Complicated Claims

Contingency Clouds Business Interruption

As some carriers pull back on business interruption coverage due to compounded exposures, insureds look to minimize risk.
By: | April 28, 2016 • 5 min read
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Broadly speaking, capacity across the U.S. for business interruption insurance (BI) is ample, and terms and conditions are far from onerous.

That said, brokers report that the utility sector as well as a few others have experienced unexpected high losses, both in frequency and in value.

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A few carriers have reduced their exposure to BI coverage in general, or to specific sectors or sub-segments.

As a result, there have been several situations where insureds were in the uncomfortable position of having to file and pursue a claim or claims, and simultaneously seek new placements after underwriters declined to renew or sought smaller positions in the owners’ programs.

On top of those tactical concerns for owners and their brokers, there are also more strategic shifts taking place in BI and more generally in the property and casualty market, driven by the realization by underwriters that contingent coverage is far less quantified than had long been thought.

Overlooked Supply Chain Risk

The trends of outsourcing, just-in-time delivery, and electronic orders and billing have been highly effective in reducing costs and boosting profitability. But that same evolution leaves even the most stable companies vulnerable to small disruptions in the physical supply chain or the internet.

Michael J. Perron, senior vice president, northeast region and property placement leader, energy and engineered risk group, Willis Towers Watson

Michael J. Perron, senior vice president, northeast region and property placement leader, energy and engineered risk group, Willis Towers Watson

Several of this year’s Power Brokers earned their laurels sorting complex BI claims compounded by short-notice renewals.

Michael J. Perron, senior vice president for the northeast region and property placement leader in the energy and engineered risk group at Willis Towers Watson, has made something of a cottage industry out of slicing through Gordian knots in BI claims.

“In general, BI capacity and coverage are available,” said Perron, a Power Broker® in the Utilities-Alternative category.

“Some carriers have seen losses in the power sector, and a few other places, but generally P&C remains soft. Still, carriers are being especially careful these days on contingent coverage. They are finding they did not realize the full exposures they had. They are finding it difficult to get their arms around all the exposures.”

Part of the problem, Perron suggested, is modeling, especially in the catastrophe market. “For the most part insurers do a good job of monitoring CAT risk. But for the most part those models do not include supply chain.”

Even those that do can cause further complications for insureds. Perron recalled that recently one client wanted to increase its coverage. Based on limits, that should not have been a problem.

“But their carrier, which is one that is particularly good with contingency and with supply chain, also writes for several of their suppliers, so the carrier was concerned about aggregation risk,” he said.

That situation was resolved by going back to the market, but for other clients it hasn’t been that straightforward.

Solving Complicated Claims

In one instance, the owner of a hydropower plant had a failure in one of twin turbines. The second unit continued to operate normally, albeit under more careful watch.

The property insurer decided not to renew because they feared the second unit could suffer the same failure as the first. Only one of the units could be dewatered at any given time, so it was impossible to open the operating unit to inspect until the disabled turbine was back in operation. A real Catch 22.

It is difficult to compile traditional best practices for unique situations.

Several insurers would not write the risk. One offered to write the risk but excluded BI and equipment breakdown (boiler and machinery).

“That approach would render the policy effectively useless against common failures very different than what impacted the disabled turbine,” noted Perron.

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Another insurer offered coverage, including BI and equipment breakdown, but with a deductible of $20 million for the turbines until the operating unit was inspected and found to be free of the problems that seemed to have damaged the other.

For a permanent resolution, Perron said he and his group “worked with several insurers to provide coverage that was not perfect, but better than the coverage offered by the first two to bid.

Two carriers offered coverage similar to the client’s expiring coverage with one key exception: They would exclude an event emanating from a failure similar to what had occurred.

Another insurer charged a higher premium, but provided coverage without this limitation.”

In another case, a gas-fired power generator sustained three very different losses: one involving turbine failure, another involving a generator breaker failure, and a third involving a transformer failure.

“In any loss, in any claim, you want to show that you are working to maximize recovery and minimize losses.” — Michael Perron, senior vice president, Willis Towers Watson

“The incumbent carrier recognized that the client had taken appropriate steps to address lessons learned from each of these events, and actually had taken steps to minimize the carrier’s claim payments with savvy negotiations with providers and others,” said Perron.

“Still, the carrier chose to take a reduced line on the renewal.”

It is difficult to compile traditional best practices for unique situations, but Perron does suggest some guidance.

“Together the broker and the client have to convince the underwriters that the owner is managing the situation,” he said.

“Losses happen. That is why you have insurance. It helps for owners to understand that if they have multiple losses, their carrier is going have internal questions from management about the situation and the insurability of this client.”

Risk Mitigation

Just as Perron spoke with underwriters and the carriers’ engineers to understand their take on the loss, he urges owners to do everything they can to help insurers understand that the owner can manage and mitigate the loss.

That may seem counterintuitive; BI by definition is for events out of the owner’s control.

“In any loss, in any claim, you want to show that you are working to maximize recovery and minimize losses,” said Perron.

In one recent situation a client needed a replacement transformer. Rather than order a new one with a longer lead time from the manufacturer of the original equipment, the owner was able to rent a transformer. That enabled them to accelerate the recovery time, and also saved the carrier a million dollars.

That little maneuver also expanded the owner’s supply chain. Ultimately, the insured ordered a new replacement transformer from the rental supplier, rather than from the maker of the initial unit, thus broadening its portfolio of suppliers.

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In the end, maximizing recovery and minimizing loss is not just a sound strategy for expediting claims and mitigating for renewal after the claim. It is enlightened self interest.

“Companies often underestimate the tremendous impact that business interruption has,” Perron said. “It is not just the loss of revenue. It can be loss of prestige in the industry. It can be loss of customers.” &

Gregory DL Morris is an independent business journalist based in New York with 25 years’ experience in industry, energy, finance and transportation. He can be reached at [email protected]
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Risk Insider: Jack Hampton

Cyber Security: We’re Blind, Please Help

By: | April 18, 2016 • 2 min read
Jack Hampton is a Professor of Business at St. Peter’s University in New Jersey and a former Executive Director of the Risk and Insurance Management Society (RIMS). He was named a Risk Innovator in 2008 by Risk and Insurance®. He can be reached at [email protected]

A popular video shows a blind man sitting on the ground in a plaza hoping to receive money from those who pass by. His cardboard sign says simply, “I’m blind. Please help.” A few individuals drop money into a cup.

A young woman stops and changes the man’s sign. Suddenly many more individuals give money to the man.

The woman returns and the blind man asks, “What did you do to my sign?”

Her answer is, “I wrote the same but different words.” The changed sign read, “It’s a beautiful day and I can’t see it.”

With the Darknet and throwaway cell phones, terrorists do not need iPhones. Apple versus the FBI is not only about privacy or terrorism. It is about further destabilizing an already vulnerable world of communications.

In our cyber security discussions, we often use the wrong words. This happened in the recent public debate when the FBI demanded an Apple iPhone backdoor to allow law enforcement to track communications among terrorists. In a TV broadcast, “60 Minutes” framed the argument as stopping terrorism versus protecting privacy.

Tim Cook (Apple CEO) and John McAfee (anti-virus guru) argued that law enforcement and the media were missing the point. If Apple complied, terrorists would immediately change tactics.

With the Darknet and throwaway cell phones, terrorists do not need iPhones. Apple versus the FBI is not only about privacy or terrorism. It is about further destabilizing an already vulnerable world of communications.

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In an earlier Risk Insider post, I argued that there were negative consequences to consider should Apple’s “wiper” function be disabled.

The standoff between Apple and the FBI temporarily resolved itself. The FBI cracked the iPhone and withdrew the request to Apple.

In this scenario, we not only used the wrong words…we asked the wrong question. How then can we get the right answer?

Maybe we should ask, “Can Apple help us install a wiper on every computing device and network?” Ten hacker attempts and all the data is erased. We would learn to back up our data real quick.

The feature could help with privacy. Would it have anything to do with criminal behavior? Maybe yes. Maybe no.

Separately, we may be missing the big picture. When Samuel Morse and others developed the telegraph, communications were instantaneously transmitted around the world by wire. Anywhere along a railroad line, hackers could intercept the message. This is the public Internet of 2016.

Is the right question, “What should we do to fix a 21st Century communications system built upon a 19th century telecommunications model?”

Cyber security efforts should not stop with, “I’m blind. Please help.” The words should stir us to action.

We can hope the best and brightest of our cyber security folks help us see a beautiful day by devising a secure Internet that does not impede law and enforcement.

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Sponsored Content by CorVel

Advocacy: The Impact of Continuous Triage

Claims management is never stagnant. Utilizing a continuous triage model keeps injured employees on track to recovery.
By: | May 4, 2016 • 6 min read

SponsoredContent_CorVel

Introduction

In the world of workers’ compensation, timing is everything. Many studies have shown that the earlier a workplace incident or injury is acted upon, the more successful the results*. However, there is further evidence indicating there is even more of an impact seen when a claim is not only filed promptly, but also effective triage is conducted and management of the claim takes place consistently through closure.

Typically, every program incorporates a form of early intervention. But then what? While it is common knowledge that early claims reporting and medical treatment are the most critical parts of a claim, if left alone after management, an injured worker could – and often does – fall through the cracks.

All Claims Paths are Not Created Equal

Even with early intervention and the best intentions of the adjuster, things can still go wrong. What if we could follow one injury down two paths, resulting in two entirely different outcomes? This case study illustrates the difference between two claims management processes – one of proactive, continuous claims triage and one of inactivity after initial intervention – and the impact, or lack thereof, it can have on the outcome of a claim. By addressing all indicators, effective triage can drastically change the trajectory of a claim.

The Injury

While working at a factory, David, a 40-year-old employee, experienced sudden shoulder pain while lifting a heavy box. He reported the incident to his supervisor, who contacted their 24/7 triage call center to report the incident. After speaking with a triage nurse, the nurse recommended he go to an occupational medicine clinic for further evaluation, based on his self-reported symptoms of significant swelling, a lack of range of motion and a pain level described as greater than “8.”

The physician diagnosed David with a shoulder sprain and prescribed two weeks of rest, ice and prescription strength ibuprofen. He restricted David from any lifting over his head.

By all accounts, early intervention was working. Utilizing 24/7 nurse triage, there was no lag time between the incident and care. David received timely medical attention and had a treatment plan in place within one day.

But Wait…

A critical factor in any program is a return to work date, yet David was not given a return to work date from the physician at the occupational medicine clinic; therefore, no date was entered in the system.

One small, crucial detail needs just as much attention as when an incident is initially reported. What happens the third week of a claim is just as important as what happens on the day the injury occurs. Involvement with a claim must take place through claim closure and not just at initial triage.

The Same Old Story

After three weeks of physical therapy, no further medical interventions and a lack of communication from his adjuster, David returned to his physician complaining of continued pain. The physician encouraged him to continue physical therapy to improve his mobility and added an opioid prescription to help with his pain.

At home, with no return to work in sight, David became depressed and continued to experience pain in his shoulder. He scheduled an appointment with the physician months later, stating physical therapy was not helping. Since David’s pain had not subsided, the physician ordered an MRI, which came back negative, and wrote David a prescription for medication to manage his depression. The physician referred him to an orthopedic specialist and wrote him a new prescription for additional opioids to address his pain…

Costly medical interventions continued to accrue for the employer and the surmounting risk of the claim continued to go unmanaged. His claim was much more severe than anyone knew.

What if his injury had been managed?

A Model Example

Using a claims system that incorporated a predictive modeling rules engine, the adjuster was immediately prompted to retrieve a return to work date from the physician. Therefore, David’s file was flagged and submitted for a further level of nurse triage intervention and validation. A nurse contacted the physician and verified that there was no return to work date listed on the medical file because the physician’s initial assessment restricted David to no lifting.

As a result of these triage validations, further interventions were needed and a telephonic case manager was assigned to help coordinate care and pursue a proactive return to work plan. Working with the physical therapist and treating physician resulted in a change in David’s medication and a modified physical therapy regimen.

After a few weeks, David reported an improvement in his mobility and his pain level was a “3,” thus prompting the case manager’s request for a re-evaluation. After his assessment, the physician lifted the restriction, allowing David to lift 10 pounds overhead. With this revision, David was able to return to work at modified duty right away. Within six weeks he returned to full duty.

With access to all of the David’s data and a rules engine to keep adjusters on top of the claim, the medical interventions that were needed for his recovery were validated, therefore effectively managing his recovery by continuing to triage his claim. By coordinating care plans with the physician and the physical therapist, and involving a case manager early on, the active management of David’s claim enabled him to remain engaged in his recovery. There was no lapse in communication, treatment or activity.

CorVel’s Model

After 24/7 nurse triage is conducted and an injured worker receives initial care, CorVel’s claims system, CareMC, conducts continuous triage of all data points collected at claim inception and throughout the life of a claim utilizing its integrated rules engine. Predictive indicators send alerts to prompt the adjuster to take action when needed until the claim is closed ­– not just at the beginning of the claim.

This predictive modeling tool flags potentially complex claims with the risk for high exposure, marking claims that need intervention so that CorVel can assign appropriate resources to mitigate risk.

Claims triage is constant – that is the necessary model. Even on an adjuster’s best day, humans aren’t perfect. A rules engine helps flag things that people can miss. A combination of predictive systems and human intervention ensures claims management is never stagnant – that there is no lapse in communication, activity or treatment. With an advocacy team in the form of an adjuster empowered by a powerful rules engine and a case manager looking out for the best care, injured employees remain engaged in their recovery. By perpetuating patient advocacy, continuous triage reduces claim severity and improves claim outcomes, returning injured workers to the workforce and reducing payors’ risk.

*WCRI.

This article was produced by CorVel Corporation and not the Risk & Insurance® editorial team.



CorVel is a national provider of risk management solutions for employers, third party administrators, insurance companies and government agencies seeking to control costs and promote positive outcomes.
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