Email
Newsletters
R&I ONE®
(weekly)
The best articles from around the web and R&I, handpicked by R&I editors.
WORKERSCOMP FORUM
(weekly)
Workers' Comp news and insights as well as columns and features from R&I.
RISK SCENARIOS
(monthly)
Update on new scenarios as well as upcoming Risk Scenarios Live! events.

Crisis Management

Target as Target

Risk experts grade Target's efforts to manage the reputation damage caused by the data breach.
By: | February 3, 2014 • 4 min read
TargetV1

After fumbling its initial response to a massive data breach, Target Corp. has rebounded, according to experts in crisis management.

However, they said, the retailer still faces challenges in regaining consumer confidence, especially among people directly harmed by the cyber attack, which struck at the height of the holiday shopping season.

Advertisement




In late November and early December, malware lodged in the retailer’s point-of-sale system siphoned off account and personal information for up to 110 million customers. But Minneapolis-based Target is not the only company that may have been struck. Luxury retailer Neiman Marcus suffered a smaller breach, and news reports suggest at least six other retailers have been hit. These other companies likely are keeping a close eye on Target’s handling of the crisis.

Critics have focused, in part, on the company’s early communications. Target appeared initially to underestimate the gravity of the situation, crisis consultants said. For example, Target’s first message to customers apologized for the inconvenience.

“You don’t call something like this an inconvenience,” said Rich Klein, a crisis management consultant in New York City.

Initial email (truncated) sent by Target on 12/19/2013. The original email included an additional 4 pages of information.

Initial email (truncated) sent by Target on 12/19/2013. The original email included an additional 4 pages of information.

Subsequent messages from Target used stronger language, acknowledging customers’ stress and anxiety, he said. Messages also switched from assuming customer confidence to promising to regain it, Klein added, praising the change.

“I would still say it’s so much better to get it right the first time,” he said.

2nd email to guests, 12/20/2013.

2nd email to guests, 12/20/2013.

Still, he added, the company made good use of its Twitter feed and Facebook page. Facebook, for example, was used only to communicate about the breach, not to advertise sales, though it also acted as something of a lightning rod for complaints.

Consultants also panned the company’s decision to extend a 10 percent discount to shoppers during the weekend of Dec. 21, a few days after news of the breach first surfaced. While the discount was a nice gesture, it did not adequately address customer concerns and seemed to suggest the crisis had passed, consultants said.

In addition, the company has occasionally appeared to be behind the news, with information trickling out in the media before being revealed by Target, said Jeff Jubelirer, vice president of Philadelphia-based Bellevue Communications Group. “We should expect more from a retailer of that size and that reputation and that level of success.”

A key turning point came on Jan.13 when the company’s CEO, Gregg Steinhafel, appeared on CNBC, apologizing for the breach, reassuring customers and defending the company’s reaction:

Steinhafel should have been giving interviews in December, said Jonathan Bernstein, an independent crisis management consultant in Los Angeles. “They would have suffered less loss of sales and less impact on their stock value if they had been more assertive from the get-go.”

Other observers gave Target high marks for making a relatively quick disclosure of the breach and offering a free year of credit monitoring to customers. The four-day gap between discovery of the breach on Dec. 15 and public disclosure on Dec. 19 was faster than it’s been in other cases, said Alysa Hutnik, an attorney in the Washington, D.C. office of Kelley Drye.

“I haven’t done the math, but I think that would rate somewhere at the very top,” said Hutnik, who specializes in cyber security issues.

Another high point is the prominent role of Target’s CEO, Hutnik said. “He knows there’s work to be done to earn back customer trust, and it looks like he is taking that obligation seriously,” she said, noting that top executives rarely serve as public faces after a data breach.

Other positive steps include Target’s $5 million investment in cyber security education said Michael Soza, a partner in accounting and consulting firm BDO.

“This latest move … is really going on the offensive to show that they really are trying to get out in front of this thing and really attack what is not just a Target problem,” Soza said.

Advertisement




As long as no other damaging details leak out, most customers will remain loyal to the chain, said Daniel Korschun, an assistant professor of marketing at Drexel University in Philadelphia.

But the company will have to work harder to win back customers who suffered directly. They will be hard to find and hard to soothe, especially if they’ve had to spend hours on the phone undoing damage to their credit or bank accounts.

“Those are the ones where the trust has really been lost,” Korschun said.

Joel Berg is a freelance writer and adjunct writing teacher based in York, Pa. He has covered business and regulatory issues. He can be reached at riskletters@lrp.com.
Share this article:

Risk Insider: Bob Nevens Jr.

Insurance Implications of Ebola

By: | October 29, 2014 • 2 min read
Bob Nevens, Jr., AIS, ARM, is Director of Corporate Risk and Insurance at Houston Methodist Hospital. He can be reached at bjnevensjr@houstonmethodist.org.

Dealing with an Ebola patient at your health care facility presents many risks. There are a few that stand out like employee safety, safety to the general public and patient population, environmental exposures, and even risk to your company’s directors and officers.

All of these could be tied together with one Ebola case, especially if the case isn’t properly handled.

First and foremost, update all your policies and procedures relating to infectious diseases. Stay current with the Centers for Disease Control and their requirements. Appoint a response team.

Train all those in your facilities to spot a potential Ebola patient and the proper procedures for isolation, treatment, and transfer. It’s likely your emergency department will be the front line and most exposed.

A general liability policy insures against third-party liabilities. In this case, third parties could claim they were infected at your facility and you failed to provide a safe environment in which to conduct regular business.

Your policy should have a duty to defend, however. I would suggest reviewing your coverage, paying close attention to wording associated with expected bodily injury and other policy exclusions.

Workers’ Comp Implications

Employee safety in treating infectious diseases is paramount to delivering effective care to patients. Have your employees practice taking on and off all appropriate protective gear.

In the event a health care worker contracts the virus, workers’ compensation would likely provide coverage. Review your policy and tie it to any umbrella or excess liability coverage. This is crucial because your work comp policy most likely has a disease limit, per claims and disease per policy limit.

An infected employee may also elect to file suit against an employer alleging negligence. If you have workers that work or volunteer outside the U.S. then you may want to look into foreign voluntary workers’ compensation and couple it with an accident and disability policy.

The hospital that treated the first casualty in the United States, Thomas Eric Duncan, and also had two nurses contract the virus is currently dealing with reputational loss and lost revenues.

The first place to look is your facility’s business interruption coverage. Be cautious, as coverage is typically triggered only when there is direct physical damage. Even more so, most contain a communicable disease exclusion or a severely sub-limited amount of coverage and require a governmental agency requiring limited or no access.

Allegations of Negligence

A directors’ and officers’ policy provides defense and protection for allegations of executive mismanagement. These claims can arise from a variety of sources: the state attorney general, financial donors, even employees.

Allegations could include failure to follow CDC protocol, not properly safeguarding the institution’s assets, or lack of proper training. A situation handled incorrectly could cause negative publicity thus leading to declining revenues and admissions as well as a loss of reputation.

In summary, updated procedures and training is crucial to avoiding the pitfalls of such high profile infectious disease situations. Check with your broker to ensure what, if any, coverage is available under your current program and what triggers the coverage.

Share this article:

Sponsored: Liberty International Underwriters

A Renaissance In U.S. Energy

Resurgence in the U.S. energy industry comes with unexpected risks and calls for a new approach.
By: | October 15, 2014 • 5 min read

SponsoredContent_LIU
America’s energy resurgence is one of the biggest economic game-changers in modern global history. Current technologies are extracting more oil and gas from shale, oil sands and beneath the ocean floor.

Domestic manufacturers once clamoring for more affordable fuels now have them. Breaking from its past role as a hungry energy importer, the U.S. is moving toward potentially becoming a major energy exporter.

“As the surge in domestic energy production becomes a game-changer, it’s time to change the game when it comes to both midstream and downstream energy risk management and risk transfer,” said Rob Rokicki, a New York-based senior vice president with Liberty International Underwriters (LIU) with 25 years of experience underwriting energy property risks around the globe.

Given the domino effect, whereby critical issues impact each other, today’s businesses and insurers can no longer look at challenges in isolation one issue at a time. A holistic, collaborative and integrated approach to minimizing risk and improving outcomes is called for instead.

Aging Infrastructure, Aging Personnel

SponsoredContent_LIU

Robert Rokicki, Senior Vice President, Liberty International Underwriters

The irony of the domestic energy surge is that just as the industry is poised to capitalize on the bonanza, its infrastructure is in serious need of improvement. Ten years ago, the domestic refining industry was declining, with much of the industry moving overseas. That decline was exacerbated by the Great Recession, meaning even less investment went into the domestic energy infrastructure, which is now facing a sudden upsurge in the volume of gas and oil it’s being called on to handle and process.

“We are in a renaissance for energy’s midstream and downstream business leading us to a critical point that no one predicted,” Rokicki said. “Plants that were once stranded assets have become diamonds based on their location. Plus, there was not a lot of new talent coming into the industry during that fallow period.”

In fact, according to a 2014 Manpower Inc. study, an aging workforce along with a lack of new talent and skills coming in is one of the largest threats facing the energy sector today. Other estimates show that during the next decade, approximately 50 percent of those working in the energy industry will be retiring. “So risk managers can now add concerns about an aging workforce to concerns about the aging infrastructure,” he said.

Increasing Frequency of Severity

SponsoredContent_LIUCurrent financial factors have also contributed to a marked increase in frequency of severity losses in both the midstream and downstream energy sector. The costs associated with upgrades, debottlenecking and replacement of equipment, have increased significantly,” Rokicki said. For example, a small loss 10 years ago in the $1 million to $5 million ranges, is now increasing rapidly and could readily develop into a $20 million to $30 million loss.

Man-made disasters, such as fires and explosions that are linked to aging infrastructure and the decrease in experienced staff due to the aging workforce, play a big part. The location of energy midstream and downstream facilities has added to the underwriting risk.

“When you look at energy plants, they tend to be located around rivers, near ports, or near a harbor. These assets are susceptible to flood and storm surge exposure from a natural catastrophe standpoint. We are seeing greater concentrations of assets located in areas that are highly exposed to natural catastrophe perils,” Rokicki explained.

“A hurricane thirty years ago would affect fewer installations then a storm does today. This increases aggregation and the magnitude for potential loss.”

Buyer Beware

On its own, the domestic energy bonanza presents complex risk management challenges.

However, gradual changes to insurance coverage for both midstream and downstream energy have complicated the situation further. Broadening coverage over the decades by downstream energy carriers has led to greater uncertainty in adjusting claims.

A combination of the downturn in domestic energy production, the recession and soft insurance market cycles meant greatly increased competition from carriers and resulted in the writing of untested policy language.

SponsoredContent_LIU

In effect, the industry went from an environment of tested policy language and structure to vague and ambiguous policy language.

Keep in mind that no one carrier has the capacity to underwrite a $3 billion oil refinery. Each insurance program has many carriers that subscribe and share the risk, with each carrier potentially participating on differential terms.

“Achieving clarity in the policy language is getting very complicated and potentially detrimental,” Rokicki said.

Back to Basics

SponsoredContent_LIUHas the time come for a reset?

Rokicki proposes getting back to basics with both midstream and downstream energy risk management and risk transfer.

He recommends that the insured, the broker, and the carrier’s underwriter, engineer and claims executive sit down and make sure they are all on the same page about coverage terms and conditions.

It’s something the industry used to do and got away from, but needs to get back to.

“Having a claims person involved with policy wording before a loss is of the utmost importance,” Rokicki said, “because that claims executive can best explain to the insured what they can expect from policy coverage prior to any loss, eliminating the frustration of interpreting today’s policy wording.”

As well, having an engineer and underwriter working on the team with dual accountability and responsibility can be invaluable, often leading to innovative coverage solutions for clients as a result of close collaboration.

According to Rokicki, the best time to have this collaborative discussion is at the mid-point in a policy year. For a property policy that runs from July 1 through June 30, for example, the meeting should happen in December or January. If underwriters try to discuss policy-wording concerns during the renewal period on their own, the process tends to get overshadowed by the negotiations centered around premiums.

After a loss occurs is not the best time to find out everyone was thinking differently about the coverage,” he said.

Changes in both the energy and insurance markets require a new approach to minimizing risk. A more holistic, less siloed approach is called for in today’s climate. Carriers need to conduct more complex analysis across multiple measures and have in-depth conversations with brokers and insureds to create a better understanding and collectively develop the best solutions. LIU’s integrated business approach utilizing underwriters, engineers and claims executives provides a solid platform for realizing success in this new and ever-changing energy environment.

SponsoredContent

BrandStudioLogo

This article was produced by the R&I Brand Studio, a unit of the advertising department of Risk & Insurance, in collaboration with Liberty International Underwriters. The editorial staff of Risk & Insurance had no role in its preparation.


LIU is part of the Global Specialty Division of Liberty Mutual Insurance.
Share this article: