Sometimes the reason for a clean slate is a looming complication. So it was for Marsh’s Herman Brito, who had a singular opportunity to completely restructure the master cargo policy for a major multinational corporation.
The client had a captive program without underlying admitted policies. Brito advocated for, then marketed and placed, a commercial policy with reinsured local admitted policies, and even saved some money.
“[Herman] revamped the program to where it’s still global but with locally admitted policies so it allows for claims payments in individual countries,” said the head of corporate risk management. The new structure “removed the risk that the captive was taking in the program entirely. We ended up at around the same price, actually a little bit cheaper. He completely revamped the program with better coverage. We had a claim recently that wouldn’t have been covered previously.”
The risk manager stressed the amount of work involved. “We needed to gather new exposure info on the country level because of the locally admitted insurers. That was quite a lot of information.”
Policy language was a key issue. “The old policy had very specific wording addressing refrigeration. If the transportation company had any type of involvement, if they forgot to set the temperature control, if it wasn’t a natural loss, it wouldn’t have been covered. Now if it’s impaired or ceased to work to our standard that loss is covered.”
With the Client Every Step
Supporting clients’ claims is an essential component of a broker’s work, but Joanna Paredes went one better in getting a positive outcome for her client, and also minimize the actual loss and thus make the claim easier to resolve.
“We had a claim on imported delicate commodities,” said the traffic manager for an international trading company.
“We discovered water damage to some of our shipment in March. Due to the extensive damage among other shipments, the warehouse was doing their best to perform reconditioning in a timely manner.”
However, the client discovered in June that the remaining undamaged portion of the shipment was contaminated with a foul odor. Therefore, they moved the whole lot to another warehouse hundreds of miles away and across another international border for further inspection.
“We were finally able to sell all the goods after a rebagging process,” said the traffic manager. “Joanna walked with us for every step to generate a supplementary claim.”
As Paredes has other clients in similar lines, some using similar supply chains, she takes a holistic approach. One client, based in Mexico, recalled how Paredes came to one of the main ports in that country. She inspected warehouses from their storage systems to their fire and flood protection, and then made recommendations to clients on guidance they could give to their transportation and storage operators.
In the fever dreams of some risk managers lurk massive components worth many millions of dollars that take years to manufacture, reticent underwriters and looming regulators.
Those dreads became reality for Marsh’s Ali Rizvi when a client retrofitted an old heavy-industrial site.
“Permit appeals and regulatory issues delayed the financing by a year, and during that time there were several starts and stops in placing the construction insurance program,” said the CFO. “By the time it is all finished, there will be more than 400 barge deliveries from a staging site 30 miles away. Ali was instrumental in making all this possible.”
He has been “able to identify and resolve issues related to terminal operator’s obligations, vessel owners, and charterers. Thus not only helping the business move along, but also ensuring that our rights are protected, and that we only assumed contractual obligations. Those can either be transferred down to contractors, or insured.” The solution included placing several hundred million dollars’ worth of project cargo delay-in-start-up insurance.
Another client said that she trusted Rizvi with “all her marine energy risks.” As risk manager for a major global firm, she noted that 2015 was a very difficult year for the energy sector, in which many significant projects were cancelled, delayed, or changed. That required constant revisions and updates to in-place insurance.
A Skilled Liaison
One of Andrew Smith’s client companies went through a corporate restructuring, which is complex from a risk management perspective, particularly in a renewal.
“Andrew helped us work through a complicated underwriting process and has coordinated the primary and excess carriers to help them understand how data is presented. He helped communicate with carriers during the renewal and explained the issues that arose when gathering underwriting information. He acts as an excellent liaison between our company and the market, which is limited in the number of carriers available for our portfolio. His input assisted us in understanding the actual exposure generated by our operations — marine and boat, diving and swimming,” the client’s insurance and risk manager said.
Another client is a family-owned business. Smith had to field the opinions of numerous family members, stressed as they were due to some of the marine-related sectors of the economy showing weakness.
The insurance budget was tightly limited by economic circumstances, and the client’s treasurer said that Smith reduced premiums while maintaining or expanding terms and conditions. The treasurer noted that the company’s many different lines of business add complexity, but that Smith was able to differentiate those segments to the carriers. That helped them become comfortable with actual rather than perceived risks.
When the Lettie G. Howard first sailed the North Atlantic in 1893, she faced fierce winter storms, icy waters and long stretches at sea.
Today, as a designated historic landmark and teaching vessel docked at New York’s South Street Seaport Museum, life is calmer for the fully restored 125-foot wooden schooner.
But historic vessels like the Lettie G. Howard face many other challenges, including unique risk and liability issues. Luckily, there are a small number of specialty insurers that know exactly how to manage those risks.
Historic vessels range from elegant tall ships to massive steel icons of World War II and even riveted iron ships. Their insurance needs can vary based on construction, purpose, mobility, uniqueness and ownership.
“It’s primarily a marine risk, so you’re going to have hull and P&I, and liabilities for the vessel,” said Robert Riske, senior vice president at Worldwide Facilities LLC.
“The larger ones have some shore-side operations, which might involve a gift shop, the parking lot, etc., so you can get involved in a regular GL-type package risk as well.”
“We call them commercial combined liability policies. It is one policy packaged together in different sections,” said Simon Winter, director of the UK-based Simon Winter Marine Ltd.
Typical sections include damage to the hull, marine third-party liability, public liability, and employers’ liability, as well as personal accident and crew medical, and, for income-earning vessels, loss of use.
One of the biggest challenges of insuring historic vessels is determining an accurate valuation.
“At the bottom end you’ve got scrap value and at the top side you’ve got whatever historical value you can put to it. Then you’ve got the economic value, as in, this is going to bring visitors to either the community or the vessel or the organization,” said Riske.
Surveyors will generally try to base valuations on purchase price, according to Gene McKeever, vice president, board member and marine insurance specialist at Allen Insurance and Financial.
“There is a reason for that. … If someone were to buy one of these vessels for … $1.2 million, and the replacement cost is $4.5 million, you may be creating a moral hazard by that person going, ‘Well, if I insure for $4.5 million, the thing is worth more resting on the bottom of the ocean than it is in my hands.’
“So the underwriters say no, if the person bought it for $1.2 million that’s what they want it to insure it for,” said McKeever.
Donated vessels have no sale price, however, leaving underwriters searching for sales of comparable vessels, a particular challenge for unique vessels.
Ultimately, valuation can involve more art than science.
“Underwriters would always prefer to underwrite a risk at market value. An owner of an historic vessel … would much rather be insuring for an amount nearer to new-build value, and those values can vary by millions.
“We always tend to achieve a compromise, but it involves a negotiation between the three parties: the broker, the underwriter, and whichever entity is writing the valuation,” said Winter.
Maintaining historic vessels also presents challenges.
“Generally we ask that those vessels have a maintenance schedule, so this year we’re going to do the planking, next year … the framing, the year after that we’re going to work on the deck beams, that sort of stuff,” said McKeever.
“Many of them actually have the historic plates … from the government, being a national historic place. They have to be very precise and very careful … because they have to keep them totally authentic.”
At the same time, he said, the vessels use modern fasteners and modern electronics.
“The hull insurance is easier to get than the liability. … You know you are looking at a finite thing when you are looking at the hull and its value. Liability is not finite at all.
“When someone gets injured … there’s no dollar limit on what that injury might cost.”
“Liability is the real exposure. Underwriters are concerned with the numbers of volunteers, crew, visitors or passengers, special events, educational events involving minors, fireworks displays, and on-shore activities, like ticket sales, cafes, souvenir shops, parking.”
Many historic vessels rely heavily on volunteers and they can all count as crew. Especially in the case of ships from World War II, they are often sailors who originally served on those ships, meaning an aging population working on aging equipment.
“Once it’s operational, you’ve got numerous public liabilities,” said Riske, citing steep ladders, low bulkheads, possible asbestos, and sometimes food and special events.
“They present a challenge for trying to get the proper pricing for them, but most of all they’re a good risk.”
Trip and Tow
While some historic vessels, known as Dockside Attractions, are no longer mobile, most are sometimes moved for events, maintenance or relocation, under their own power or towed by tugboats.
“How do you insure them when they’re generally speaking pretty fragile vessels and they have to go out on the big water to get to the next port? That sometimes presents a lot of challenges,” said McKeever.
Foreign vessels entering U.S. or Canadian waters confront issues involving pollution liability, jurisdictional disputes, and liability limits.
“If a vessel needs to be towed … they find a reputable tug boat operator, who will say they need a Trip and Tow survey. … ‘Can this vessel stand the stresses of being towed, whatever way it is being towed?’
“And that survey goes to the underwriter so they can determine if they are going to insure the trip,” McKeever said.
Towing a large vessel in international waters can involve another set of laws and requirements.
“A majority of towing of large vessels tends to be done under TOWCON, which is a set of terms and conditions that is internationally recognized,” said Winter.
Foreign vessels entering U.S. or Canadian waters confront issues involving pollution liability, jurisdictional disputes, and liability limits. Ships from Europe often enter Canadian waters first, where the Transport Canada, the Canadian coast guard, will stop them and ask for a Certificate of Financial Responsibility (COFR).
“That’s the first thing they ask for and that’s actually pollution coverage. Most of them can’t produce it because they generally don’t have a problem with pollution from historic vessels … but neither the Canadians nor the U.S. will allow them in federal waters without it,” said McKeever.
Even tall ships and other wooden vessels must produce a COFR, but McKeever said that even though they have bottom paint and typically carry a diesel generator, they tend not to cause environmental problems.
“I have not seen a pollution claim against a tall ship and we’ve been doing it for a long time.”
The U.S. and Canada also require greater liability coverage than other countries.
And if, as is often the case, the vessel’s coverage stipulates local jurisdiction — meaning civil suits must be adjudicated in the vessel’s home port, according to its laws — both the U.S. and Canada require coverage that allows disputes to be settled in their respective courts.
Insurance Requirements Vary by Jurisdiction
Jurisdictional issues can be a factor more locally as well, said Maggie Flanagan, operations manager for the nonprofit New York Harbor Waterfront Alliance.
“Even different docks within the same city can have different requirements. … It’s not only city, state, federal — there’s also various park service agencies, economic development entities that manage certain parts of the waterfronts,” she said.
“The differences come in insurance coverage requirements for liability insurance put forth by the various docks in a port. … In New York City, between private lease holders on the waterfront, various government agencies and multiple park authorities, there are widely different requirements for insurance to be able to dock at the various docks,” said Flanagan, who worked with several historic and replica ships before joining the Alliance, which counts several historic ships among its 800 members.
Different ownership types have different needs as well.
Government-owned vessels tend to be self-insured. For-profit owners like restaurants have special requirements. Educational vessels are a whole separate subcategory.
“You’re likely to have minors involved … and that always has its challenges for insurance, especially if there’s an overnight program … you’ve got parental consents and all the things you can imagine go with it,” said Riske.
The majority of historic vessels, however, are governed by nonprofits.
“You are dealing with a board of directors, so typically you are dealing with non-insurance people,” said Riske.
Nonprofits also tend to have tight budgets, and insurance can take up a substantial portion of them.
The SS United States, now docked in Philadelphia, was a technical marvel when it was launched in 1952, and has served since then, “as an iconic symbol of American technological innovation and engineering might,” said Susan Gibbs, executive director of the Philadelphia-based conservancy that is searching for a permanent home for the vessel.
“The ship still holds the transatlantic speed record, achieved on her maiden voyage using only two-thirds of her power.
“As a Naval auxiliary, she was packed with top-secret defense features and could be quickly converted to transport 15,000 troops more than 10,000 miles without refueling,” said Gibbs.
But the conservancy has been struggling to cover the ship’s carrying costs, and almost a quarter of the conservancy’s $60,000 monthly expenses go toward insurance.
“It can be a significant part of the budget,” said Flanagan.
All these factors combine to make a good broker invaluable.
“We are all nonprofits doing our missions and there is not a lot of extra resources in the office,” said Flanagan
“You look at the list of requirements and you’re like, ‘Oh my gosh!’ ….You get these requirements from the permit and then you cut and paste to the insurance broker and say, ‘Help me please!’ ”
To Better Control Total Workers Comp Costs, Manage Physical Medicine
Soaring drug prices get all the attention in the workers comp space. Meanwhile, another threat has flown under the radar.
More than 50 percent of lost time workers compensation claims involve physical medicine — an umbrella term encompassing physical therapy, occupational therapy, work conditioning, work hardening and functional capacity evaluation.
Spending on physical medicine accounts for 20 to 30 percent of total workers compensation medical costs, a percentage set only to increase in the coming years. Despite the rapid growth of this expense, very few employers are engaged in discussions around how best to manage it.
“Now is the time to take a look at physical medicine and think about how it impacts total cost of risk,” said Frank Radack, Vice President & Manager, Liberty Mutual Insurance, Commercial Insurance – Claims Managed Care. “Employers should investigate comprehensive solutions to keep costs manageable and to deliver quality, evidence-based care to injured employees.”
Liberty Mutual’s Frank Radack defines physical medicine and why it is so important in managing total workers compensation costs.
Upswings in both pure cost and utilization of physical medicine are driving the spending surge. State fee schedule changes are largely responsible for increases in cost. California, for example, has increased the cost of physical medicine services by 38 percent over the past two years, and will increase it a total of 64 percent by the end of 2017. North Carolina changed its approach to its fee schedule effective June 1, 2015, resulting in an almost 45 percent increase in the cost of the average physical therapy visit.
Increased utilization compounds rising prices. Low severity claims like soft tissue injuries typically involve physical therapy, especially when co-morbid conditions threaten to slow down recovery.
“When co-morbids are present, like obesity, more conditioning is necessary for recovery from injury,” Radack said. “With people staying in the workforce longer, we see these claims more often because these types of injuries and co-morbid conditions become more common as people age.”
De-emphasis on surgery also bolsters physical therapy prescribing as patients seek less invasive treatments that might enable a faster return to work, even in a light or transitional duty role. Sometimes, patients with a minor injury might seek out physical therapy on their own as a precaution after an injury or under the mistaken belief it will hasten recovery, even if evidence-based guidelines don’t call for it in every treatment plan.
“Now is the time to take a look at physical medicine and think about how it impacts total cost of risk. Employers should investigate comprehensive solutions to keep costs manageable and to deliver quality, evidence-based care to injured employees.”
–Frank Radack, Vice President & Manager, Liberty Mutual Insurance, Commercial Insurance – Claims Managed Care
“Without proper claims management procedures, some physicians might be inclined to prescribe physical therapy as a palliative measure, even when it doesn’t provide much benefit to the patient,” Radack said.
Brokers and buyers may not be able to do much about fee schedule changes, but they can partner with an insurer that better manages utilization through a multi-faceted claims system, qualified network vendors, data analytics, and peer interventions.
The keys to better managing the soaring cost of physical medicine.
“There is an opportunity to move physical medicine spending into network solutions and partnerships,” Radack said. A strong, collaborative network is key to maintaining direction over treatment decisions.
Liberty Mutual uses a proprietary data analytics program to study its providers’ prescribing and referral patterns and their outcomes. It then builds a network of point-of-entry general practitioners with a proven track record of optimal outcomes.
“The treating physician is a gatekeeper to other services, so it’s important to start there in terms of establishing a plan and making sure evidence based guidelines are followed,” Radack said.
Radack and his team use similar data analysis and partnerships to deploy networks pertaining only to physical medicine, so it can identify physical therapists who understand the occupational space and are focused on effective Return-to-Work (RTW). A provider who doesn’t understand RTW, or even know that the employer of an injured worker has a modified RTW program, may over-utilize PT. Getting employees with soft tissue injuries back into the work place is critical for delivering the best possible medical outcome and a timely recovery.
These therapists know the value of adjusting a treatment plan based on a patient’s progress, which often cuts unnecessary appointments and therapies.
“Our data analytics program is built internally by people who are aligned with the claims organization,” Radack said. “These insights drive our ability to shape networks and direct injured workers to providers with proven outcomes.”
Peer-to-peer interventions also play a big role in adjusting provider behavior and ensuring adherence to evidence-based guidelines. Liberty Mutual’s in house regional medical directors can bring their expertise to bear on challenging claims and discuss how to redirect treatment to meet these guidelines. Liberty Mutual also partners with experts to build networks of physical medicine and physical therapy providers who deliver quality outcomes cost-effectively and to asses a patient’s progress, working with providers to identify and resolve treatment issues.
Sharing information and measuring performance in these settings helps to change the environment around physical medical care. For example, interventions that steer physical therapists back to established, evidence-based medical treatment guidelines often reduce the use of passive therapy treatments, like hot and cold packs, which are not as effective and can slow down recovery.
“Active therapies that get people moving often help them get them back to work faster and at a lower cost,” Radack said. Utilization review also helps to identify unnecessary treatments and signals the insurer to communicate evidenced-based expectations with the therapist or prescribing physician.
Solutions in Action
Physical therapy offers great value in spite of rising prices — but only if it’s managed carefully.
An example of the benefits of managing physical medicine.
Take for example the case of a worker with a shoulder injury. In an unmanaged situation, a physical therapist may prescribe 12 appointments, and the injured worker will go through all 12 sessions with no pre-approval of the treatment plan and no interim checkup.
In a managed situation, the physical therapist may only prescribe eight sessions, because she understands the benefits of a faster return to work and sees that guidelines don’t dictate a full 12 sessions for this injury. Halfway through the eight sessions, she checks in on the patient’s progress and determines that only two more sessions are necessary given the recovery and the medical guidelines; and so adjusts the treatment plan to a total of six sessions.
In this scenario, managed care saves the cost of six sessions over the unmanaged situation, and the employee gets back to work faster with a healthy shoulder.
Ultimately, workers comp buyers can achieve cost savings by making treatment decisions that optimize patient outcomes, rather than cut pure cost. To achieve that, every player — point-of-entry physicians, physical therapists, medical directors, claims managers and patients — need to shoot for the common goal of shortening recovery time by following evidence-based medical guidelines.
“When medical experts and network vendors work in concert with each other, along with data analytics and research to back them up, we can drive down utilization while improving outcomes,” Radack said. “All of these working parts together are the solution to managing physical medicine costs.”
To learn more about Liberty Mutual’s Workers Compensation solutions, visit https://www.libertymutualgroup.com/business-insurance/business-insurance-coverages/workers-compensation
This article was produced by the R&I Brand Studio, a unit of the advertising department of Risk & Insurance, in collaboration with Liberty Mutual Insurance. The editorial staff of Risk & Insurance had no role in its preparation.