companies that deal with hazardous materials — like power plants, refineries, factories, water treatment facilities or pipelines — are heavily dependent on automated technology to maximize their efficiency. Other sectors use technology to control HVAC systems, power and utilities, placing their properties at risk as well.

Cyber risks like theft of personally identifiable data have been highly publicized in recent years, but physical risks like pollution sparked by a cyber breach may not be as obvious.

“It’s significant to lose 100,000 customers’ Social Security numbers,” said William Bell, Senior Vice President, Environmental, Liberty International Underwriters, “but can you imagine if a waste treatment facility’s operations get hacked, gates open, and thousands of tons of raw sewage go flowing down a local river?”

In many industrial complexes, a network of sensors gathers and monitors data around machinery efficiency and the flow of the materials being processed. They send that information to computer terminals that interpret the data into commands for the hardware elements like motors, pumps and valves.

This automation technology can control, for example, the flow of pipelines, the level of water or waste held in a reservoir, or the gates that hold in and control the release of vast quantities of sewage and other process materials. Hackers who want to cause catastrophe could hijack that system and unleash damaging pollutants.

And it’s already happened.

In 2000, a hacker caused 800,000 liters of untreated sewage to flood the waterways of Maroochy Shire, Australia. In 2009, an IT contractor, disgruntled because he was not hired full-time, disabled leak detection alarm systems on three off-shore oil rigs near Long Beach, Calif.

Just last year, cyber attackers infiltrated the network of a German steel mill through a phishing scam, eventually hacking into the production control system and manipulating a blast furnace so it could not be shut down. The incident led to significant property damage.

According to a leading industrial security expert and executive director of the International Society of Automation, “Today’s operational technologies—such as sensors, SCADA systems, software and other controls that drive modern industrial processes—are vulnerable to cyber attack. The risk of serious damage or compromise to power and chemical plants, oil and gas facilities, chemical and water installations and other vital critical infrastructure assets is real.”

“The hacks could come from anywhere: a teenager looking for entertainment, a disgruntled worker, or more sophisticated criminals or terrorists,” Bell said. “There are certainly groups out there with political and ideological motivations to wreak that kind of havoc.”

LIU_SponsoredContent“We are working to bring the cyber component of environmental risk to the forefront. Cyber security is not just an IT issue. Industry executives need to be aware of the real-world risks and danger associated with an industrial cyber attack as well as the critical differences between cyber security and operational technology security.”

— William Bell, Senior Vice President, Environmental, Liberty International Underwriters

The cleanup cost of an environmental disaster can climb into the hundreds of millions, and even if a cyber breach triggered the event, a cyber policy alone will not cover the physical and environmental damage it caused.

The risk is even more pointed now, as resource conservation becomes increasingly important. Weather related catastrophe modeling is changing as both flooding and drought become more severe and frequent in different regions of the U.S. Pollution of major waterways and watersheds could have severe consequences if it affects drinking water sources, agriculture and other industrial applications that depend on this resource.

Managing the Risk

LIU_SponsoredContentUnfortunately, major industrial corporations sometimes address their environmental exposure with some hubris. They trust in their engineers to remove the risk by designing airtight systems, to make a disaster next to impossible. The prospect of buying environmental insurance, then, would be superfluous, an expression of doubt in their science-backed systems.

Despite the strongest risk management efforts, though, no disaster is 100 percent avoidable.

“We are working to bring the cyber component of environmental risk to the forefront,” Bell said. “Cyber security is not just an IT issue. Industry executives need to be aware of the real-world risks and danger associated with an industrial cyber attack as well as the critical differences between cyber security and operational technology security.”

The focus on network security and data protection has distracted industry leaders from strengthening operational technology security. Energy, manufacturing and other industrial sectors lack best practice standards when it comes to securing their automated processes.

After the Homeland Security Act of 2002, the Department of Homeland Security began comprehensive assessments of critical infrastructure’s cyber vulnerability, working with owners and operators to develop solutions. It also offers informational guides for private companies to do the same. The National Institute of Standards and Technology also continues work on its cyber security framework for critical infrastructure. Although this helps to establish some best practices, it does not completely mitigate the risk.

Many businesses don’t see themselves as a target, but they need to look beyond their own operations and property lines. They could be an attractive target due to their proximity to densely populated areas or resources such as waterways and highways, or nationally or historically significant areas. The goal of a cyber terrorist is not always to harm the target itself, but the collateral damage.

The Role of Insurance

LIU_SponsoredContent“Environmental liability is still by and large viewed as a discretionary purchase,” Bell said, “but the threat of a cyber attack that can manipulate those systems and ultimately lead to a pollution incident is added incentive to buy environmental coverage.”

Liberty International Underwriters’ environmental coverage could respond to many pollution conditions set off by a cyber breach event.

“Property damage, bodily injury and cleanup of any pollution at or emanating from a covered property would likely be taken care of,” Bell said. “The risk is not so much the cyber exposure but the consequence of the attack. The resulting claims and degradation to the environment could be severe, especially if the insured was a target chosen because of their unique position to have a large effect on the local population and environment.”

LIU also offers dedicated Cyber Liability insurance solutions designed to manage and mitigate the cost of responding to a cyber attack and any resultant loss of data and associated liability. Coverage includes proactive data breach response services designed to help organizations comply with regulatory requirements and prevent data breaches.

LIU’s loss control managers are also on hand to conduct assessments of insureds’ properties and facilities to examine potential environmental impacts. They can educate brokers on the importance of enhancing cyber security to prevent an environmental accident in the first place.

“People are relying more and more on their systems, automaton is increasing, and the risk is growing,” Bell said. “We’re all focused on protecting data, but the consequences of a cyber breach can be much farther reaching than data alone.”

To learn more about Liberty International Underwriters’ environmental coverages and services, visit www.LIU-USA.com.

Liberty International Underwriters is the marketing name for the broker-distributed specialty lines business operations of Liberty Mutual Insurance. Certain coverage may be provided by a surplus lines insurer. Surplus lines insurers do not generally participate in state guaranty funds and insureds are therefore not protected by such funds. This literature is a summary only and does not include all terms, conditions, or exclusions of the coverage described. Please refer to the actual policy issued for complete details of coverage and exclusions.

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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