Burning Down the House
When politics as a whole gets stale, it’s refreshing when leaders with novel ideas come in and shake things up, rejuvenating the country’s imagination. Take it too far, though, and all that shaking can trigger a firestorm, threatening to turn the foundation to rubble.
The 2016 election cycle, at times more social media circus sideshow than electoral process, has the potential to substantially undermine business. Early on, it was easy to dismiss candidates’ “crazy” platforms and comments as hot air or just grabs for media attention. Over time, though, even the most radical of those ideas — whether from the left or the right — began to gain actual traction, leaving political and business leaders with knots in their stomachs.
For the past year, candidates have been beating the drum for dramatic changes to America’s approach to free trade, immigration, wages, taxes, education, foreign policy and globalization. The public, rather than rejecting or ignoring the rhetoric, has latched on. No matter how unworkable, impractical or seemingly ludicrous an idea a candidate has thrown out there, supporters are taking up the torch and running with it.
When the rhetoric is viewed through the sober lens of economic policy, many business leaders are worried that the proposals inflaming populist anger would unravel much of the economic foundation built since the end of WWII.
Concerns have deepened further since the UK’s “Brexit” surprise, a populist vote of no confidence against unchecked globalization and immigration — some of the same issues fueling the American populist movement against the establishment and political elites.
In the blink of an eye, British voters unraveled a structure in place for more than 40 years. Could it happen here? Without a doubt.
An Unquiet Nation
Much has been written about how candidates who would have been a blip on the radar in other election years managed to take center stage this time around. But there’s no real mystery to it.
The nation is angry. Rosy looking unemployment statistics hide the real picture of an increasing number of Americans underemployed, or getting by on contract work that provides no job stability or benefits.
For everyone else, wage stagnation is the not-so-new normal. The middle class is shrinking as the income equality gap widens by the week. Meanwhile, the Panama Papers are only the latest reminder that the world’s wealthiest have even more than they’re letting on.
“Anger among a great deal of the populace is not good news for anyone, business or otherwise,” GOP analyst Reed Galen said.
“You take a look at the angst and the anger here in the United States, and that’s being played out through the election process,” said Kevin Kelley, CEO of Ironshore. “[It stems] from this notion that there’s just not enough jobs, not enough opportunity and we need change.”
The U.S. turmoil is not happening in isolation, said Hank Greenberg, chairman and CEO of Starr Cos. “We are not in a world by ourselves. You have to look at the whole global economy, and things are not particularly brilliant in Europe. You have several central banks where you have negative interest rates, and you have negative interest rates in Japan. You have a global economy that is not particularly buoyant.”
In addition to anemic job creation in the U.S., “you have the market at 24-25 times earnings. We have huge debt, national debt — maybe as high as we have ever had, maybe even larger,” said Greenberg, who served on the President’s Advisory Committee for Trade Policy and Negotiations during the first Bush administration.
“And you have an election coming up which through the primaries was more divisive than anything I have ever seen,” he said.
“It’s a backdrop,” said Kelley, “for a whole series of potential things that we’re facing, and by ‘we’ I mean those of us who take risk and those of us who manage risk.”
“You need people with stable minds who understand the responsibility they have in maintaining a world order.” — Hank Greenberg, chairman and CEO, Starr Cos.
Voters have lost faith in institutions they thought they could trust, from the government to corporations to banks and the media. And they have lost faith in the ability of career politicians to fix what ails the country. So when anti-establishment candidates stepped up to the mic and said, in essence, “Let’s blow up the status quo!”, voters said, “Bring it on.”
Looking at the economic situation tangled up with a social environment rife with protest, terrorism and violence, business leaders are hoping that once the election hoopla is over, the new commander-in-chief will be a calming influence.
“So you have a world where you have to weave your way through, and I think it would be a time to be a little more conservative than you would be otherwise,” said Greenberg.
“You need people with stable minds who understand the responsibility they have in maintaining a world order. … Having stability is very important — one of the most important things that each country has to manage in their own way.”
For businesses, a degree of uncertainty in election years is par for the course, particularly when there is no incumbent. But the question has typically boiled down to which party gets the White House, Republicans or Democrats? From there, making an educated guess about what the next four years would hold was a fairly academic exercise. Right now though, there are too many unknowns to make assumptions, and it’s making business leaders noticeably uncomfortable.
“Uncertainty is worse than just about anything,” said Galen. “If you know something bad is definitely going to happen … you’re not going to like it, it’s going to be terrible, but at least you can plan for contingencies around it.” But a volatile candidate “offers you no real chance to do that. You just have to hope and pray that whatever he does or does not do is not the death knell for your industry or your business.”
According to a Duke University/“CFO Magazine” survey in June, nearly half of U.S. firms reported pulling back on employment or investment as political uncertainty clouded their overall business outlook. And eight out of 10 CFOs said the U.S. economy faces moderate to large political risk due to election uncertainty.
“Companies take a big pause in the face of severe risk, delaying or scaling down business spending plans until the risk dissipates,” John Graham, the director of the survey, wrote in the report. Executives surveyed anticipated capital spending growth of 1.1 percent over the next year, down from 5.8 percent growth anticipated this time last year.
“For those of us who run global businesses, if we end up with an erratic president and/or loose cannon, we may be less willing to invest in the U.S. until we see how things are going to play out,” said Mark Watson, CEO of Argo Group International.
The Stroke of a Pen
Doomsday predictions make for catchy headlines, but it’s safe to assume that on the morning after the 2017 inauguration, we won’t be waking up to some dystopian New World Order, no matter who gets sworn in.
The markets aren’t likely to collapse either. According to “Fortune” magazine, the evidence of the past 70 years shows that presidential elections barely affect the economy at all.
But don’t exhale just yet.
The U.S. Constitution may spread the power across the branches, but sources point out that the power of executive orders — and the potential for abuse of them — should give business leaders pause.
Consider that Lincoln’s Emancipation Proclamation was enacted via executive order, as was the establishment of the Works Progress Administration — the lynchpin of Roosevelt’s New Deal. Of particular relevance to some of the more extreme rhetoric to come out of current campaign sound bites, Roosevelt also used an executive order to send 120,000 people of Japanese descent to internment camps — the majority of them American citizens.
“Hopefully there’s enough separation of powers so that a zealous president, Republican or Democrat, can be held in check by a vigilant legislative branch.” —Mark Watson, CEO, Argo Group International
In more recent history, President Obama issued a 2014 executive order to raise the minimum wage for all federal contractors and subcontractors from $7.25 to $10.10. It’s possible that the next president could do the same to quickly push through the popular call for a $15 minimum wage, putting upward pressure on states to keep pace.
Several presidents have been accused of overstepping the authority of the executive branch. The U.S. Supreme Court recently affirmed an appeals court decision in United States v. Texas that challenged President Obama’s 2014 executive order that limits the deportation of certain illegal immigrants. Twenty-six states and the House of Representatives filed suit, arguing that the president effectively rewrote the immigration laws, and also imposed an unlawful financial burden on the states.
“Hopefully there’s enough separation of powers so that a zealous president, Republican or Democrat, can be held in check by a vigilant legislative branch,” said Watson.
Political appointees offer the presidency added opportunities for influence. The next president’s choice as a successor to Federal Reserve Chairwoman Janet Yellen is on the minds of many, said Jon Lieber, United States director at global political risk research and consulting firm Eurasia Group.
“Political independence of the Fed is one of the cornerstones of our modern macroeconomic policymaking today. … If [the next president] appoints someone that isn’t as protective of the independence of the Fed, that has a material impact on the dollar; that has a material impact on interest rates; it has a material impact on the stock market; and it will have ripple effects that extend throughout the entire economy.”
Experts also caution that if the way the election campaigns have been run is any indication, the next president may not stop at executive orders or any other standard approach to getting things done. The contenders have shown a notable lack of interest in doing what’s expected of them, said author Meg Murer Tortorello, former senior vice president with the Property Casualty Insurers Association of America.
“They are not looking to follow the establishment thinking that ‘This is the playbook; these are the rules to follow.’ ”
Deepening the uncertainty about how any of the candidates will act once elected, there is the fact that the high level of volatility in the presidential campaign could impact other elections in unexpected ways.
“People should be looking at what’s happening down the ticket. They need to think about the disruption down the line,” said Tortorello. “It is not a quiet country right now. As the voices continue to be loud and grow louder, I don’t think Congress is going to be able to get away with business as usual if they want to keep their seats. That will be a different pressure than we’ve seen in the past.”
“The polarization of the candidates that exists in this election cycle means that it is also possible for Congress to turn over in a variety of different ways,” added Dr. Eric Eisenstein, director of the business analytics program, department of statistics, at Temple University’s Fox School of Business.
“Those things also ruin your estimates about how stable things are or how likely things are to be implemented. I think it is particularly [unclear] right now what will happen with Congress. … I feel like I’m on solid ground in saying that this is a more up in the air, more uncertain jump ball than usual.”
Getting Into the Weeds
“Until after the election, or until the policies become clearer, there is a case — if it’s not too costly — to put off investments, especially fixed and irreversible investments, and maybe not do so much hiring [or firing] but to just kind of stay where you are and put off some decision-making to the future,” said Scott Ross Baker, assistant professor of finance at Northwestern University’s Kellogg School of Management.
But delay, in this case, may be an insufficient risk management plan.
“If people are sitting on the sidelines watching how the elections are going to play out this fall, thinking they’re going to have a year before the presidency and Congress can really get going, I think that is a big risk,” said Tortorello.
Company leaders cannot rely solely on checks and balances, said experts, or assume that political gridlock will be enough to prevent dramatic upheavals.
“If you are charged with that task of looking down the road … and asking what is the environment going to look like for us from a governmental or from a regulatory perspective, the idea that you’re somehow not worried at all about it seems foolhardy,” said Galen.
“Over the course of the last 60 or so years, the executive branch has taken on and been given enormous independent authority by the legislative branch.”
“It’s more important than ever to follow these kinds of political developments,” added Lieber. “Unfortunately, companies have to spend more time getting into the weeds of what’s happening with the federal government [and] what’s happening in the regulatory space as it affects their industry.
“Part of that’s just a matter of paying attention … and understanding where the pressure points are. It’s important in a way that I think it wasn’t 20 or 30 years ago for corporations.”
Now is the time to be thinking about how to manage the potential risks, experts said.
“Companies that are being more proactive and trying to mitigate some of those risks now, those are the ones that are going to be more successful within the next year, two years,” said Tortorello.
Executives can begin to assign probabilities to the things their company leaders are worried about, said Ironshore’s Kelley.
For example, he said, “What happens if economic growth comes in even lower than we think? What’s the probability of that? Because that would have impacts on risk and how you mitigate risk. What happens if Fed policy gets misinterpreted and interest rates move up more quickly than the market thinks? That would have an impact on business.”
The issues outlined on the candidates’ websites can function as a jumping-off point, said Tortorello. “Overlay that with a lens of what could happen with gridlock, which are going to be easier wins, which are going to help drive economic growth.
You can, in a sense, create a grid for your company to think about which could really impact you and which has a higher probability of moving more quickly or more slowly.”
“Having the organization reflect on the potential impacts, the magnitude of the potential impacts, and how they would react is a completely logical approach,” said Mike O’Connor, CEO of Aon Risk Solutions.
“The best way to be prepared is to be proactive,” he said, which means having a mind-set of resiliency and “looking out the windshield rather than the rear-view mirror in terms of understanding what might impact their businesses.”
An Opportunity to Step Up
Executives are hopeful that all of the current turmoil will eventually result in change for the better.
The economy obviously needs more growth, said Kelley, “and one good way to help stimulate that is through infrastructure spending. I think regardless of who the next president is, there’ll be a lot of focus on that and there’ll be a lot of benefit to the economy if that is done right.
“We could end up creating more jobs and ultimately improving productivity. If we improve our roads, our airports, the byproduct is not just jobs today, but improved productivity for tomorrow. I think that is not foolish optimism.”
Tortorello hopes business leaders will take that kind of thinking a step further and work to be a part of what drives that change by sharing their ideas with candidates, with the White House, and with congressional leaders.
“[Executives can] take a look at the laws that are hampering innovation, the laws that are hampering job growth and job creation — what are the laws that are holding their communities back from building and prospering?
“There’s an opportunity for the business sector to think about what would help their companies, what would help their market sector, what would help their community and their country, and put those ideas forward.”
Tortorello added that the exercise of developing those ideas can be of great benefit to companies as they think about the outcome of the elections and their organizations’ risks and goals.
“When you’re sitting down with your senior management team and talking about what’s holding us back or what would help us jump forward, it helps you think outside of the box. It helps you think more like a disruptor.”
That can help companies think through ways to be more agile once the elections happen, she said, while also helping them understand the role they can play in helping the overall economy, creating jobs and helping the country prosper.
“Executives need to be thinking through the disruption,” said Tortorello. “Regardless of who wins, there are opportunities for the business sector to step up and help — help calm some of the unrest of our nation as well as create innovative opportunities and mitigate their own risks.
“The business sector, I hope, won’t sit on the sidelines. We can be a part of the conversation to really help the country.” &
Menace on the Horizon
Scenario: Fifteen to 20 minutes.
That’s all the time that tens of thousands of coastal residents and tourists will have to escape with their lives when the Cascadia Subduction Fault ruptures. It could happen tomorrow. Or in 50 years. No one is totally sure, since there is no way to predict when earthquakes occur.
But when the 700-mile-long fault in the Pacific Ocean that stretches just 70 miles offshore from Cape Mendocino, Calif., to Vancouver Island, British Columbia, last erupted in 1700, the earthquake-powered tsunami was so powerful it drowned a forest of 150-foot-tall spruce trees on the Oregon Coast and swamped a feudal castle in Japan.
This time, the loss of life and infrastructure damage will be worse because so many more people live in the Pacific Northwest and there is so much more to destroy.
Large sections of the coastline will drop by nearly 5 feet, and the shaking caused by the magnitude 9 earthquake will last as long as five minutes, affecting 140,000 square miles, including Seattle, Tacoma, Portland and Olympia. Aftershocks will continue for months.
The first tsunami wave — as high as 30 to 40 feet — will bury the coastal communities in unrelenting towers of water moving about 20 mph toward the shore, and as fast as 500 mph across the ocean. About 100,000 people live and work there, but the population grows by tens of thousands during tourist season.
Roads, bridges, railways and communication structures will be destroyed. Natural gas pipelines and water systems will be heavily damaged. There will be widespread, lengthy power outages in every city within 100 miles of the coast. Undersea transpacific cables will be severed.
Fatalities will total upwards of 13,000 — many more if the tsunami occurs during a weekend beach day in tourist season.
The coastline and low-lying areas of towns west of I-5, the main interstate on the West Coast, will be wiped out from Northern California to British Columbia. Higher ground will suffer moderate to severe damage.
Wood-frame buildings should withstand the earthquake, but not the tsunami. Masonry buildings may withstand the tsunami, but not the earthquake.
Fatalities will total upwards of 13,000 — many more if the tsunami occurs during a weekend beach day in tourist season.
The region never fully recovers.
Analysis: Total global economic losses from natural and man-made disasters in 2015 were $92 billion, according to Swiss Re. When the Cascadia Subduction Fault ruptures, that alone will be higher.
Official projections put the economic damage at $49 billion for Washington, $41 billion for British Columbia, $32 billion for Oregon and $4 billion for California, but many experts believe losses will be higher. Maybe 20 percent to 25 percent of economic losses will be insured, experts said.
Residents and small business owners usually do not have flood or earthquake protection. And standard policies for small businesses have limited coverage for business interruption, or extra expenses required to rebuild and recover.
“The basis for the panic is pretty solid. It’s not a tinfoil-hat kind of thing. We are way past the minimum from geologic records, but we are not in any sense, overdue.” — Dr. Chris Goldfinger, director, active tectonics and seafloor mapping laboratory at Oregon State University
National or regional companies may see higher payouts. As sophisticated insurance buyers, they will have higher limits for business interruption, contingent business interruption and for extra expenses. But the damage will take months and years to fix. No business can outlast that. Not if they remain in the area.
Homes and businesses on the coast will be destroyed. Plus, the entire coastline will be isolated by the tsunami’s devastation, cut off from the rest of the country.
In the bigger cities, such as Portland, Eugene and Seattle, many properties will be destroyed by the earthquake. Residents and business owners will face at least a month without electricity, several months without water, and years before bridges and major infrastructure are restored. And those are the optimistic projections.
Oregon businesses were stunned to hear it would take months and years to resume operations, said Dr. Chris Goldfinger, director, active tectonics and seafloor mapping laboratory at Oregon State University, who has been charting the frequency and severity of the zone ruptures.
“They said after a few weeks, we would have to leave,” he said. “We can’t just sit here and wait for years for bridges to be rebuilt. That was a sobering moment.”
Everyone Has a Stake
The average time between earthquakes is 400 to 500 years, Goldfinger said. It can be as short as 200 years, as long as 1,000. It’s now 315 years since the last rupture of the Cascadia Subduction Fault.
“The basis for the panic is pretty solid. It’s not a tinfoil-hat kind of thing. We are way past the minimum from geologic records, but we are not in any sense, overdue,” Goldfinger said.
“Everyone has a stake in it,” he said. “We all have a responsibility to do something.” — Jay Wilson, Clackamas County (Oregon) resilience coordinator
With bridges, highways and communication down, emergency response will be limited. Rescue efforts will have to come from outside the affected areas.
“The people we count on the most for smaller disasters and misadventures will be victims like the rest of us,” said Goldfinger.
Like many others in the Pacific Northwest, Jay Wilson, Clackamas County (Oregon) resilience coordinator, is working to reduce the number of victims. It’s a very site-specific exercise and an overwhelming task.
“Everyone has a stake in it,” he said. “We all have a responsibility to do something.”
“A Massive Planning Effort”
To aid tsunami survivors, the construction of about 43 “vertical evacuation structures” in coastal Washington have been discussed.
The first one — a refuge on the roof above Ocosta Elementary School in Westport, Wash., will be finished soon. It will hold 700 people. A planned berm — basically a big hill — behind an elementary School in Long Beach, Wash., will save about 600 more.
Officials and community members are also caching relief supplies on high ground near the tsunami zone so survivors will have provisions while they await rescue, said Nathan Wood, research geographer, U.S. Geological Survey.
“It’s a massive planning effort,” he said, noting that Oregon and Washington emergency managers have involved hundreds of experts, legislators, business leaders and the public in regional resilience planning.
“It will be catastrophic,” Wood said, “but we can make it more resilient. People are not burying their heads in the sand. Can they make everything perfect in one day? No. But it was really impressive how they are pulling everybody together.”
Still, Wilson said, it’s a hugely expensive proposition that will take years, and new buildings and infrastructure are still not being constructed to a higher level of resilience, such as is common in Japan and Chile, or even California, where earthquakes and tsunamis are more common.
“Until the business community starts demanding it and elected officials campaign on it, it’s still backroom conversation by a bunch of policy wonks like me saying, ‘What can we do to make this happen?’ ”
VIDEO: More than 470 Washington National Guard personnel took part in the Cascadia Rising earthquake preparedness exercise in June. Report from iFiberoneNews
That’s not to say there hasn’t been progress. In June, “Cascadia Rising 2016,” a four-day earthquake and tsunami drill began in Washington and Oregon to test emergency response measures. About 20,000 people, including the U.S. National Guard, and federal, state and local emergency responders, practiced saving lives and delivering services while testing ways to communicate with no electricity or cell service.
The region will also be getting support from the 100 Resilient Cities initiative of the Rockefeller Foundation. Seattle and Vancouver were added to the roster in May. Both will receive financial support for a chief resilience officer as well as access to best practices, service providers and partners.
Wilson had been hoping Portland would be chosen as well.
Recovery will be an immense challenge. The U.S. already has a $1.5 trillion shortfall for infrastructure maintenance, said Alex Kaplan, senior vice president, global partnerships, Swiss Re, who works with the 100 Resilient Cities initiative.
Finding the Money
“Where will the money come from?” asked Jamie Miller, head of property for North America, Swiss Re Corporate Solutions. And when?
One year after Superstorm Sandy, about 75 percent of federal funding still had not been dispersed, he said.
The challenges settling claims following Sandy’s devastation will surely reoccur, Miller said. And there will be a “huge gap” between insured and economic losses for small business owners.
“Where a policy does not cover earthquake or flood, an insured’s coverage may only include ensuing losses, such as fire resulting from a burst gas pipe.”
Business income protection and coverage for extra expenses will not come close to covering the costs required to return to operation, he said.
For larger companies, even the most sophisticated risk manager will be challenged to calculate — or protect — the business income and recovery losses.
Access to gasoline will disappear rapidly, so emergency generators will become useless. Customers will be nonexistent.
Construction crews will be overwhelmed and face labor shortages; their price will dramatically escalate, assuming it’s even possible to hire a crew, Miller said.
Built-in redundancies to use nearby facilities to get back in business will be useless since the entire region will be affected, and receiving supplies, impossible.
Plus, with the popularity of just-in-time supply chains, companies will likely have few resources on hand to facilitate production.
At the same time, U.S. and Asian companies that rely on goods from the devastated area will go lacking.
“The big question is, what are we going to do about it?” — Jay Wilson, Clackamas County (Oregon) resilience coordinator
After the Thailand floods in 2011, some car manufacturers delayed production for months because of a lack of components, while computer industry companies saw shortages and adverse impacts for six months to a year.
When large commercial enterprises file insurance claims, they may be dealing with as many as 20 companies.
“Getting them all to agree on an adjustment is a big challenge,” Miller said.
Insurers that did not adequately manage risk aggregation will face bankruptcy. That, in turn, will leave third-party vendors and service providers unpaid and work undone.
Steven Jakubowski, president, Aon Benfield’s impact forecasting team, said insurer solvency will be an issue. “We saw that in Northridge,” which was a 6.7 magnitude earthquake that hit Los Angeles on Jan. 17, 1994.
According to the Insurance Information Institute, Northridge caused $15.3 billion in insured damage, topped only by Hurricane Katrina, the attacks on the World Trade Center and Hurricane Andrew.
“We are so big on public/private partnerships because of this,” Miller said. “The resiliency initiative is all about creating awareness of overall risk.”
Swiss Re’s global partnerships business focuses on building long-term resilience, while helping governments transfer risk away from taxpayers and into the private market, aiming to reduce over-dependence on an increasingly strained federal disaster budget, Kaplan said.
Wilson said the aim of emergency planning is to create a two-to-four week recovery window. Right now, it’s months and years.
“We haven’t had anything this big in our country before,” he said. “For me, I just accept it. It’s gonna happen,” said Wilson. “The big question is, what are we going to do about it?” &
To Keep Cool in a Crisis, Companies Need a Comprehensive Solution
Threats against corporate security come in many forms, from intentional acts of violence to civil unrest to cyber-attacks. The perpetrators don’t discriminate by company size or sector, and the consequences can range from several thousand dollars lost to several lives lost.
The recent shooting in an Orlando nightclub that killed 49, for example, or last year’s San Bernardino shooting that killed 14, are somber reminders that terrorism and violence can erupt anywhere and in any type of business. In addition to loss of life, violence can translate into business interruption and property damage. In Ferguson, Mo., riots lead to over $4 million in property damage.
Cyber-attacks have also become commonplace, with hackers infiltrating private networks to steal data or hold it ransom.
Is your organization prepared for these risks?
“A lot of companies have a crisis response plan on paper, but they don’t have outside resources to come to their aid if there is an incident,” said Reggie Gibbs, Underwriter and Product Manager, Starr Companies.
Mid-size companies especially tend to lack comprehensive insurance coverage and crisis management services for a variety of security events due either to limited resources or an underestimation of their exposure.
Starr Companies’ Cyber and Terror Response (CTR) solution provides three coverages as well as crisis response services tailored to meet the needs of these companies. Each of its components addresses a common security threat.
“We don’t just want to indemnify the security risks our clients face; we want to help them actively manage them.”
— Reggie Gibbs, Underwriter & Product Manager, Starr Companies
Terror and Political Violence
“Political violence can be defined as a strike, riot, protest, or any type of unrest that gets out of hand and turns violent,” said Gibbs, who specializes in terrorism and political violence, workplace violence, and crisis management.
In the case of the Ferguson protests, any first party property damage or third party liability incurred by the disruption would be covered under the terrorism and political violence segment of the CTR solution.
In the case of a terror attack, organizations cannot necessarily rely on TRIA to pick up property losses. In the case of the Orlando shooting, for example, the likelihood of TRIA being invoked is low because property damage will not meet the threshold for coverage to kick in.
TRIA, reauthorized in 2015, provides a federal insurance backstop in the event of a terror attack. The U.S. Secretary of the Treasury, U.S. Attorney General, and U.S. Secretary of Homeland Security must declare an attack to be an act of terrorism, and property damage must exceed $5 million to trigger TRIA.
“We would still view the Orlando shooting as an act of terror, however, because of who the shooter claimed he was working for regardless if the ties to terror groups are clear or not. Therefore, our coverage would apply,” Gibbs said. Even if TRIA was enacted, however, companies would still have a lot of pieces to pick up following an attack. They may have injured or deceased employees, or face legal action from third parties.
For these situations, and any other incident of violence not driven by terrorism, the workplace violence component of Starr’s CTR solution would act as an umbrella to cover other liabilities such as legal liability, loss of life benefits, psychiatric care, and other crisis response services.
One such incident struck a Boston-area Bertucci’s in early May. An attacker wielding a knife drove his car into a Boston shopping mall before making his way into the nearby restaurant. He killed five, including restaurant workers and patrons.
“There was no ideological or political motivation behind it. He was just deranged.” Gibbs said. “Our workplace violence coverage can handle the loss of life benefits for both the employees and patrons killed in situations like this one.”
In the best cases, though, violence can be prevented altogether.
“If an employee reports a stalking threat, the policy would cover the expense of security guards,” Gibbs said. “In this case, it’s more of a pre-workplace violence coverage. It would de-escalate the situation.”
Attacks can also be non-physical.
Cyber extortion in particular is on the rise. Phishing scams lead employees to click on malicious links, unknowingly downloading ransomware onto their internal networks. The cyber criminals then hold companies’ networks ransom, asking for a sum of money in return for the release of data or to prevent a business interruption. The ransoms can be low — amounts that organizations can afford to pay.
“The hackers don’t want to attract the attention of law enforcement or regulatory agencies,” said Annamaria Landaverde, National Cyber Practice Leader & Professional Liability Underwriting Manager, Starr Companies. Landaverde specializes in the cyber component of the CTR coverage. “The FBI may not get involved if someone asks for $5,000. They are more likely to get involved if someone asks for $5 million.”
Since companies are not required by law to report cyber extortion —like they are for data breaches — many choose simply to pay the ransom and move on without generating any negative news headlines.
“The hackers don’t want to attract the attention of any law enforcement or regulatory agencies. The F.B.I. won’t get involved if someone asks for $5,000. They will get involved if someone asks for $5 million.”
— Annamaria Landaverde, National Cyber Practice Leader & Underwriting Manager, Professional Liability Division, Starr Companies
“A California medical center recently had an incident like this where the hackers asked for $17,000 in ransom,” Landaverde said,” but the amounts can vary.”
While the ransom itself may seem manageable, many companies fail to recognize other costs associated with the identification and removal of the malware from their system. There may also be costs associated with forensics investigations, legal experts, public relations firms, third party lawsuits, and notification and credit monitoring.
“The cyber arm of the CTR coverage extends to liability that an organization would suffer as a result of a breach, or failure of security of the insured’s network,” Landaverde said. That includes not just cyber extortion, but outright data theft or denial-of-service attacks.
Crisis Management Services
“We don’t just want to indemnify the security risks our clients face; we want to help them actively manage them,” Gibbs said.
The fourth component of Starr’s CTR solution – crisis response — provides two outside consultants to insureds, with one specializing in “hard” security services like guards or instances of cyber extortion, and another focusing on crisis communications.
Without these outside services, there is only so much insurance can do in the aftermath of a crisis. Experienced consultants provide a range of security preparedness and response services to complement coverage and help insureds recover from an episode of violence or cyber event.
“From a communications perspective, our consultants can manage the public relations front to create clear and consistent messaging, but they can also stay in touch with families after a terror or other violent attack to make sure everyone stays informed,” Gibbs said.
They also serve as a first point of contact for insureds immediately after an event. If they need guidance quickly, consultants await at the ready.
“When a client purchases the product, they get a 24-hour hotline set up with one of our consultancies,” he said. “They can report an incident at any time, and our consultant will help either resolve a situation or deal with the aftermath in whatever way they can.”
While the Cyber and Terror Response package provides a comprehensive solution tailored for mid-size companies, Starr also offers standalone cyber liability and crisis management coverage on a primary and excess basis.
“For companies with greater exposure to a particular type of risk, or who simply want higher limits or greater customization, we have those standalone polices.” Landaverde said.
For more information on Starr Companies’ Cyber and Terror Response solution, visit https://www.starrcompanies.com/Insurance/CyberAndTerrorResponse.
Starr Companies is the worldwide marketing name for the operating insurance and travel assistance companies and subsidiaries of Starr International Company, Inc. and for the investment business of C. V. Starr & Co., Inc. and its subsidiaries.
This article was produced by the R&I Brand Studio, a unit of the advertising department of Risk & Insurance, in collaboration with Starr Companies. The editorial staff of Risk & Insurance had no role in its preparation.