Webinar – Travel Risk Management: Going Beyond Travel Assistance and Insurance
Business travel has never been more global or more compromised by volatility. The search for new markets, suppliers and energy sources is leading employers and their employees into new geographies and political environments, some of them fraught with risk.
This webinar will look at travel accident insurance and travel assistance programs and how best to marry the two products into a travel risk management program that can give employers and employees better peace of mind.
Expert panelists will discuss the following:
- The concept of “Duty of Care”, its limitations and the exposures it can create.
- The different insurance coverages that converge in the travel risk space, where they converge and where they might leave gaps.
- A history of travel accident insurance.
- Organizational challenges: Melding the roles of human resources and risk management so that they work in concert in managing travel risk.
- Employer/employee: Who bears which responsibilities in insuring safe outcomes.
- Loss scenarios and claims examples: Stories from the road of real losses and real claims.
Webinar attendees will be e-mailed a link to the recording of the webinar and its supporting visual materials.
Captives Offer Control
Rogers Petroleum currently employs 89 people. The Knoxville, Tenn.-based provider of wholesale petroleum distillates insures perhaps 130 lives on its health plan, estimated its vice president of risk management, Mike Jellicorse.
That’s a small-sized company by any measurement. No matter.
Beginning in January 2014, Rogers went self-funded, joined the WELLth Employee Benefit Captive for stop-loss coverage, and aims to remain “in control of our own destiny,” as Jellicorse put it.
Health care reform, in part, drove the decision. As Jellicorse recounted, the employer first considered using a stop-loss captive in 2012, but demurred because of the vagaries of Affordable Care Act implementation.
By 2013, the future was more certain. The ACA then had the opposite effect, encouraging Rogers’ business leaders to self-fund employee health benefits and join a captive.
Again, it came down to control — in large part being able to design its plan any way it wanted as a self-insuring company (as long as it remained within the 60 percent minimum benefit threshold dictated by the law).
It’s the mantra of control that risk and benefit managers at large employers have been repeating over and over to themselves, to their bosses, to captive conference participants and captive owner prospects, and to journalists for years. Now it’s on the lips of some of the smallest employers.
They can now share in the freedom from traditional insurance markets, their volatility and unpredictability, their lack of transparency, their premium spikes year after year.
“That’s what we’re banking on,” said Jellicorse. “Historically, [captives] will flat-line your increases.”
“Everybody Gets There Eventually”
Captive industry growth in 2014 is generated as much from mid-size and small companies as big Fortune 1,000 types, insiders said. In an increasing number of cases, these smaller-sized firms are doing so to help finance their employee health benefits.
“Historically, [captives] will flat-line your increases.” — Mike Jellicorse, vice president of risk management, Rogers Petroleum
Jeffrey Fitzgerald, a vice president of employee benefits at Innovative Captive Strategies (ICS) in West Des Moines, Iowa, which is the firm that owns and operates the WELLth group captive in which Rogers Petroleum participates, said the majority of his firm’s growth has come from small and mid-size employers joining a heterogeneous group captive to seek the benefits of self-funding — more stability, transparency, and essentially more credibility and bulk pricing given from underwriters.
To meet the demand, ICS has created nine group captives — roughly half in the past 18 months — with 100 to 120 clients. The groups are fronted by an insurance carrier, which then cedes the stop-loss coverage back to the captive (a typical structure of a captive writing third-party risk).
ICS can group employers in these heterogeneous captives by several factors, size being an obvious one. Groups are also built based on the level of employer sophistication. How stringent are they on their wellness providers and what level of accountability do they demand? How focused are they on loss control? Some companies are more advanced than others.
“Everybody gets there eventually,” said Fitzgerald. “Most captive members are going to get to a point where they’re communicating with each other, they’re engaged and they’re holding each other accountable.”
Jellicorse at Rogers gives the impression that his employer is already pretty far along the learning curve. They, in part, came to a captive to help make their efforts in wellness pay off.
For years, the company saw improving loss ratios among its population without any premium savings from the insurance company. Now, as a self-funder, paying monthly premiums to itself and simply paying claims as they come along, it stands to reason that any reduction in claims will lead to more money in its proverbial pocket.
Rogers’ employees also benefit from new wellness programs like metabolic screening and weight-loss programs targeted at those at risk for metabolic syndrome, as well as the COMPASS program, which allows members to price shop for medical services. Claims above $25,000 go to the group stop-loss captive, and if the captive’s loss experience is good that year, what’s left over gets paid back pro-rated, to members like Rogers.
These benefits are nothing new to large employers but represent a welcome change for smaller employers.
“We have a couple of different opportunities to come out looking much better cost-wise at the end of the year,” said Jellicorse.
ACA Drives Changes
Fitzgerald sympathizes with his clients. They are really in a “tough place,” he said, meaning that they have had to spend the last two years learning how to be compliant with the ACA.
Most, he said, never intended to drop benefits. But they now know what the cost of their employee health care is, versus what they were actually spending on premiums and services. They have learned to tie their costs to their claims, versus just to their premiums.
“If they’re not in a position to control the spend or have some say or take some risk, then I think it can be really tough,” he said.
Employee benefits are on the minds of captive owners overall.
This year’s Annual Captive Insurance Market Study, released in March by the Captive Insurance Cos. Association (CICA), revealed that more captive owners are considering writing employee benefits in their captive in the intermediate term.
“Further delays, and continuing changes, in the implementation of the Patient Protection and Affordable Care Act are causing ongoing uncertainties around the impact on various constituencies,” the survey authors wrote.
Stop-loss coverage was by far the most popular. Of 133 CICA survey participants, 12 percent already wrote stop-loss in their captives, while 26 percent said it was likely or possible in the next three years.
Karin Landry, past CICA chair and managing partner at Boston-based Spring Consulting Group, said this is a mentionable “uptick” in interest.
Landry, like Fitzgerald, is seeing more small and mid-size employers seeking to pool their stop-loss coverages, and in response to this activity, a number of producers are forming captives for clients.
“I think there are a lot of good solutions out there, but there are some that are not that good,” Landry added.
Beyond stop-loss, Landry is seeing movement again in the Department of Labor’s (DOL) fast-track approval process for single-parent captives to write benefits.
Essentially, this is a process by which large enterprises must file with the DOL to be exempted from ERISA.
Once the DOL approves a given case, then others can gain fast-track approval if their captive use mirrors what’s been previously approved. The process slowed because of design, not because of a DOL change of heart, Landry said.
To earn fast-track exemption (a process called ExPro), companies had to point to at least one prior exemption in the past 10 years and one fast-track exemption in the last five (or two exemptions in the last five years).
Landmark exemptions, like ADM’s 2003 approval, were approaching this 10-year limit. What’s more, the DOL had purposefully built in a 10-year sunset on the program to allow it to review the program in 2012.
Now, however, it appears the exemption process is moving forward again.
“The DOL has shown it’s open to doing other fast-track approaches,” Landry said, suggesting she has some clients that will soon file for an exemption.
It stands to reason that trends like these, affecting single-parent captives, will ultimately drive trends in the industry overall, given the preponderance of single-parent captives in the industry.
In the Marsh Annual Captive Benchmarking Report, released in May 2014, two-thirds of captives were single parents. Only 11 percent of captives are considered group, risk retention groups or cells. These numbers are based on the 1,148 captives in total under management by Marsh, the largest captive manager in the world.
Another trend driving single-parent growth brings us back to the ACA. Health care organizations are generating plenty of activity in response to reform.
In 2013 in Vermont, the top domestic domicile, eight new captives formed for health care companies. In the Marsh benchmarking report, the health care industry is in “solid” second place in terms of having its share of captives around the world, at 13.6 percent.
“A health system making acquisitions needs to decide how many captives it needs, and in which domiciles.”
Two macro trends are happening in the U.S. health care space, with hospitals in particular, to ensure this fact remains so.
Physicians are increasingly seeking to become employees of health care and hospital systems, selling their practices in the process.
And those larger organizations are continuing to seek consolidation, buying provider groups and small local hospital systems — or even verging toward being “mega” players by buying or merging with other big systems, said John Lochner, a director at Towers Watson who specializes in working with such firms.
These processes lead health care and hospital systems to acquire new and more exposures, such as “prior acts” exposures as well as the simple fact that more doctors and hospitals leads to more risk — and often more captives, said Lochner.
A health system making acquisitions needs to decide how many captives it needs, and in which domiciles.
Lochner, though, is seeing this “very active environment” driven more by formations than by consolidations.
“Overall, there remains strong interest in captives throughout. Definitely captives continue to be formed, and not just for health care providers,” he said.
Passion for the Prize
In his 1990 book, The Prize: The Epic Quest for Oil, Money and Power, Pulitzer Prize winning author Daniel Yergin documented the passion that drove oil exploration from the first oil well sunk in Titusville, Penn. by Col. Edwin Drake in 1859, to the multinational crusades that enriched Saudi Arabia 100 years later.
Even with the recent decline in crude oil prices, the quest for oil and its sister substance, natural gas, is as fevered now as it was in 1859.
While lower product prices are causing some upstream oil and gas companies to cut back on exploration and production, they create opportunities for others. In fact, for many midstream oil and gas companies, lower prices create an opportunity to buy low, store product, and then sell high when the crude and gas markets rebound.
The current record supply of domestic crude oil and gas largely results from horizontal drilling and hydraulic fracturing methods, which make it practical to extract product in formerly played-out or untapped formations, from the Panhandle to the Bakken.
But these technologies — and the current market they helped create — require underwriters that are as passionate, committed and knowledgeable about energy risk as the oil and gas explorers they insure.
Liability fears and incessant press coverage — from the Denton fracking ban to the Heckmann verdict — may cause some underwriters to regard fracking and horizontal drilling with a suppressed appetite. Other carriers, keen to generate premium revenue despite their limited industry knowledge, may try to buy their way into this high-stakes game with soft pricing.
For Matt Waters, the chief underwriting officer of Liberty Mutual Commercial Insurance Specialty – Energy, this is the time to employ a deep underwriting expertise to embrace the current energy market and extraction methods responsibly and profitably.
“In the oil and gas business right now, you have to have risk solutions for the new market, fracking and horizontal drilling, and it can’t be avoidance,” Waters said.
Matt Waters, chief underwriting officer of Liberty Mutual Commercial Insurance Specialty – Energy, reviews some risk management best practices for fracking and horizontal drilling.
Waters’ group underwrites upstream energy risks — those involved in all phases of onshore exploration and production of crude oil and natural gas from wells sunk into the earth — and midstream energy risks, those that involve the distribution or transportation of oil and gas to processing plants, refineries and consumers.
Risk in Motion
Seven to eight years ago, the technologies to horizontally drill and use fluids to fracture shale formations were barely in play. Now they are well established and have changed the domestic energy market, and consequently risk management for energy companies.
One of those changes is in the area of commercial auto and related coverages.
Fracking and horizontal drilling have dramatically altered oil and gas production, significantly increasing the number of vehicle trips to production and exploration sites. The new technologies require vehicles move water for drilling fluids and fracking, remove these fluids once they are used, bring hundreds of tons of chemicals and proppants, and transport all the specialty equipment required for these extraction methods.
The increase in vehicle use comes at a time when professional drivers, especially those with energy skills, are in short supply. The unfortunate result is more accidents.
“In the oil and gas business right now, you have to have risk solutions for the new market, fracking and horizontal drilling, and it can’t be avoidance.”
— Matt Waters, chief underwriting officer, Liberty Mutual Commercial Insurance Specialty – Energy
For example, in Pennsylvania, home to the gas-rich Marcellus Shale formation, overall traffic fatalities across the state are down 19 percent, according to a recent analysis by the Associated Press. But in those Pennsylvania counties where natural gas and oil is being sought, the frequency of traffic fatalities is up 4 percent.
Increasing traffic volume and accidents is also driving frequency trends in workers compensation and general liability.
In the assessment and transfer of upstream and midstream energy risks, however, there simply isn’t enough claims history in the Marcellus formation in Pennsylvania or the Bakken formation in North Dakota for underwriters to rely on data to price environmental, general and third-party liability risks.
That’s where Liberty Mutual’s commitment, experience and ability to innovate come in. Liberty Mutual was the first carrier to put together a hydraulic fracking risk assessment that gives companies using this extraction method a blueprint to help protect against litigation down the road.
Liberty Mutual insures both lease operators and the contractors essential to extracting hydrocarbons. As in many underwriting areas, the name of the game is clarity around what the risk is, and who owns it.
When considering fracking contractors, Waters and his team work to make sure that any “down hole” risks, be that potential seismic activity, or the migration of methane into water tables, is born by the lease holder.
For the lease holders, Waters and his team of specialty underwriters recommend their clients hold both “sudden and accidental” pollution coverage — to protect against quick and clear accidental spills — and a stand-alone pollution policy, which covers more gradual exposure that unfolds over a much longer period of time, such as methane leaking into drinking water supplies.
Those are two different distinct coverages, both of which a lease holder needs.
Matt Waters discusses the need for stand-alone environmental coverage.
The Energy Cycle
Domestic oil and gas production has expanded so drastically in the past five years that the United States could now become a significant energy exporter. Billions of dollars are being invested to build pipelines, liquid natural gas processing plants and export terminals along our coasts.
While managing risk for energy companies requires deep expertise, developing insurance programs for pipeline and other energy-related construction projects demands even more experience. Such programs must manage and mitigate both construction and operation risks.
Matt Waters discusses future growth for midstream oil and gas companies.
In the short-term, domestic gas and oil production is being curtailed some as fuel prices have recently plummeted due to oversupply. In the long-term, those domestic prices are likely to go back up again, particularly if legislation allows the fuel harvested in the United States to be exported to energy deficient Europe.
Waters and his underwriting team are in this energy game for the long haul — with some customers being with the operation for more than 25 years — and have industry-leading tools to play in it.
Beyond Liberty Mutual’s hydraulic fracturing risk assessment sheet, Waters’ area created a commercial driver scorecard to help its midstream and upstream clients select and manage drivers, which are in such great demand in the industry. The safety and skill of those drivers play a big part in preventing commercial auto claims, Waters said.
Liberty Mutual’s commitment to the energy market is also seen in Waters sending every member of his underwriting team to the petroleum engineering program at the University of Texas and hiring underwriters that are passionate about this industry.
Matt Waters explains how his area can add value to oil and gas companies and their insurance brokers and agents.
For Waters, politics and the trends of the moment have little place in his long-term thinking.
“We’re committed to this business and to deeply understanding how to best manage its risks, and we have been for a long time,” Waters said.
And that holds true for the latest extraction technologies.
“We’ve had success writing fracking contractors and horizontal drillers, helping them better manage the total cost of risk,” Waters said.
To learn more about how Liberty Mutual Insurance can meet your upstream and midstream energy coverage needs, contact your broker, or Matt Waters at firstname.lastname@example.org.
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.