Target as Target
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.
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.
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.
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.
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.
Asleep at the Wheel
Drowsy driving can be just as deadly as drunk driving — and the transportation industry is taking steps to combat this sometimes tragic problem.
The National Highway Traffic Safety Administration estimates that 83,000 crashes each year are caused by driver drowsiness. Motor carriers, transportation companies and organizations with their own fleets are acutely aware of the tragedies that driver fatigue can cause, as well as the major financial and other losses that can result.
Even if a driver is not at fault in a crash that results in serious injuries or fatalities, ultimately the company’s reputation is at stake, said Michael Nischan, vice president, transportation and logistics risk control at EPIC Insurance Brokers and Consultants in Atlanta.
The company may be ordered to pay for damages, especially if management did not properly vet the driver for a sleep disorder or if the driver’s medical certificate was expired.
“Damages from civil suits may not be covered by insurance, so whether the driver is at fault or not, the costly settlements may ultimately cause a company to go out of business,” Nischan said. “The key is to ensure the driver is qualified before hire and throughout employment, and that requires continuing dialogue and education throughout the organization.”
Rates on the Rise
Crashes involving driver fatigue have also impacted commercial insurance for fleets. Craig Dancer, Marsh’s U.S. transportation industry practice leader in Washington, D.C., said that rates in the insurance market had been soft when carriers were trying to get business and build volume, and underwriting, in some instances, may have been lax.
“So now we’re seeing premiums rise to support the carriers’ level of losses, and some markets have exited the trucking industry,” Dancer said.
Underwriters wanting to write best-in-class are now looking to see whether organizations are using technology to make sure their drivers are performing optimally, he said. Underwriters are also looking to see if organizations are going down the regulatory checklist on how to deal with sleep apnea.
“The proactive motor carriers and transportation drivers have been addressing sleep apnea for a while now, and they have become really good at vetting drivers and adhering to fatigue management programs,” Dancer said.
Companies are conducting sleep studies and buying CPAP machines for drivers diagnosed with sleep apnea, which can have a huge impact on driver fatigue, said Todd Reiser, vice president and producer with Lockton’s transportation practice in Kansas City, Mo.
“A lot of motor carriers are trying to improve driver wellness, which correlates directly with driver fatigue,” Reiser said. “Truck driving is a sedentary job, and drivers tend to struggle with their health, whether it’s from occupational accidents or weight problems.”
The industry has also encouraged truck stops to provide healthier food alternatives, and trucking companies are implementing these alternatives at their own terminals, as well as exercise facilities, workout rooms, and nurses or physicians onsite to provide check-ups, he said.
Large trucking companies have terminals throughout the country in areas where they have a high concentration of business. Underwriters respond favorably to these types of programs.
Technology Use Increases Safety
Underwriters are also looking for anything from a technology perspective to make drivers safer, such as warning systems if a truck crosses the center line or drives onto the shoulder of the road, Reiser said. There is also collision mitigation technology that will stop or slow vehicles before a crash.
Advanced technologies can help identify tired, drowsy or distracted drivers. Canadian-based Fatigue Science makes biometric wristbands that drivers wear, said Rich Bleser, fleet safety specialty practice leader for Marsh Risk Consulting in Milwaukee.
Australian-based Seeing Machines builds dash-mounted sensors with image-processing technology that tracks the movements of a driver’s eye, face, head and facial expressions to detect driver fatigue — and even distraction from doing things like texting.
Seeing Machines also provides in-cab driver alerts to prevent accidents, and 24/7 monitoring and data analytics so employers can improve practices.
The National Safety Council recommends drivers stop every 100 miles and walk around, Bleser said. Keep vehicle temperature cooler and drink ice water, because when the core body temperature is lower, the body’s “internal furnace” kicks in and builds energy to stay alert.
“If drivers are tired, they should not drink caffeine, because even if it makes a person feel that they are awake, caffeine can’t control micro sleep,” he said. “I recommend taking a 10- to 15-minute cat nap, if the driver can find a safe place to park their vehicle.”
Jenn Guerrini, executive commercial auto specialist at Chubb Transportation Liability in Whitehouse Station, N.J., said that driver fatigue can also be a problem for ridesharing companies, as they are not regulated like taxi cab drivers.
“For most of the drivers, this is their second or third job, and there is no regulation on hours of work and fitness of duty,” Guerrini said.
She said some organizations forbid employees to use ridesharing services from 1 a.m. to 4 a.m. while traveling.
For organizations with their own commercial fleets, they should track driving hours automatically in real-time by installing electronic logging devices registered and certified by the Federal Motor Carrier Safety Administration, she said. Such devices will be mandated by the end of 2017.
Companies should also develop best practices for dispatchers, said Chris Reardon, vice president of transportation, warehousing and logistics practice at Assurance in Schaumburg, Ill.
“People are going to seek to put the fault on the motor carrier as well as the driver, but companies should be managing this issue at the dispatcher level as well because often, that is where hours of service issues originate,” Reardon said.
“Poor dispatching and load planning can lead to drivers feeling pressure from the dispatchers and management to get the trip done, regardless of the time constraints.”
He reminds clients of the widespread public scrutiny and even condemnation that could occur after crashes involving driver fatigue, citing comedian Tracy Morgan, who was hit by a Walmart driver who had been awake for more than 28 hours in 2014.
“There are always going to be drivers who don’t care about regulations, because they want to make the most money running the most miles,” Reardon said. “If the management of a company does not establish a culture of safety and compliance in the office or terminal, it will inevitably trickle down to the drivers as a result.” &
Using Data to Get Through Hail and Back
4,600 hailstorms have rained down on the U.S. as of the end of July according to the National Oceanic and Atmospheric Administration. And these storms have left damage behind, cracking unprotected skylights, damaging exterior siding, dimpling rooftops and destroying HVAC systems.
While storm frequency is almost on par with last year’s 5,400, the rest of the picture isn’t quite the same. For example, the hail zone seems to be shifting south. San Antonio, Texas, a “moderate” hazard hail zone area, typically sees four or five hail storms a year, on average. Year to date, more than 30 storms have been reported. Overall, Texas has suffered nearly 20 percent of all hail storms this year.
Liberty Mutual’s Ralph Tiede discusses the risk hail poses to large commercial property owners.
The resulting damage is different too, with air conditioning (AC) units accounting for more than a third of the insurance industry’s losses, a greater proportion than in previous years. “In some cases, we’ve seen properties that sustained no roof damage but had heavily damaged AC systems. This may be a result of smaller hail stone size coupled with high winds,” noted Ralph Tiede, Vice President of Commercial Insurance and Manager of Property Risk Engineering at Liberty Mutual.
Despite the shifting trends, however, these losses are largely preventable if commercial property owners understand their exposures and take steps to mitigate them. By partnering with the right insurer, a company can gain access to the industry-leading resources and expertise to make it happen.
Understanding the Risk through Data
A property owner might know that his property is located in an area prone to hail, but could underestimate the extent of damage a storm could cause. Exposed skylights, solar panels, satellite dishes and other roof-mounted equipment can translate to serious losses.
Three trends that have emerged this hail season.
This is where Liberty Mutual’s property loss control engineers offer critical guidance for customers with large property exposures.
“Our property loss control engineers go out and inspect locations to develop loss estimates,” said Tiede. “They’re looking at the age and condition of the roof, the material it’s made of, and whether equipment is exposed or if there are adequate safeguards in place.”
Liberty Mutual can combine this detail with the hail data it has collected for more than 14 years and use this extensive library to help customers understand their exposures. The company’s proprietary hail tool looks at customer-specific factors, such as roof type, age, condition and geocodes, to better identify potential losses from hail. The tool provides a more detailed view of hail exposure on a micro level, as opposed to more traditional macro views based on zip codes.
“This way, we’re not just looking at a location’s exposure, we’re looking at an account’s cumulative hail exposure and providing a better understanding of where the risk is concentrated,” Tiede said.
Having a good understanding of a company’s specific exposure helps the broker, buyer, and insurer develop an effective insurance program. “Two customers may be in the same area, but if one’s building has a hail resistant roof, protected skylights, and hail guards for HVAC equipment and the other’s has unprotected sky lights and no hail guards or screens on rooftop equipment, they are going to have different levels of exposure. In both scenarios, we can design an insurance program that fits the customer’s situation and helps control the total cost of property risk,” said Brent Chambers, Underwriting Consultant for National Insurance Property at Liberty Mutual.
A Liberty Mutual property loss control engineer consults with the customer on ways to reduce or mitigate the exposure from hail so that the customer can make an informed decision as to where to deploy capital. “It’s not just about protecting a building’s roof and rooftop equipment. Roof damage can lead to extensive water damage inside a building and in some cases disrupt service, both of which can be costly for a business. By focusing on locations with the most exposure, a risk manager is better able to mitigate future losses,” said Tiede.
Actions commercial property owners can take to mitigate the risk of hail-related damage.
Liberty Mutual property loss control engineers also provide recommendations specific to each location. “We know that hail guards work, so we encourage clients to use those to protect HVAC equipment,” said Ronnie Smith, Senior Account Engineer for National Insurance Property at Liberty Mutual. “Condenser coils in air conditioning systems are fragile and easily damaged, and units don’t necessarily come with built-in protection. It’s important for property owners to take this step proactively to prevent a loss.”
The average cost to fix a condenser coil is $500, but replacing a coil can run at least $500 per ton of cooling, a measurement of air conditioning capacity that refers to the amount of heat needed to melt a ton of ice over a 24-hour period. As one ton of cooling typically covers about 250 square feet of interior space, replacement costs can quickly add up.
Replacing an entire AC unit can run more than $1,000 per ton of cooling. In a 250,000 square foot property, the replacement could easily reach $1 million. Given the increase in hail-related AC damage this year, these are numbers worth knowing.
Other risk mitigation recommendations include regular roof maintenance, such as inspections and repairs to small damages like blisters and installing protective screens over skylights.
“If a roof needs replacing, we also suggest using materials that have been tested and approved by an independent certification laboratory and are durable enough to fit the location’s exposures,” Tiede said. “The last thing a commercial property owner wants is to replace a roof again six months after it’s installed. Experience has shown that ballasted-type roofs are the most resistant to hail damage.”
Using Data to Develop Solutions
When a property owner has an understanding of the size of its exposure and potential losses, it is better able to work with its agent or broker and insurer to develop an insurance program to manage and mitigate potential risks.
“The data and advice we provide help clients focus on the largest risks and better mitigate that exposure,” Smith said. “The more data you have, the more you can understand your risk on a granular level and manage it.”
This data-driven approach to preparedness makes Liberty particularly well-suited to serve large commercial properties with multiple locations in high risk areas.
Prices for roof and air conditioning repairs and replacements have risen over last year, Tiede said, and are likely to grow more expensive as older equipment becomes obsolete. Property owners will be forced to buy newer, pricier replacements than perhaps they had originally planned for.
And if this year’s storm trends are any indication, hail is sometimes an unpredictable foe.
Amidst these shifting trends, the value of an insurer’s expertise in identifying, mitigating and managing hail exposure will be immeasurable to large commercial property owners.
For more information about Liberty Mutual’s commercial property coverage, visit https://business.libertymutualgroup.com/business-insurance.
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.