Global Risk

Top Risks Ranked by Risk Managers

Reputational risk and political unrest are top of mind for risk executives.
By: | September 30, 2015 • 3 min read
Earth grenade

The global risk landscape is so rich with exposure that it’s not surprising that two recent surveys show divergent worries by risk managers.

In a recent study of 1,400 global CEOs and risk managers by Aon, damage to reputation and brand was the clear-cut No. 1 choice.

AonTop10RisksA Clements Worldwide survey of risk executives at global organizations and NGOs, on the other hand, cited political risk as their No. 1 concern.

“I think it’s a combination of things but when you think about all of the other risks that are there, damage to reputation and brand is really the culmination of the connectivity of all different kinds of risks,” said Baltimore-based Theresa Bourdon, group managing director at Aon Risk Consulting.

Theresa Bourdon, group managing director, Aon Risk Consulting

Theresa Bourdon, group managing director, Aon Risk Consulting

“So any one of the other risks, if a company is not prepared for them, is going to affect their reputation and brand,” said Bourdon. “It’s kind of where it all collects right at the top of the brand of the organization.”

The uncertainty and unrest overseas obviously made a major impact on the global respondents of the Clements survey.

“There are many, many companies which are either contemplating or have already engaged in opening operations overseas, and that’s happening across all industries,” said Scott Lockman, Washington, D.C.- based director of commercial insurance at Clements.

More than one-quarter (28 percent) of top managers surveyed by Clements stated that political unrest was their top concern, while 25 percent cited kidnapping and 10 percent cited terrorism.

Twenty-one percent said they delayed plans to expand into new countries due to rising international risks.

Lockman said that when the organization speaks with its clients about civil unrest, it doesn’t necessarily have to be about a physical threat.

“A devaluation of a currency can cripple a business, like what’s happening in Venezuela, for example.” — Scott Lockman, director of commercial insurance, Clements Worldwide

“A devaluation of a currency can cripple a business, like what’s happening in Venezuela, for example,” he said. “Their economy is in turmoil right now.”

ClementsTop10RisksMore than half of the 52 Clements survey respondents (57 percent) reported increased spending on international insurance, while 44 percent reported increased spending on risk management overall.

“Specifically we have seen spending on political violence insurance go up 20 percent over the past couple of years,” said Washington, D.C.-based Patricia Loria, Clements’ marketing communications manager.

Meanwhile, in this year’s Aon study, political risk dropped out of the Top 10 list.


“It was No. 10 the last time we did the study in 2013 and now it’s down to No. 14,” Bourdon said. “Political risk is one of the risks we don’t think is getting the attention it deserves.”

The global economic slowdown was No. 1 in the 2013 study; it dropped to No. 2 this year, she said.

As for cyber risk, Bourdon said she was surprised to learn that 82 percent of the respondents — who ranked cyber risk in the Top 10 (at No. 9) for the first time after being No. 18 in 2013 — said they were ready for the risk and only 8 percent said they had a loss of income as a result of a cyber attack.

Another surprise for Bourdon was the threat of terrorism. “We were very surprised that it was very low on the list,” she said. “There is sort of an out of sight, out of mind mentality here.”

Also out of mind, she said, was pandemic risk, which ranked at No. 44.

“We haven’t seen regulations decreasing, we’ve only seen them increasing.”  — Theresa Bourdon, group managing director, Aon Risk Consulting

One perennial concern, Bourdon said, is regulatory risk, which usually ranks as a Top 5 risk.


“We haven’t seen regulations decreasing, we’ve only seen them increasing,” she said. “You look at the global economic expansion. That’s brought additional regulations.”

Bourdon noted that Aon’s respondents were also very concerned about the impact of catastrophic property damage, such as from a hurricane or large fire.

Property damage and medical expenses represented the largest sources of financial losses among respondents to the Clements survey.

Steve Yahn is a freelance writer based in New York. He has more than 40 years of financial reporting and editing experience. He can be reached at [email protected]
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Risk Scenario


Failure to arrange the proper cover for regulatory penalties in the energy sector adds up to big losses.
By: | September 14, 2015 • 8 min read
Risk Scenarios are created by Risk & Insurance editors along with leading industry partners. The hypothetical, yet realistic stories, showcase emerging risks that can result in significant losses if not properly addressed.

Disclaimer: The events depicted in this scenario are fictitious. Any similarity to any corporation or person, living or dead, is merely coincidental.

Buckets of Money

Maxine DaGuerre, the risk manager for the Middle Atlantic power generation company Corsair Corp. was decidedly uncomfortable.


Along with the rest of the Corsair Corp. management team, she was waiting to hear the latest decision from PJM, the regional electricity wholesale market. Under guidance from federal regulators, PJM was establishing incentives and penalties for power generators willing to guarantee delivery of electricity to the grid at times of crisis or peak demand, otherwise known as Emergency Load Response events.

The Northeast saw a near blackout in the frigid winter of 2014. Demand during several days of intensely cold weather almost knocked off the grid and generators reported a number of problems trying to feed the beast.

The regulators did not want to risk that scenario again.

The incentives were lucrative, game changers, and despite the protests of large buyers of electricity, the incentive plan was moving forward. Now, in mid-August of 2015, Corsair executives were awaiting word from PJM on what the incentives would be for the energy auctions for June 2018 to May 2019. Word was that they were going to be even more than they had been for the corresponding period for 2017-2018.

The questions included what to do with the increased revenues? Plow them into plant upgrades, purchase insurance to cover the cost of any penalties for non-delivery, lock in natural gas delivery for the year to guarantee price and supply?

It was a complicated set of questions. DaGuerre knew which way she was leaning.

The incentives were one thing, but the penalties were staggering. The regulators were ready to fine power generators that failed to deliver electricity on emergency demand at more than $3,000 per megawatt hour in some cases.

For a 1,000 megawatt plant that was a penalty that could run into millions of dollars per hour.



“Where was the backstop against that?” she thought to herself.

DaGuerre’s internal monologue was interrupted by the ringing of her desk phone. It was the company CFO, Eric Petruzzi. He sounded excited.

“Hey Maxine, can you join us upstairs? The announcement from the market is just in for the 2018-2019 incentives and we want to look at our options.”

“Sure thing, I’ll be right up,” DaGuerre told Petruzzi.

The exuberance in Petruzzi’s voice was off-putting.

In DaGuerre’s mind this was not a time for celebration, it was a time for careful consideration.

When she got upstairs there were three men at the table, Petruzzi, the operations chief Ben Ochstein and the CEO, Bill “Red” Miller.

“It’s what we thought Maxine,” Petruzzi began.

“PJM raised the incentive for 2018-2019.” He glanced briefly at the electronic pad in front of him.

“It’s raised the incentive by almost one third,” Petruzzi said with enthusiasm in his eyes. DaGuerre could swear she saw dollar signs there.

From $120 Mw-Day the incentive had been raised to almost $160 Mw-Day for 2018-2019. One 1,000 Mw plant could bring in more than $60 million in annual revenue.

Margaret watched as Ochstein and Miller exchanged glances. It seemed like some key decisions had already been made.

“We know how you feel about the penalties, Maxine,” Miller said.

“But you also know the importance of risk mitigation,” Ochstein said.

“We’re thinking we’ve got a real good opportunity here to upgrade some of the facilities, particularly Peachtree and Susquehanna,” Ochstein said.

DaGuerre cleared her throat and tried to steady herself.

“I’m all for risk mitigation, as you know. And I think we should upgrade some of the plants, particularly Susquehanna,” she said, giving Ben Ochstein a look that she hoped communicated solidarity with his idea.

“But I can’t help thinking that some risk transfer is in order here,” she said.

Petruzzi started to say something but DaGuerre felt compelled to just plow ahead.

“One, this is the first time we’ve been in this situation. The incentives are compelling, but the penalties are severe if we have a breakdown. Four of our plants are coal-fired and let’s face it, could really use some upgrades. It’s not just Peachtree and Susquehanna,” she said, giving Ochstein a meaningful look.

“I’m not asking for a lot but I think 5 percent of the three years’ auction revenue should be invested in some sort of risk transfer,” she said.

“That’s too much Maxine,” Miller said. From his tone, DaGuerre knew she’d be lucky to get a fraction of that.

The meeting ended with DaGuerre making her own odds that the company would be investing 2 percent of any emergency load auction funds into risk transfer mechanisms.

She flat-out doubted that was enough.

Where are you in your investigation of insurance options to cover possible fines from electricity wholesalers under the new regulations being laid out by the Federal Energy Regulatory Commission?

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More Misgivings

While she did her best to partner with Ben Ochstein and the company’s engineering team to make the best use of the company’s capital in plant upgrades, Maxine DaGuerre couldn’t stop doing the numbers in her head.


For power generators that had agreed to supply electricity to the grid during Emergency Load Response events, the penalties from PJM and the regulators could be staggering. They were looking at $3,000 per megawatt hour. For a 1,000 MW plant, that was $3 million per hour.

The variables were driving DaGuerre crazy. She’d only been able to purchase $15 million in coverage for any fines Corsair might face. That might seem like a lot of coverage but she’d have been much happier with five times that.

She studied the preventative maintenance plans and upgrades for Corsair’s 18 power generation plants until her eyes hurt. Ben Ochstein and the company’s engineering team weren’t slouches. They were top-notch professionals. But nobody was perfect.

As fall moved to winter, the upgrades at the Corsair plants, at Susquehanna, Peachtree and others carried on apace. Ochstein and Petruzzi were also congratulating themselves that they had locked in reasonably priced natural gas supplies for the company’s plants that relied on natural gas to produce electricity.


DaGuerre struggled to share their enthusiasm.

DaGuerre hated to be a stick-in-the-mud. She wanted the company to thrive. She certainly wasn’t hoping for a blackout in the Northeast or anything like it.

Then the cold came, just like it did in the winter of 2014, only this time much earlier. Three days of intense cold in the week between Christmas and New Year’s provoked the region’s first Emergency Load Response event, on Dec. 28.

Corsair didn’t miss a beat, while the word got out that one of its competitors had failed to deliver for three hours due to a natural gas pipeline problem near Philadelphia and been fined.

2016 broke with reasonable temperatures, but a polar vortex gripped the Northeast in the second week of January. This time Corsair wasn’t so lucky. Boiler problems at the coal-fired Susquehanna plant caused the 1,200 megawatt plant to go offline for five hours during an Emergency Load Response event. The fine was $15 million.

The formerly sanguine Eric Petruzzi went into full panic mode.

“Can you get us more coverage?” he asked DaGuerre during a late-night phone call on Dec. 29.

DaGuerre could hear laughter and clinking glasses in the background.

“Where are you?” she asked him.

“I’m … at a party. At my mother’s place in Annapolis,” he said somewhat sheepishly.

“I’ll … see what I can do,” DaGuerre said.

She didn’t bother calling her United Kingdom-based broker until very early the following morning.

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An Endless Slog

Sorry, the carriers said.

“Not at this point,” DaGuerre’s broker Martin Rule told her the following morning.


“Your best bet for the remainder of the winter is to go full bore on plant inspections and preventative maintenance and hope you can ride it out,” he told her.

“Ride it out.” Those were words that Maxine DaGuerre hated. That wasn’t risk management, it was like playing roulette.

Sleep-deprived from meetings with Corsair Corp. engineers and operations personnel throughout the Atlantic seaboard through January, DaGuerre was trying to catch a nap in a drafty hotel in Wilmington, Del., on Feb. 10 when her phone buzzed.

It was Ochstein. He was a humbled man.

“We were out six hours at Leedsville from 6 a.m. to about an hour ago,” he told her. It almost sounded like his voice was cracking. He sounded exhausted.

An $18 million fine. No cover. Not for this.

“Another boiler problem?” DaGuerre asked him.


As Ochstein droned on, dispirited, with the technical details, DaGuerre started tuning him out.

She rolled over and stared at the framed print in her room as Ochstein’s words seeped in. She didn’t even feel sick, she felt numb.

She knew what Miller and Petruzzi would tell her and maybe they were right. Corsair had the resources to keep its plants up-to-speed and perhaps even profit greatly from the incentives it could earn from this Emergency Load Response arrangement with PJM.

But she knew one thing for sure.

She never again wanted to feel what she felt that early afternoon in that drafty hotel room in Wilmington.

These multimillion dollar hits had to stop. They couldn’t afford to fumble again.

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Risk & Insurance® partnered with Swiss Re Corporate Solutions to produce this scenario. Below are Swiss Re Corporate Solutions’ recommendations on how to prevent the losses presented in the scenario. This perspective is not an editorial opinion of Risk & Insurance®.

The cold snap during the Polar Vortex of January 2014 brought the northeast United States dangerously close to blackout conditions. As temperatures plunged, many of the region’s key power plants performed poorly, and the region came dangerously close to rotating blackouts and a loss of electric heat. Had the power gone out, a large segment of the population would have been exposed to the severe cold with dire consequences.

Recently, the PJM Interconnection, which manages the electric grid for 13 states (plus Washington DC) and nearly 61 million people, implemented a new electric generator incentive scheme that aims to prevent a repeat of the poor generator performance during January 2014. The new program, called PJM Capacity Performance, will provide increased revenue for power generation companies that participated in capacity auctions. However, while generation companies will receive additional revenues for offering firm capacity, there is also considerable risk for non-performance. An unplanned outage or derate at a power plant during an emergency event could have significant financial costs (a million dollars an hour or more, depending on plant size).

Swiss Re Corporate Solutions understands the risks facing your business. Our electricity price and power plant outage solutions are designed to help you take advantage of the new capacity incentives, and offer protection for unseen mechanical issues impacting power generation.

Power producers can manage that risk through Swiss Re Corporate Solutions’ Electricity Price & Outage (ELPRO) and Capacity Performance coverages, which compensates generators for output lost from unplanned outages based on market conditions at the time of loss. We also offer weather and commodity price risk solutions to help you manage risk. To learn more, visit

Dan Reynolds is editor-in-chief of Risk & Insurance. He can be reached at [email protected]
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Sponsored: Liberty Mutual Insurance

Managing Construction’s True Risk Exposure

Mitigating construction risks requires a partner who, with deep industry expertise, will be with you from the beginning.
By: | November 2, 2015 • 5 min read

When it comes to the construction industry, the path to success is never easy.

After a long, deep recession of historic proportions, the sector is finally on the mend. But as opportunities to win new projects grow, experience shows that more contractors go out of business during a recovery than during a recession.

Skilled labor shortages, legal rulings in various states that push construction defects onto general liability policies, and New York state’s labor laws that assign full liability to project owners and contractors for falls from elevations that injure workers are just some of the established issues that are making it ever harder for firms to succeed.

And now, there are new emerging risks, such as the potential for more expensive capital, should the Federal Reserve increase its rates. This would tighten already stressed margins, perhaps making it harder for contractors and project owners to invest in safety and quality assurance, and raising the cost of treating injured workers.

Liberty Mutual’s Doug Cauti reviews the top three risks facing contractors and project owners.

“Our customers are very clear about the challenges they are facing in the market,” said Doug Cauti, the Boston-based chief underwriting officer for Liberty Mutual’s construction practice.

“Now more than ever, construction risk buyers – and the brokers who serve them – are leveraging our team’s deep expertise to find solutions for complicated risks. This goes way beyond what many consider the traditional role of an insurance carrier.”

Other leading risks facing contractors and project owners.

Given the current risk environment, firms that simply seek out the cheapest coverage could leave themselves exposed to these emerging risks. And that could result in them becoming just another failed statistic.

So what is the best way to approach your risk management program?

Understanding the Emerging Picture

Construction firms have been dealing with multiple challenges over the last several years. Now, several new emerging risks could further complicate the business.

After an extended period of historically low interest rates, the Federal Reserve is indicating that rates could rise in late 2015 or sometime in 2016. That would surely impact construction firms’ cost of capital.

“At the end of the day, an increased cost of capital is going to impact many construction firm’s margins, which are already thin,” Cauti said.

“The trickle-down effect is that less money may be available for other operational activities, including safety and quality programs. Firms may need to underbid and/or place low bids just to get jobs and keep the cash flow going,” Cauti said.

SponsoredContent_LM“Now more than ever, construction risk buyers – and the brokers who serve them – are leveraging our team’s deep expertise to find solutions for complicated risks.”
— Doug Cauti, Chief Underwriting Officer, Liberty Mutual National Insurance Specialty Construction

“Experience shows us that shortcuts in safety and quality often lead to more construction defect claims, general liability claims and workers’ compensation claims,” Cauti said.

Currently, the frequency of worker injuries is down on a national basis but the severity of injuries is on the rise. If those frequencies start creeping up due to less robust safety programs, the costs could grow fast.

And if this possible trend is not cause enough for concern, the growing costs associated with medical care should have the attention of all risk managers.

“Five years ago medical costs represented 56 percent of a claim,” said Jack Probolus, a Boston-based manager of construction risk financing programs for Liberty Mutual.

“By 2020, that medical cost will likely grow to 76 percent of an injured worker’s claim, according to industry experts,” Probolus said.

Rising interest rates and rising medical costs could form a perfect storm.

Focusing on the Total Cost of Risk

For risk managers, the approach they utilize to mitigate the myriad of existing and emerging risks is more important than ever. The ideal insurance partner will be one that can integrate claims management, quality assurance and loss control solutions to better manage the total cost of construction risk, and do it for the long term.

Liberty Mutual’s Doug Cauti reviews the partnership between buyers, brokers and insureds that helps better manage the total cost of insurance.

In the case of rising medical costs, that means using claims management tools and workflows that help eliminate the runaway expense of things such as duplicate billings, inappropriate prescriptions for powerful painkillers, and over-utilization of costly medical procedures.

“We’re committed to making sure that the client isn’t burdened in unnecessary costs, while working to ensure that injured employees return to productive lives in the best possible health,” Probolus said.

The right partner will also have the construction industry expertise and the willingness to work with a project owner or contractor from the very beginning of a project. That enables them to analyze risk on the front end and devise the best risk management program for the project or contractor, thereby protecting the policyholder’s vulnerable margins.

“We want to be there from the very beginning,” Liberty Mutual’s Cauti said.

“This isn’t merely a transaction with us,” he added. “It’s a partnership that extends for years, from binding coverage, through the life of the project and deeper as claims come in and are resolved over time,” he said.

In other words, it’s a relationship focused on value.

Today’s construction insurance market – with an abundance of capacity – can lead to new carriers entering the market and/or insurers seeking to gain market share by underpricing policies.

“We see it all the time,” Liberty Mutual’s Cauti said.

Where does this leave insureds? Frustrated at pricing instability, or by the need to find a new carrier.  And wiser, having learned the wisdom of focusing on value, that is the ability to better control the total cost of risk.

“Premium is always important,” notes Liberty Mutual’s Cauti. “But smart buyers also understand the importance of value, the ability of an insurer to partner with a buyer and their broker to develop a custom blend of coverages and services that better protect a project’s or contractor’s bottom line and reputation. This is the approach our dedicated construction practice takes.

Why Liberty Mutual?

For more information on how Liberty Mutual Insurance can help assess your construction risk exposure, contact your broker or Doug Cauti at [email protected].



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.

Liberty Mutual Insurance offers a wide range of insurance products and services, including general liability, property, commercial automobile, excess casualty, workers compensation and group benefits.
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