Handling Client Challenges
A major metropolitan transit authority with an extensive subway system, buses and paratransit vehicles faced significant limits and the potential for substantial increases in its excess liability policy, especially because of a claim related to a transit accident.
Handling the claim was a challenge, but Daniel Bancroft, leader of the Willis transportation practice, was able to provide important assistance even though he wasn’t the broker at the time of the accident.
After the accident, he reviewed the authority’s existing policy and created a new program that reduced the premium costs.
In addition, for the existing three-year agreement on the commercial excess liability, despite the accident, he was able to successfully exercise an option for a fourth year. With the new fourth year, he was able to keep the premium at the same level as the previous three.
“Dan has been able to have our exposures covered under our excess liability policies at a very substantial savings,” the risk manager said.
In another situation, a potential client had won a large contract to provide transit services, but the company didn’t have its insurance coverage in place — and it was less than 30 days before the new services were scheduled to begin.
With the deadline approaching, the client terminated its relationship with its insurance broker and hired Willis and Bancroft. He was able to secure the needed railroad liability and rolling stock coverage in time for the beginning of service.
Smoothing Out Client Complications
For governmental transit authorities and other large transportation operating entities, contractor management and vendor management issues present significant risks.
These issues can range from risk management on large construction projects to day-to-day management of hundreds of independent contractors. The challenge here is effectively transferring the risk for the authority or agency through these contracts.
A transit authority risk manager said, “Barbara has an incredible understanding of the transportation industry and has been especially helpful in assisting us in lowering our risk using the procurement process. She was especially helpful in developing, on an ongoing basis, the proper insurance language for complex contracts.”
Another client worked with more than 350 third-party consultants contracted for diverse, expensive and significant projects. Insurance certificate tracking was an ongoing issue, and Goodwin advised the client on ways to modify its system, including the data fields for legacy data and standardizing codes.
She developed a process for identifying needed insurance requirements, and her advice has streamlined the system and improved efficiency.
One of Goodwin’s clients also sought help on a contract that had substantial risk associated with the work that was to be completed. Goodwin, using mapping applications, was able to quickly respond with a viable solution to the risk manager.
Resolving Complex Issues
Depending upon the nature of the cargo in commercial trucking, potential losses can be dramatically high.
One large national trucking and transportation company suffered a substantial claim involving an independent operator and a contingent liability endorsement. Two truckloads of copper were stolen.
The theft was difficult to prevent because all the documents for the shipments, including the insurance certificates, were forged. Initially, under the policy, because the cargo was entrusted to imposters and not an independent trucker, the insurer denied coverage under the company’s contingent liability endorsement to the cargo policy.
However, because the bill of lading was issued to Alan Jones’ client, the trucking company, and not to the independent trucker/contractor, the loss was covered under the client’s cargo policy directly. Jones was instrumental in getting the issue resolved.
He also successfully convinced the carrier to treat the loss as a single claim, reducing what could have been two very expensive deductibles, one for each truckload.
“Alan is more responsive than any broker I have worked with,” the risk manager said, adding that Jones brings persistence, knowledge and experience to the relationship.
Another client with more than 1,100 owner-operators was involved in a merger that required the consolidation of coverage. Jones rolled umbrella, auto and general liability coverage into the policy for no additional cost for the first year. The client was able to save $400,000 in coverage expenses, while receiving a higher level of coverage.
Hard Work Brings Results
Megan McClellan’s clients commonly remark that she works harder than any other broker. She’s aggressive and generally improves coverage and lowers costs for her transportation clients.
Part of Marsh’s FINPRO practice, McClellan advises her transportation clients on financial and professional liability issues.
This past year, McClellan was new to the account of a large, publicly owned railroad client, a longtime client of Marsh.
“We were concerned when Marsh made some significant changes to our account team,” said the director of risk management. “We are strong on building a relationship. Megan came on board to replace the person on the account who was our key player,” he said.
The change worked out far better than expected.
“Megan is gracious and alleviated our concerns. She was able to quickly earn our confidence,” he said.
During her review of the client’s fiduciary liability coverage, she discovered that one of the policies was out of sync, in terms of the renewal period, with the other policies. She reduced costs by combining the coverage and balancing the terms.
Another large rail client endorsed her “extraordinary record” of service, responsiveness and enthusiasm. With this client, McClellan also achieved excellent results for renewals of fiduciary liability policies and the directors and officers liability coverage.
She has strong relationships with the markets, the client said, and because she is also a lawyer, she brings an important perspective to the process in this strongly regulated industry.
From Soup to Nuts
It’s not unusual for major transportation companies to own other, non-transportation operations. Railroad clients historically have had large real estate holdings and owned real estate developments.
However, one long-haul trucking company also owned a casino. Its risk manager said that Jack Welbourn, with his broad background, has “been able to help us with issues from soup to nuts.”
There’s the usual range of risks for truckers: cargo, commercial auto along with large excess liability, extensive property risks for transportation facilities, and of course, ongoing workers’ compensation issues.
But the casino has been a challenge.
The cost of insurance against potential hurricane force winds along the Gulf of Mexico coastline came in exceptionally high. Welbourn traveled to London to meet with the underwriters where he explained the extensive steps the client had taken to protect against wind damage and used a video produced by the client to illustrate the extensive precautions built into the facility.
The effort was successful, and the facility received a rare premium reduction.
He had similar success with the client’s workers’ compensation/occupational accident program. He restructured the program and tightened its terms, resulting in a $750,000 premium reduction along with fewer losses. Claims handling improved when the company replaced its TPA.
Helping Clients Grow
A short-line railroad client embarked on a major expansion by opening a new locomotive repair shop, an important step that brought on new growth opportunities but exposed them to new risks.
Jeremiah White, charged with developing a new overall insurance program, feared that the new facility could mean large premium increases.
Early on, he brought the property and casualty underwriters into the process. He arranged for a site visit by the underwriters to the new facility where the client could show the company’s commitment and record of effective safety programs.
The result: The renewal program was a success, with a minimal price increase along with significant changes in the property program reflecting the risks of the new repair shop.
Another client, a small Midwestern railroad that lacked passenger services, was presented with new risks arising out of a contract to allow a “polar express” excursion conducted by an outside contractor on their rail system. Management was unfamiliar with the complex risks involved with passenger rather than freight on the system, along with issues of contingent liability.
“Having people ride on the system is a very different animal for us,” a risk manager said.
As part of the process, White devised an “Insurance 101” program that helped senior management understand the risk issues, particularly as related to railroads, and the language and process of property casualty insurance.
Getting From Here to There
Companies within the energy industry are facing growing risks as their trucks roll through urbanized areas and rural roads not designed for heavy-duty traffic.
With the boom in oil exploration comes the need to move high-value machinery, hazardous materials and hazardous waste, and natural resources at seemingly ever-faster paces into locations previously untouched by the industry.
The expansion of the U.S. energy business is evident.
From February 2010 to February 2013, onshore oil production within the lower 48 states increased by 64 percent, according to the U.S. Energy Information Administration, and the number of natural gas wells found in shale plays in the United States increased to 10,173 in 2011, from 5,531 in 2009. From 2010 to 2011, shale drilling expenditures increased by 88 percent, totaling $65.5 billion, according to the American Petroleum Institute.
As a result of this expansion, organizations face greater reputational and environmental liability risks, and may also experience an increase in third-party liability claims.
Risk reduction is possible for companies that develop a robust and proactive risk management strategy that makes safety a high priority.
Fleet operators understand that their reputation is on the line with every accident, whether in the headlines or not. Organizations’ health and safety performance data can hinder a service company’s ability to win contracts. Their entire safety record is made public through the Department of Transportation’s Safety and Fitness Electronic Records (SAFER) system.
Any future business they get within the oil business is contingent on their risk management performance and regulatory compliance. This concern is shared by every link in the energy supply chain, as every ancillary operator in the business — from drilling, to well-servicing and beyond — has drivers, trucks and exposures.
A 21st century energy company understands the need to evaluate their safety risks and develop effective risk mitigation strategies.
Contributing to the transportation risk scenario are key factors such as high levels of driver demand, a relatively inexperienced driver pool across the U.S., increased state and federal regulatory oversight, and drivers operating in unfamiliar locations.
Recognizing the broad and ever-changing nature of transportation risks is crucial, and companies working to keep these exposures in check do so through the development and implementation of a systemic approach to fleet risk management and loss control that includes the following steps:
1. Gap Analysis/Regulatory Review
The first step in a risk management program is to gain an understanding of the current state of affairs.
Part of this involves ensuring that a Motor Carrier Consensus Form is accurate. One good indicator of safety is the SMS BASIC percentile rank that can be found in the monthly CSA Data Preview.
Inspection and violation histories can also help companies identify patterns and trends, revealing which areas of their transportation program (including their own business processes) require improvement.
2. Safety Training
Training involves making drivers aware of Department of Transportation rules. Even experienced truckers, upon coming to the energy business, might need training on the challenges of driving on smaller roads through towns and the varied other operating environments they experience.
Part of any training program must also involve increasing all drivers’ awareness that their performance on the road directly affects the company.
The Consumer Energy Alliance Trucking Safety Task Force recommends making sure drivers know that no load is worth sacrificing safety standards or violating rules.
3. Driver Vetting
This can be a daunting task. The economy of the oil business dictates that operators are active as much as possible while the prices are high; for gas, despite the lower commodity prices, wells are being drilled more and more.
Drivers are wanted. Screening procedures and drug testing are more than ever a necessity to mitigate fleet risk.
4. Periodic Re-Evaluation
Repeat steps one, two and three on a regular basis. As the Consumer Energy Alliance Trucking Safety Task Force guidelines suggest, meet with community members and leaders, local law enforcement and emergency to understand their safety concerns and address them in upcoming training as needed.
Meet regularly with the drivers themselves and ensure they are aware of changes on the ground.
The domestic energy industry is experiencing an exciting and prosperous moment, yet with growth in exploration and production comes growth in risk and its consequences — particularly those centered around transportation.
Some larger oil and gas service companies have already spent millions of dollars to understand and mitigate their fleet risk. Other companies are not quite as far along. Yet all service providers appreciate that creating a safety culture can only help them in the future.
What Is Insurance Innovation?
Truly innovative insurance solutions are delivered in real time, as the needs of businesses change and the nature of risk evolves.
Lexington Insurance exemplifies this approach to innovation. Creative products driven by speed to market are at the core of the insurer’s culture, reputation and strategic direction, according to Matthew Power, executive vice president and head of strategic development at Lexington, an AIG Company and the leading U.S.-based surplus lines insurer.
“The excess and surplus lines sector is in a growth mode due, in no small part, to the speed at which our insureds’ underlying business models are changing,” Power said. “Tomorrow’s winning companies are those being built upon true breakthrough innovation, with a strong focus on agility and speed to market.”
To boost its innovation potential, for example, Lexington has launched a new crowdsourcing strategy. The company’s “Innovation Boot Camps” bring people together from the U.S., Canada, Bermuda and London in a series of engagements focused on identifying potential waves of change and market needs on the coverage horizon.
“Employees work in teams to determine how insurance can play a vital role in increasing the success odds of new markets and customers,” Power said. “That means anticipating needs and quickly delivering programs to meet them.”
An example: Working in tandem with the AIG Science team – another collaboration focused on innovation – Lexington is looking to offer an advanced high-tech seating system in the truck cabs of some of its long-haul trucking customers. The goal is to reduce driver injury and fatigue-based accidents.
“Our professionals serving the healthcare market average more than twenty years of industry experience. That includes attorneys and clinicians combining in a defense-oriented claims approach and collaborating with insureds in this fast-moving market segment. At Lexington, our relentless focus on innovation enables us to take on the risk so our clients can take on the opportunities.”
— Matthew Power, Executive Vice President and Head of Regional Development, Lexington Insurance Company
Power explained that exciting growth areas such as robotics, nanotechnology and driverless cars, among others, require highly customized commercial insurance solutions that often can be delivered only by excess and surplus lines underwriters.
“Being non-admitted, our freedom of rate and form allows us to be nimble, and that’s very important to our clients,” he said. “We have an established track record of reacting quickly to trends and market needs.”
Lexington is a leading provider of personal lines coverage for the excess and surplus lines industry and, as Power explains, the company’s suite of product offerings has continued to evolve in the wake of changing customer needs. “Our personal lines team has developed a robust product offering that considers issues like sustainable building, energy efficiency, and cyber liability.”
Most recently the company launched Evacuation Response, a specialty coverage designed to reimburse Lexington personal lines customers for costs associated with government mandated evacuations. “These evacuation scenarios have becoming increasingly commonplace in the wake of recent extreme weather events, and this coverage protects insured families against the associated costs of transportation and temporary housing.
The company also has followed the emerging cap and trade legislation in California, which has created an active carbon trading market throughout the state. “Our new Carbon ODS product provides real property protection for sequestered ozone depleting substances, while our CarbonCover Design Confirm product insures those engineering firms actively verifying and valuing active trades.” Lexington has also begun to insure new Carbon Registries as they are established in markets across the country.
Lexington has also developed a number of new product offerings within the Healthcare space. The Affordable Care Act has brought an increased focus on the continuum of care and clinical patient safety. In response, Lexington has created special programs for a wide range of entities, as the fast-changing healthcare industry includes a range of specialized services, including home healthcare, imaging centers (X-ray, MRI, PET–CT scans), EMT/ambulances, medical laboratories, outpatient primary care/urgent care centers, ambulatory surgery centers and Medical rehabilitation facilities.
“The excess and surplus lines sector is in growth mode due, in no small part, to the speed at which our insureds’ underlying business models are changing,” Power said.
Apart from its coverage flexibility, Lexington offers this segment monthly webcasts, bi-monthly conference calls and newsletters on key risk issues and educational topics. It also provides on-site risk consultation (for qualifying accounts), access to RiskTool, Lexington’s web-based healthcare risk management and patient safety resource, and a technical staff consisting of more than 60 members dedicated solely to healthcare-related claims.
“Our professionals serving the healthcare market average more than twenty years of industry experience,” Power said. “That includes attorneys and clinicians combining in a defense-oriented claims approach and collaborating with insureds in this fast-moving market segment.”
This article was produced by the R&I Brand Studio, a unit of the advertising department of Risk & Insurance, in collaboration with Lexington Insurance. The editorial staff of Risk & Insurance had no role in its preparation.