Understanding the Risks
If it ain’t broke, don’t fix it. That was the clear message from a client to Richard Geiger when the firm reorganized itself and split off a large chunk of its business.
“We recently completed a spin-off where we needed to duplicate our marine liability structure at an aggressive price,” said the risk manager.
“Rick successfully completed that assignment, getting us the same coverage for the new entity with a cost structure we liked. I was confident he would be able to get it done. Rick was able to negotiate a very aggressive pricing structure at below minimum premiums with the same coverage for some of the layers.”
Another client had a workers’ compensation policy that included limited cover for the Jones Act and U.S. Longshore and Harborworkers’ Compensation Act.
The Jones Act is a federal law that requires the movement of cargo between U.S. ports be carried in vessels owned by and crewed by U.S. citizens. USLH is workers’ compensation for employees specifically when working on or near navigable waters and engaged in maritime employment.
The additional elements of the coverage were expensive, despite a million-dollar retention.
The client said Geiger was able to isolate those specific exposures and place a policy that effectively eliminated the retention and significantly reduced the costs.
Geiger worked with colleagues and insurers in London to create a financial guaranty cover to protect the client’s balance sheet in case of a significant loss after project completion.
Making It Happen
Often, Power Brokers earn their status through innovative coverage and placements, or by resolving a complex claim.
Mira Jacinto had to do it all at once for a client that had suffered “multiple large catastrophic claims,” said the risk manager.
A previous reorganization of the company’s business plan, combined with the losses, drove the firm into poor results and forced it to sell a significant portion of its operations.
The risk manager said that Jacinto was instrumental in getting things back on track. She revised the company’s program after the divestiture, supported management in crafting a risk program for its new, smaller operations, and went to domestic and international markets to secure placement.
Jacinto transformed the client’s turnaround story from a negative one to a positive one, and was able to place customized coverage and secure an overall reduction in rate.
For another client, the challenge could not have been more different.
The firm had prospered, and it asked Jacinto to recommend and implement opportunistic expansions in coverage.
At a time when many companies are emphasizing supply-chain efficiency and trying to reduce inventory, Jacinto found readily available capacity in the market for excess stock exposure, enhancing the client’s marine program at very low cost.
For a third client, a very large retail operation with an evolving business model, Jacinto was credited with keeping the inventory program current with rapid changes in the company.
Meeting the Challenge
“Our cargo coverage was a mess,” said one risk executive. “Our whole business practice had changed and suddenly we went from holding no inventory to holding a lot. It was suddenly a huge exposure both in warehouses and out in the supply chain.
“We had changed our whole stock-throughput policy, and our coverage had not kept pace. We were paying way too much.”
The exec’s company put out an RFP and ultimately chose Michael Pellegrini. “He fixed the gaps and saved us money.”
Part of the challenge, the client said, was that that the company is known for its lean supply chain. Presenting the company to the market was as much a question of perception as it was underwriting and risk management.
Nevertheless, Pellegrini was able to double limits to $200 million, and enhance coverage across the board for the transit and inventory risks, all while securing a rate reduction of more than one-quarter of the previous bill.
Having secured increasingly favorable successive multiyear cargo and transit placements for one client, Pellegrini had to dig a little deeper in 2014 to find efficiencies to be gained in the client’s excess layers that were placed offshore.
Pellegrini was able to craft a presentation that generated competition by previously reluctant domestic underwriters. The result was significant reductions by the incumbent London markets.
Expertise for Diverse Needs
Times have been tough for some in the marine sector, but companies were able to rely on the expertise of Kevin Sisk.
“This was a terrible year for our industry, and a tough one for our company,” said the owner of a private firm. “Margins sunk very low, to the bare bones.
“We put a lot of pressure on Kevin, and he really helped us when we needed it. We changed the whole nature of our company, sold off some big operations, and concentrated on a few others. Our whole financial structure changed and our whole risk profile changed.
“We had to go back to our underwriters — sometimes for our whole placement, sometimes just for segments. But Kevin really earned his stripes this year; we got seamless changes in coverage,” the owner said.
In a strikingly different testimonial, another client faced other needs at a fast growing firm with many small clients. The owner said that with expansion had come strong pressure from small clients for the company to handle the risk management and insurance for projects.
The Catch-22 was that if Sisk’s client refused to shoulder the burden, it risked losing the project or customer entirely; if Sisk’s client accepted, the risks exposures could be greater than any gain from the project.
The client credited Sisk with being able to accommodate the risks — in some cases within the firm’s existing program. In other cases, he worked with the client and its customer to craft coverage for the project that enabled it to proceed without unduly burdening the contractor.
Creative Solutions to Keep Clients Afloat
HUB International’s B.C. Thibeaux III earned his laurels this year by crafting powerful and innovative programs for small operators in a beleaguered industry.
“B.C.’s aggressive and creative thinking showed me how to limit my company’s and my customers’ exposure, by getting non-owned vessel owners to list us on their policy as additional insured,” said one owner. “And then he was the architect in implementing that policy.”
The client has been an owner and operator of offshore vessels for more than 30 years, along with marketing and managing a large fleet of non-owned vessels. So it was no mean feat to show him an approach he had not heard about before.
In another case, a client needed traction with underwriters before he could even begin to think about creative options.
“When I met B.C., my company was having a very difficult time getting underwritten,” said the company executive.
“Many brokers didn’t even acknowledge us with a return phone call. Although we are a small account, B.C. treated us like a major [one], aggressively attacked the market and got us coverage, which effectively saved us from tying up the fleet. B.C. kept us in business.”
Another client had multiple claims on both employer’s and general liability, which were separate. First, Thibeaux worked with the client on safety and risk mitigation, and then was able to find a Lloyd’s underwriter willing to take the placements under a single policy.
Out of Sight, Out of Mind
“Out of sight, out of mind.” That phrase is a useful reminder of the vulnerabilities many organizations unknowingly face when it comes to their far-flung supply chains.
Following some quiet years where natural catastrophes and supply chain disruption issues aren’t front page news, management often turns to seemingly more pressing matters.
However, low risk quality at one’s key facilities, or that of their suppliers and customers, can leave unprepared organizations susceptible to business disruption. Two often overlooked aspects warrant consideration: The first is an organization’s exposure to natural hazards on a country-by-country basis, given that all nations have particular vulnerabilities to one or more perils like earthquake, windstorm or flood.
While mega-catastrophes often spring to mind as a major contributor to supply chain disruption, outwardly smaller weather events can wreak fiscal havoc too.
The second aspect is a country’s level of commitment to addressing natural hazards (i.e., whether local building codes and standards exist, are robust and enforced).
Yet, lower costs and higher productivity often entice businesses, with little consideration of the supply chains consequences, into less resilient countries — regions where economies are emerging, labor is cheap, facilities are built in natural hazard-prone locations and risk management practices are weaker than more developed nations.
While mega-catastrophes often spring to mind as a major contributor to supply chain disruption, outwardly smaller weather events can wreak fiscal havoc too.
Last year, in a poll of the U.S. workforce, more than one in four employees said their company had been hit financially as a result of the winter weather and didn’t have an emergency plan to keep business going during such scenarios.
All told, since 2000, the economic losses globally from natural disasters are estimated to be approximately $2.5 trillion, according to the United Nations Office for Disaster Risk Reduction.
When you can’t make savvy decisions about the resilience of your supply chain to disruption, the chance of it disentangling increases. Under such circumstances, it can take two years or more for companies to recover from a supply chain failure, research finds.
Yet, despite those statistics, 90 percent of companies still do not quantify supply chain risk when outsourcing production, according to a recent study by the Global Supply Chain Institute.
Certainly, the need to continually gauge Mother Nature is just as important as assessing ongoing macroeconomic and geopolitical factors within each country where one’s supply chain extends. For example, what if a key supplier is located in a region with robust building codes and standards that adequately address local natural hazards, but the region’s economy is destabilizing by political upheaval?
By factoring suppliers’ differing risk profiles on a country-by-country basis and which firms could most affect revenue growth and profitability, a buying organization can make sounder choices.
The most resilient companies take pains to identify, analyze, quantify and correlate these various physical threats with other key factors that can jeopardize the timely flow of supplies from across the world.
Only after a comprehensive analysis of such data can organizations be in a position to soundly prioritize supply chain and risk management efforts to ensure their business continuity, competitiveness and reputation.
A Modern Claims Philosophy: Proactive and Integrated
According to some experts, “The best claim is the one that never happens.”
But is that even remotely realistic?
Experienced risk professionals know that in the real world, claims and losses are inevitable. After all, it’s called Risk Management, not Risk Avoidance.
And while no one likes losses, there are rich lessons to be gleaned from the claims management process. Through careful tracking and analysis of losses, risk professionals spot gaps in their risk control programs and identify new or emerging risks.
Aspen Insurance embraces this philosophy by viewing the data and expertise of their claims operation as a valuable asset. Unlike more traditional carriers, Aspen Insurance integrates their claims professionals into all of their client work – from the initial risk assessment and underwriting process through ongoing risk management consulting and loss control.
This proactive and integrated approach results in meaningful reductions to the frequency and severity of client losses. But when the inevitable does happen, Aspen Insurance claims professionals utilize their established understanding of client risks and operations to produce some truly amazing solutions.
“I worked at several of the most well known and respected insurance companies in my many years as a claims executive. But few of them utilize an approach that is as innovative as Aspen Insurance,” said Stephen Perrella, senior vice president, casualty claims, at Aspen Insurance.
“We do a lot of trending and data analysis to provide as much information as possible to our clients. Our analytics can help clients improve upon their own risk management procedures.”
— Stephen Perrella, Senior Vice President, Casualty Claims, Aspen Insurance
Utilizing claims expertise to improve underwriting
Acting as adviser and advocate, Aspen integrates the entire process under a coverage coordinator who ensures that the underwriters, claims and insureds agree on consistent, clear definitions and protocols. With claims professionals involved in the initial account review and the development of form language, Aspen’s underwriters have a full sense of risks so they can provide more specific and meaningful coverage, and identify risks and exclusions that the underwriter might not consider during a routine underwriting process.
“Most insurers don’t ever want to talk about claims and underwriting in the same sentence,” said Perrella. “That archaic view can potentially hurt the insurance company as well as their business partners.”
Aspen Insurance considered a company working on a large bridge refurbishment project on the West Coast as a potential insured, posing the array of generally anticipated construction-related risks. During underwriting, its claims managers discovered there was a large oil storage facility underneath the bridge. If a worker didn’t properly tether his or her tools, or a piece of steel fell onto a tank and fractured it, the consequences would be severe. Shutting down a widely used waterway channel for an oil cleanup would be devastating. The business interruption claims alone would be astronomical.
“We narrowed the opportunity for possible claims that the underwriter was unaware existed at the outset,” said Perrella.
Risk management improved
Claims professionals help Aspen Insurance’s clients with their risk management programs. When data analysis reveals high numbers of claims in a particular area, Aspen readily shares that information with the client. The Aspen team then works with the client to determine if there are better ways to handle certain processes.
“We do a lot of trending and data analysis to provide as much information as possible to our clients,” said Perrella. “Our analytics can help clients improve upon their own risk management procedures.”
For a large restaurant-and-entertainment group with locations in New York and Las Vegas, Aspen’s consultative approach has been critical. After meeting with risk managers and using analytics to study trends in the client’s portfolio, Aspen learned that the sheer size and volume of customers at each location led to disparate profiles of patron injuries.
Specifically, the organization had a high number of glass-related incidents across its multiple venues. So Aspen’s claims and underwriting professionals helped the organization implement new reporting protocols and risk-prevention strategies that led to a significant drop in glass-related claims over the following two years. Where one location would experience a disproportionate level of security assault or slip & fall claims, the possible genesis for those claims was discussed with the insured and corrective steps explored in response. Aspen’s proactive management of the account and working relationship with its principals led the organization to make changes that not only lowered the company’s exposures, but also kept patrons safer.
World-class claims management
Despite expert planning and careful prevention, losses and claims are inevitable. With Aspen’s claims department involved from the earliest stages of risk assessment, the department has developed world-class claims-processing capability.
“When a claim does arrive, everyone knows exactly how to operate,” said Perrella. “By understanding the perspectives of both the underwriters and the actuaries, our claims folks have grown to be better business people.
“We have dramatically reduced the potential for any problematic communication breakdown between our claims team, broker and the client,” said Perrella.
A fire ripped through an office building rendering it unusable by its seven tenants. An investigation revealed that an employee of the client intentionally set the fire. The client had not purchased business interruption insurance, and instead only had coverage for the physical damage to the building.
The Aspen claims team researched a way to assist the client in filing a third-party claim through secondary insurance that covered the business interruption portion of the loss. The attention, knowledge and creativity of the claims team saved the client from possible insurmountable losses.
Modernize your carrier relationship
Aspen Insurance’s claims philosophy is a great example of how this carrier’s innovative perspective is redefining the underwriter-client relationship. Learn more about how Aspen Insurance can benefit your risk management program at http://www.aspen.co/insurance/.
Stephen Perrella, Senior Vice President, Casualty, can be reached at Stephen.email@example.com.
This article is provided for news and information purposes only and does not necessarily represent Aspen’s views and does constitute legal advice. This article reflects the opinion of the author at the time it was written taking into account market, regulatory and other conditions at the time of writing which may change over time. Aspen does not undertake a duty to update the article.
This article was produced by the R&I Brand Studio, a unit of the advertising department of Risk & Insurance, in collaboration with Aspen Insurance. The editorial staff of Risk & Insurance had no role in its preparation.