Coverage Challenges for Transportation
A spike in blockbuster payouts over the last five years has prompted some of the largest commercial fleet auto insurers to exit the market.
With cell phone use and sleep deprivation on the increase, it’s no surprise that the number of fatalities involving large trucks has climbed by 7.5 percent between 2010 and 2015, according to the U.S. Transportation Department.
In some cases, this has resulted in juries awarding tens or even hundreds of millions of dollars to the families of victims.
Among the most high profile incidents was the Wal-Mart truck that plowed into comedian Tracy Morgan’s limo in New Jersey in 2014, causing a six-vehicle pile-up, killing one person and injuring several others.
Aon has cited at least six cases topping $20 million this year, the most in four years.
Added to that, the industry’s adverse loss reserve development increased by almost $1 billion, from $647 million in 2013 to $1.6 billion in 2015.
Rates, meanwhile, have risen by as much as 30 percent and are expected to climb further next year.
David Perez, executive vice president, national insurance at Liberty Mutual, said that while insurers increased premiums over the last three to four years, their results had continued to deteriorate.
“It’s at a point where insurers can’t get the rate they need to be competitive, so there’s little other option than to cut back,” he said.
As a result, many of the biggest underwriters, including AIG and Zurich, have pulled some of their for-hire fleets coverage.
However, they will still cover trucks directly operated by retailers and manufacturers.
AIG subsidiary Lexington Insurance Co. stopped covering trucking fleets as part of its wider strategy to improve its commercial insurance division profitability; however, other units will continue to provide cover, according to a company statement.
“With all of these big insurers pulling out, it’s going to create a big problem,” said Daniel Bancroft, transportation practice leader, North America, at Willis Towers Watson.
“Whereas three years ago fuel was their major expense, now insurance is their third largest expense behind drivers’ salaries and equipment costs.”
Mark Brockinton, CEO of Aon’s transportation and logistics practice, said that the main reason behind the increase in accidents was the sheer volume of vehicles on the road.
Brockinton said that verdicts and settlements have been trending upwards over the last five years as plaintiffs’ lawyers have targeted employer negligence and hiring, training and safety practices in the trucking industry.
“They have become adept at finding issues such as logging, added to which have been the highly publicized claims such as Tracy Morgan’s, creating new fodder for plaintiff lawyers,” he said.
The cost of coverage, meanwhile, is putting extra pressure on trucking companies, with rates up 15 percent to 20 percent on average, and in some cases by 30 percent, squeezing out the smaller operators.
Federal law requires firms to cover drivers up to $750,000 per accident. Many self-insure up to around $1 million and buy further tiers of insurance to cover additional costs.
Joseph Peiser, executive vice president and head of casualty broking at Willis Towers Watson, said that attachment points for umbrella insurance also increased over the last year, sometimes as high as $15 million.
“Increasingly we are seeing situations where family-owned companies are having to pay claims in excess of the umbrella limits purchased, which is hard to swallow if your margins are only 2 to 5 percent,” he said.
This has resulted in some companies cutting corners on safety in order to save costs.
Steven Gursten, a Michigan attorney specializing in severe trucking accidents, went as far as to say that there had been a “systemic, company-wide disregard of mandatory safety rules” by some firms.
“Too many companies are in a dangerous race to the bottom,” he said.
“Today, we have many unsafe trucking companies that deliberately ignore mandatory safety rules and that, as a result, can undercut good, safe trucking companies on price.”
From December next year, however, most trucks will be required by federal law to carry electronic monitoring devices to ensure truckers don’t exceed limits on time spent behind the wheel.
Jenn Guerrini, vice president and executive commercial auto specialist, North America risk engineering services at Chubb, said that collaborative effort is needed between truck manufacturers, regulators and the trucking industry to reduce the number of accidents.
“Road trucking companies need to implement stringent fleet safety programs, reinforce driver training, monitor driving behaviors, educate employees and enforce company policies uniformly throughout the organization,” she said.
Chubb’s 5 Step Guide to Improve Driver Safety
- Reinforce driver training and increase the use of telematics to monitor driving behaviors.
- Buy new vehicles with advanced driver assistance systems fitted as standard.
- Implement a fatigue driving policy and establish a wellness program for drivers.
- Install dash-mounted technologies that can help identify fatigued drivers.
- Install electronic logging devices to monitor drivers’ hours of service.
Private Label Coverage
In an increasingly interconnected business environment, it is no wonder many companies are taking a closer look at the changing nature of their liabilities — and seeking tailored coverages to ensure none of their unique exposures slip through the cracks.
Growing demand from clients and brokers in a tough environment is forcing underwriters to innovate in order to win business and squeeze extra margin from their books. The result is a proliferation of specialist professional liability policies that runs the full gamut of industry sectors, from health care to construction.
The move towards specialization has developed to the extent that now it is possible for various stakeholders within the supply chain of the same industry to each enjoy their own tailored coverages. There are no doubt more niche products to come.
“The trend is being driven by both a willingness from underwriters to look for margin where they can, and also demand from insureds,” said James McPartland, class underwriter, professional indemnity, at ArgoGlobal.
“We now live in a much faster-paced world than even 10 to 15 years ago. The way businesses interact and bring products to market is very different now, and companies can significantly change from month to month.”
Uniquely positioned with their fingers on the pulse of their clients’ evolving risk profiles, brokers play a huge role in identifying coverage needs and driving the development of bespoke wordings.
“Agent feedback is crucial; they are the catalysts of change,” said Greg Leffard, president of professional liability at the Hanover Insurance Group.
“As businesses change, exposures change, and so should our coverage.”
He added that brokers see the development of new products as a way to differentiate themselves from their competitors just as carriers do.
“It is easy to compete on price, but agents want more than that. They want private label coverages, available only to them.”
“It starts as one client with a specific need, then before long three have asked the same question in a different way and we know there is a trend and we have to find a solution,” said Elisabeth Case, commercial E&O product leader for Marsh, who added that newcomers to the PL space are often the underwriters willing to concede the most ground in the design of new products.
“We have carriers we know are willing to go the extra mile, both in the U.S. and London. It really does come down to individuals at certain organizations trying to keep their companies at the forefront, or trying to build a book. There are new entrants in the PL and cyber liability space coming into the marketplace all the time, so they often have to offer something unique to get their foot in the door.”
According to Cynthia Evanko Olinger, senior vice president of construction at JLT Specialty USA, modifications to standard PL coverage can often be obtained from underwriters “for little or no premium.”
Whereas a decade ago a $2.5 million PL line for accounts “meant you were a player,” now it is common for insurers to put down $5 million or $10 million. — Brian Braden, vice president, professional risk, Crum & Forster
“We argue, for example, that the technology services are part of the core business that the underwriter is insuring, and our request to affirm coverages for these services should have no premium impact,” she said.
Brian Braden, vice president, professional risk, at mid-market underwriter Crum & Forster, noted, however, that the most flexibility is often likely to be given on larger risks due to the negotiating power of big brokers who control a lot of premium dollars.
“Those changes are usually advantageous to the client and a little adverse to the carrier. Sometimes we follow those changes on an excess basis, but if we’re writing primary we won’t,” he said.
He added that underwriters are offering bigger lines. Whereas a decade ago a $2.5 million PL line for accounts “meant you were a player,” now it is common for insurers to put down $5 million or $10 million, he said.
“Plus there are many more players, which drives the price down.”
Hanover’s miscellaneous PL group writes over 100 different classes of business, each with its own unique exposure.
“This creates challenges to ensure we provide appropriate protection for all the various sectors, as well as competitive coverage in the marketplace at a reasonable price,” said Leffard, while McPartland noted that the cost of doing business is increasing and pricing new bespoke coverages can be “haphazard” due to the lack of historical data.
As McPartland pointed out, not all clients are interested in a new bespoke PL product, as such products are often purchased out of regulatory or contractual obligation.
“When you strip a PL policy back, 99 percent of all claims would be covered under the negligence clause. Add-ons enhance the product to make it more attractive, but the fundamental driver of purchase is price, and people are prepared to move business around a lot quicker nowadays,” he said.
McPartland added that while brokers could until recently rely on existing clients to remain loyal at renewal, clients are now more interested in what the broker can do for them going forward than what they’ve done for them in the past.
“We are having to work harder to retain our business. The book churns quicker and as a result our modeling becomes more volatile and pricing gets more difficult.”
Nevertheless, said Leffard, many professionals are becoming more knowledgeable on the benefits of insurance and the true cost of a claim.
“Mature businesses are willing to pay more for a solid form compared to a basic form that just meets contractual business requirements,” he said.
“Established marketing firms, advertising and public relations agencies, technology firms and home inspectors are also good examples of sophisticated, educated insureds. They are more likely to understand their professional liability exposures and ask for the right coverages.”
The health care sector is ripe for specialist PL covers. According to Faye Chapman, medical malpractice underwriter at ArgoGlobal, quasi-medical practitioners including beauticians and masseurs are seeking PL cover due to the increasingly invasive nature of treatments (such as injectables and laser treatments), which goes beyond the scope of some general liability underwriters’ appetites.
Practitioners offering one-on-one patient treatment may also require abuse of patient cover, she said, though there is some debate within the insurance industry over whether abuse would fall in a liability or medical malpractice policy.
Meanwhile, medical devices including implants present another potential liability exposure as practitioners could find themselves facing a claim if they recommend the use of a substandard or dangerous product.
Chapman noted that insurers are offering extended reporting periods, effectively transforming covers from claims-made to occurrence basis policies, across a number of specialist health sector products.
More broadly, fundamental business themes demand that old coverages be revisited across almost every sector — most notably concerning the proliferation of cyber risk and the evolving use of technology.
“Professionals such as lawyers, accountants and even engineers and architects who are holding personally identifiable information are beginning to realize that negligence could be deemed to be the main trigger for a breach of privacy,” said McPartland, noting that cyber liabilities are increasingly being written into PL, professional indemnity (PI) and errors & omissions (E&O) policies.
Braden said cyber liability risk has “changed the landscape” on a number of products. “Our tech product, for example, used to just be E&O coverage for tech professionals, but over the last four or five years if you don’t offer full first-party coverages including credit monitoring, notification costs, extortion and business interruption, you are dead in the water.”
“It’s an exciting market,” said David Smith, professional indemnity underwriting manager (UK & Ireland) for Lloyd’s underwriter Hiscox, which writes 20 profession-specific PI products.
“In the past it was traditionally professions such as surveyors and architects that bought PI cover, but in recent years we’ve seen the evolution of people being asked to buy PI for their contracts with third parties and interest from a host of new professions — and we see that trend continuing.”
Smith noted that many of Hiscox’s PI products now cover insureds against claims arising from their own websites, such as the unlicensed use of images, in addition to third-party damage.
“Ultimately, what clients will start to want more is an all-in-one E&O and cyber liability policy with potentially some physical loss/damage related to a cyber event if the systems they rely heavily on to deliver their products or services are interconnected to others,” said Case.
Similarly, advances in electronic technology are changing the way many professions operate, and are creating new exposures that need to be written into specialist PL products.
Car parts, for example, increasingly include tech components, which is making auto suppliers seek cover against component malfunctions that could lead to manufacturer recalls, noted Case.
“We are getting lots of requests from various types of manufacturers who have both a manufacturing and design element, who are sometimes confused about what type of cover they should buy.
“People mistakenly think they need an architects and engineers policy if their engineers are designing products, but in fact they need manufacturers’ E&O,” she said.
The tech industry itself is a complex area when it comes to PL. “Tech clients are very specialized and there are sub-sectors of the tech world that need even further differentiating,” said Case, noting that FinTech companies are often unable to find E&O solutions that cover their entire exposures, so Marsh is creating bespoke coverages by aggregating multiple policies in order to obtain adequate coverage.
McPartland predicted the next area for specialist PL cover could be 3D printing.
“This printing will speed up repair processes but it is also an opportunity for people to make mistakes,” he said. “If someone prints the wrong valve for an oil rig, for example, it could result in a significant oil spill. It’s an area to watch over the next 18-24 months.” &
From Drones to Defects: Planning for Construction’s Top Challenges
The construction industry is firing on all cylinders. New projects spring up every day, but not all go according to plan.
Three out of every four construction projects fail to finish on time. Every party involved – owners, designers, contractors and subcontractors – expects perfection, with the final product delivered on schedule and on budget. Those expectations leave little room for uncertainty, so even a small hiccup can have ripple effects that disrupt a project for everyone.
“There’s often a big disconnect on the front end of project planning,” said Doug Cauti, Senior Vice President, National Insurance, Chief Underwriting Officer, Construction, Liberty Mutual.
Proactive risk mitigation is also important to manage emerging challenges facing the construction industry ‒ drone regulations are evolving, commercial auto losses are rising, and so is uncertainty about which party might be held responsible for a construction defect. Without the proper planning, these issues can easily be overlooked and result in major losses and project disruption.
Liberty Mutual’s Doug Cauti discusses key challenges facing the construction market.
“Key risk management strategies have to be aligned among all parties from the beginning to minimize these uncertainties.”
Before construction begins, there are actions that project owners, designers and contractors can take to address these challenges and better protect their projects and businesses:
Drones can be useful tools on construction sites, providing an extra set of “eyes” for large commercial projects or tall buildings. They provide a real time aerial glimpse of works in progress, giving supervisors an added perspective to spot potential flaws, assess safety hazards, and check on workers. But many challenges remain in the safe — and legal — operation of drones.
Liberty Mutual’s interactive infographic highlights risks related to managing drones at construction sites, and also includes a pre-planning drone use guide and a pre-flight checklist that includes making sure to review the latest drone regulations.
How construction buyers can manage the insurance implications of using drones in their operations.
General contractors and project owners need to stay up to speed on FAA regulations, which changed in August, 2016.
“For one thing, operators need to have the drone in sight at all times,” Cauti said.
“And you need to make sure any operators are appropriately licensed and trained, that the drones are regularly maintained, and that the machines don’t impede on others’ safety and privacy.”
Clear flight paths and work zone boundaries can minimize the risk of a drone striking another property, or worse, a person. Operators should also know how to conduct an emergency landing if the drone suddenly loses power. It’s also important to consider how you are going to manage and use drone footage. Advertising liability can be a concern if third party images are captured and released. Know who is in charge of the data collected, who has access to it, and how you are going to protect it.
“If the contractor owns the drone, it takes on more liability. The contractor should review its insurance policies to make sure the coverage will respond to that risk,” Cauti said.
“As an insurance carrier, we may have a role to play in those proactive discussions. We are uniquely positioned to help project stakeholders see their risks and work to minimize them.”
— Doug Cauti, Senior Vice President, National Insurance, Chief Underwriting Officer, Construction, Liberty Mutual Insurance
Contractors and project owners can protect themselves through enhancements to their commercial general liability policies or through separate aviation policies, he said.
If a general contractor leases a drone through a third party, “they bear the responsibility of making sure the vendor is fully insured,” Cauti said. Vendors should have “non-owned” aviation coverage with limits suitable to handle the size of the risk.
Commercial auto losses challenge many business sectors, and construction is no exception.
More vehicles on the road and more miles driven, combined with fewer experienced commercial drivers, are driving up the frequency of accidents. On construction sites in particular, congestion created by closed roads, piles of materials and roving heavy machinery may lead to work zone accidents. Rising medical costs and repair and replacement costs of high-tech vehicles increase claim severity.
“I don’t see this trend reversing any time soon,” Cauti said.
Mitigating commercial auto losses begins with driver hiring practices.
“Pay attention to who you put behind the wheel,” Cauti said.
“Motor vehicle reports (MVRs) and driving history can alert employers to previous accidents or tickets. But there also needs to be regular communication with the drivers you do hire, and clear protocols in place that define expectations of how the job should be performed,” he added.
Ways construction buyers can manage rising commercial auto loss costs and better protect their fleets and employees.
Those protocols include requiring the use of seat belts, prohibiting cell phone use while behind the wheel, mandating scheduled breaks, outlining maintenance procedures, defining if company vehicles can be used for personal use, and establishing crash report procedures that delineate who to contact and what information to collect in the event of an accident.
Contractors can also monitor fleet performance through telematics systems. These on-board systems can track unsafe driving behaviors like hard braking, sharp turns, and speeding. But the data is only as good as the person analyzing it. Contractors and project owners should partner with an insurer who can use fleet telematics data effectively to pinpoint common causes of accidents and recommend specific risk mitigation strategies.
Liberty Mutual’s Managing Vital Driving Performance is one tool that leverages insureds existing telematics data to identify unsafe driving behaviors and accident patterns.
“Our risk control consultants can drill deeper into the data and interview drivers to identify patterns and find out the root causes of bad driving behaviors in the first place,” Cauti said.
For example, a post-accident interview with a driver could reveal that he had been skipping breaks and spending too many hours on the road, leading to fatigue and inattentive driving.
Identifying those connections enables consultants to make specific risk mitigation recommendations, such as adjusting drivers’ schedules and workloads to reduce overtime, or adjusting dispatch protocols so employers can ensure drivers aren’t working too many shifts in a short period of time.
Another uncertainty project owners, designers and contractors have to face is how insurance coverage will apply should a project end up in a dispute. “The struggle is around the definition of ‘faulty workmanship’ and who is responsible for the defect. Is it in the design or the build?” Cauti said.
“There can be a lot of finger pointing involved. This reinforces the need for contractors to have a systematic quality assurance (QA) program that adheres to best practices, and for every party to have a role in it.”
Elements of a QA program could include testing of construction materials, conducting regular walk-throughs and obtaining approvals from the owner at key phases, and final sign-off by the owner at the project’s completion.
How construction defects and the current legal climate are affecting projects.
Construction defect claims can affect a business’s reputation, profits, and ability to maintain insurance coverage. That’s why it’s so important to be vigilant about avoiding construction defects, whether you’re a designer, developer, owner or general contractor.
Ultimately, though, these risks should be addressed before ground is broken. Discussing these challenges and collaborating on loss prevention strategies up front reduces the likelihood that any “hiccups” will throw off project timelines or increase costs for the various stakeholders.
Pre-planning discussions also offer the opportunity for these parties to take advantage of carrier partners’ risk control services.
“As an insurance carrier, we may have a role to play in those proactive discussions,” Cauti said.
“We are uniquely positioned to help project stakeholders see their risks and work to minimize them.”
To learn more about Liberty Mutual’s solutions for the construction industry, visit https://business.libertymutualgroup.com/business-insurance/industries/construction-insurance-coverage.
 Managing Uncertainty and Expectations in Building Design and Construction SmartMarket Report
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.