Risk Insider: Nir Kossovsky

D&O’s Weakened DNA

By: | July 1, 2015 • 3 min read
Nir Kossovsky is the Chief Executive Officer of Steel City Re. He has been developing solutions for measuring, managing, monetizing, and transferring risks to intangible assets since 1997. He is also a published author, and can be reached at nkossovsky@steelcityre.com.

“Want to Attract Board Members? Manage Company Risk Better,” declared the headline of Tony Chapelle’s article in the Financial Times’ Agenda news service for corporate directors published June 15, 2015.

The feature (Paywall) helpfully warned board candidates “to perform due diligence before accepting a seat or risk loss of personal capital and reputation.”

“Directors want to work for honest, risk-aware companies, said Stephen Ferris, professor and senior associate dean at the University of Missouri — as quoted in Chapelle’s article —  “to reduce the likelihood of getting enmeshed in ligation over fraud, defective products or other situations that threaten their ability to properly discharge their duties. They’ll also be less exposed to losing their personal capital or their reputations, which could limit their opportunities for serving on other boards.”

The challenge for companies seeking the best board members is that governance, risk management, and compliance disclosures do not have great signaling gravitas or impact, nor are they as robust and convincing as talking money.

This is sound advice, of course, but we’ve seen this movie before.

In the late 1980s, corporations were finding it difficult to attract and retain qualified directors. At that time, at the height of complex transactions, directors were exposed to claims that they failed to exercise due care, and consequently, to potential personal liability both that was disproportionately large and rather unpredictable.

FORTUNE described the perceived risk in that era as being “so great that only madmen and lepers were expected to join corporate boards.”

That’s when directors who wanted to work for “honest, risk-aware companies,” sought out companies that had qualified for, and could afford, Directors & Officers liability insurance.

As Risk Insider Peter Taffae explained last year, “The intent then, and arguably today among experts, is to protect senior management and the insured’s board against litigation arising from their capacity as a director and/or officer, from third parties.”

The cover protected the personal capital of the director with one policy, which eventually became Side A of a common policy, and “bet” on the risk management culture of the company with a separate policy that evolved into Side B.

D&O coverage was available at rational prices to the better risks — its presence was a signal that the company had a strong risk management culture.

Only it was more than a signal. It was a warranty-like badge of honor where a third-party backed, with real money, the company’s claim of a strong risk management culture.

Money talks. But that was then.

Chapelle’s article and the experts quoted therein suggest that D&O insurance today merely whispers relative to the noise of 21st century threats — especially from social media, regulatory scrutiny, and investor activism — to directors’ “personal capital or their reputations.”

Today’s risk-aware director-prospect is advised to look beyond liability coverage to the underlying risk management practices, to study the 10-K Item 1A risk disclosures, and to validate that the company is providing appropriate risk mitigation strategies for all recognized threats.

The challenge for companies seeking the best board members is that governance, risk management, and compliance disclosures do not have great signaling gravitas or impact, nor are they as robust and convincing as talking money.

With D&O’s mojo gone, perhaps companies that have implemented world-class enterprise risk management programs could let prospective directors appreciate and value them with clear and credible signals like board performance bonds?

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Column: Roger's Soapbox

Know Your Limitations

By: | May 6, 2015 • 3 min read
Roger Crombie is a United Kingdom-based columnist for Risk & Insurance®. He can be reached at riskletters@lrp.com.

The insurance of directors and officers has been of the keenest interest to me since the mid-1990s. When I say “keenest interest,” don’t get me wrong: D&O is as dull as printing money can be. But I have followed the discipline since ACE arrived in Bermuda more than 20 years ago. They wrote it and I wrote about it.

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I know Side A when I see it. I’ve saved time by assuming that Side B covers what Side A does not.

Yes, I’ve met people who insist there is a Side C, at weird insurance conventions in places you’ve never heard of, but I prefer to think of D&O like a single from the 1960s (a song stamped on heavy plastic and played on … never mind). Side A was the hit single; Side B the filler. There were double A-sides, but I stray further from the subject with every passing word.

I mention D&O because I have lately become a director of the company that manages the managers of the apartment block I live in. The protection D&O coverage offers is now literally of the keenest interest. I’ll tell you straight: writing about D&O is less stressful than having D&O written for you.

I know Side A when I see it. I’ve saved time by assuming that Side B covers what Side A does not.

As the finest director never to draw a salary, I have suddenly become aware of the true value of D&O insurance to the insured.

Potential claims loom on every horizon. A director oversaw something imperfectly done? He failed to oversee or foresee something imperfectly done? Something happened while he was on vacation in Mexico? The poor so-and-so is liable every time.

We have a leaseholder who sends incomprehensible writs against us that he has drafted himself, claiming money he hasn’t lost and distress he hasn’t suffered.

Another leaseholder wants it to be Florida in the corridor while the ice piles up outside. One especially nutty fellow is on his fifth Jaguar of the year. Curiously, he doesn’t drive.

As a director, I’m liable for all their woes, errors, crimes and misdemeanors.

A press release issued last month reported that directors are often unaware of the terms and conditions applicable to their coverage. They have little clue, it seems, about basic stuff, such as term and limits.

Poor fools, I thought. Then it struck me: I also have no clue what the terms and limits of my D&O policy might be.

Clint Eastwood, that great director (and, as ‘Dirty’ Harry Callahan, officer), once said: “A man’s got to know his limitations.” Coverage-wise, I don’t know mine. I know the premium has been paid and the policy is in force, but beyond that I can’t tell my Side A from my Hepatitis B.

How many insureds, I wonder, cruise along, thinking that our bottoms are covered, without ever bothering to read the small print, or even the large? We insureds aren’t too bright, apparently.

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But here’s the thing, which you probably know if you work in insurance: We insureds don’t want to know the details. It’s not that we’re big-picture people. We’re more like Batman with his cowl on backwards.

For sake of argument, let’s say I’m protected by a three-year policy with a limit of $1 million for covered behavior. Knowing that, I would have to worry about what happens that might take place in four years’ time or cost more than a million bucks. The writs guy could have finished law school by then (and be putting on the writs).

To be honest — and I speak for insureds everywhere — not knowing is a much smoother experience for all of us.

Ignorance really is bliss.

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Sponsored Content by ACE Group

11 Critical Risks Facing the Healthcare Industry

Healthcare providers continue to face numerous emerging challenges.
By: | June 1, 2015 • 5 min read
ACE_BrandedContent

From pandemics to violence in hospitals, alarm fatigue to healthcare-acquired infections, healthcare organizations will be put to the test in the coming months and years.

Added pressure from new regulatory requirements under the Affordable Care Act makes the future even more challenging.

ACE_BrandedContentWhen you factor in the daily demands healthcare organizations face in their quest to provide quality patient care, it’s clear that there are many hurdles that can disrupt facility operations and put employee and patient safety at risk.

”Today’s healthcare landscape is arguably the most difficult ever,” said Diane Doherty, Vice President, ACE Medical Risk Group. “If not managed properly, these critical issues can cause other unwanted outcomes such as an increase in medical malpractice and workers’ comp claims, government fines and penalties, and may negatively impact the organization’s brand and reputation.”

The following are some of the top critical issues facing hospital leadership.

1) Cyber Risk

ACE_BrandedContentThe healthcare industry’s move to electronic healthcare records has created new patient privacy exposures as records are more easily accessed by consultants, vendors and other third parties for efficient operation, and targeted by cyber criminals. Additionally, healthcare organizations face exposure to cyber risks that could have significant impacts on their operations, including shutting down critical, health-related systems.

Data breaches and network disruptions can jeopardize an organization’s financial stability, security and reputation. Standard general liability policies often do not adequately cover perils associated with cyber and technology related exposures. Cyber liability insurance can address coverage gaps while also enabling companies to transfer risks associated with cyber, such as patient privacy and notification, crisis management, and forensic analysis expenses as well as certain regulatory fines, indemnity payments and legal costs.

“Cyber hacks and data breaches are a major issue facing the healthcare industry today,” said Renee Carino, Vice President and Chief Underwriting Officer, ACE Medical Risk Group. “It’s important now more than ever, that healthcare organizations work closely with their insurance carrier to assess this exposure and develop effective risk management strategies and ensure the proper coverage is in place.”

ACE_BrandedContent”Today’s healthcare landscape is arguably the most difficult ever. If not managed properly, these critical issues can cause other unwanted outcomes such as an increase in medical malpractice … and may negatively impact the organization’s brand and reputation.”
— Diane Doherty, Vice President, ACE Medical Risk Group

2) Healthcare Infections

ACE_BrandedContentHealthcare-acquired infections (HAIs) cost the U.S. healthcare system billions of dollars each year and lead to the loss of tens of thousands of lives.  At any given time, about 1 in 25 hospital patients has at least one such infection, according to the Centers for Disease Control and Prevention. Healthcare-acquired infections also come with a financial price, costing up to $9.8 billion a year, according to research published in 2013 in JAMA Internal Medicine.

Among many solutions, healthcare organizations should ensure all sanitation systems are up to date, operational and ensure that staff understands how to properly use the systems to keep patients safe. They also should continue to remind staff and visitors about basic infection control techniques.

“Basic infection control techniques should be at the forefront of the risk management process,” said Doherty. “For example, it’s critical that medical personnel must wash their hands with antiseptic soap and water every time they treat patients to help reduce the spread of infections.”

3) Telemedicine

ACE_BrandedContentAdvances in technology, the current physician shortage and the dramatic increase in the number of patients seeking care under the Affordable Care Act have led a growing number of healthcare facilities to expand their use of telemedicine to deliver services to patients in hospitals as well as in remote locations. Over half of all U.S. hospitals now use some form of telemedicine to treat patients.

Telemedicine may also result in allegations of negligence if healthcare providers do not have the proper training, experience and credentials. Currently, there is no federal standard of clinical guidelines for telemedicine.

In developing strategies to mitigate this risk, a few key processes and areas that should be examined include credentialing and peer review, medical staff by-laws and of course, CMS guidelines.

ACE_BrandedContent“It’s important now more than ever, that healthcare organizations work closely with their insurance carrier to assess this exposure and develop effective risk management strategies and ensure the proper coverage is in place.”
— Renee Carino, Vice President and Chief Underwriting Officer, ACE Medical Risk Group

4) Violent Incidents in Hospitals

ACE_BrandedContentHospitals may be places of healing, but they also have become the scene of an increasing number of violent incidents. Such incidents not only put patients at risk but also medical professionals, who are often the targets of attacks, harassment, intimidation and other disruptive behavior.

The incidence rate for violence and other injuries in the healthcare and social assistance sector in 2012 was over three times greater than the rate for all private industries. The Joint Commission, meanwhile, reports increasing rates of assault, rape and homicide in healthcare facilities. Perpetrators can include patients, family members, visitors and vendors as well as current and former healthcare employees.

Hospitals and healthcare organizations should enact a zero-tolerance policy, one that states that no form of violence — physical, verbal or psychological — will be tolerated, and that all offenders will be subject to disciplinary action, including termination.

“Healthcare organizations should develop a comprehensive violence prevention program that is specific to their organization and analyzes potential safety hazards and implements strategies to prevent them,” Carino said.

5) Alarm Fatigue

ACE_BrandedContentHospital nurses hear them constantly — the beeps and chirps of alarms on medical devices, such as ventilators, cardiac monitors and pulse oximetry devices. While alarms are designed to draw attention to a potential problem, they can easily be tuned out by overwhelmed medical professionals, who may then fail to respond as they should.

Alarm fatigue is a growing problem for hospitals and the consequences can be fatal. The Joint Commission’s Sentinel Event database includes reports of 98 alarm-related events between January 2009 and June 2012. Of the 98 events, 80 resulted in death, 13 in permanent loss of function and five in unexpected additional care or extended stay. Alarm fatigue was rated a top concern by 19 out of every 20 hospitals in the United States, according to a national survey presented at the annual meeting of the Society for Technology in Anesthesia in 2014.

To reduce the risk of patient harm from alarm fatigue, the Joint Commission, along with the Association for the Advancement of Medical Instrumentation and the ECRI Institute, offered a list of precautions, including ensuring that there is an effective process in place for safe alarm management and response in high-risk areas.

Additional Risks

6) Preparedness for Pandemics

7) Healthcare Reform/Physician Integration

8) Disruptive Staff Behavior

9) Environmental Pollutants

10) Emergency Preparedness

11) Obesity Epidemic

Please download the whitepaper, “Critical Risks Facing the Healthcare Industry” to learn more about the additional risks listed above. The paper also provides a deeper perspective on the risks covered in this article as well as additional risk management recommendations.

ACE_BrandedContent

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BrandStudioLogoThis article was produced by the R&I Brand Studio, a unit of the advertising department of Risk & Insurance, in collaboration with ACE Group. The editorial staff of Risk & Insurance had no role in its preparation.
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With operations in 54 countries, ACE Group is one of the largest multiline property and casualty insurance companies in the world.
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