IRMI Update—Issue #33
An E-mail Newsletter for Risk and Insurance Professionals
ISSN: 1530-7948
January 22, 2002
In This Issue
Colleague,
At the beginning of each year, it is always good to step back and determine
your most important priorities for the upcoming year. While these differ from
organization to organization, the times will dictate some commonalities. I think
the following will be among the most important priorities for risk and insurance
professionals in 2002.
- Identifying, evaluating, and treating the risks arising from interdependencies
on infrastructures or other organizations that could be affected in catastrophes
such as 9/11.
- Making certain that you are doing business with financially stable insurance
companies with a long-term commitment to your industry.
- Evaluating security programs/systems and improving them as necessary
in light of 9/11.
- Making sure that information technology systems have the strongest possible
safeguards against virus, worm, and other cyber attacks.
- Identifying and evaluating political risks and assuring they are properly
managed.
- Preparing early for insurance renewals and being very proactive in communicating
with underwriters.
- Developing contingency plans to respond to a complete breakdown of the
insurance marketplace.
What do you think? Did I leave some important priorities off the list?
Have a great day!
Jack
Jack P. Gibson
President
IRMI
Check Experience Mods—Check the accuracy of
e-mod work sheets by comparing the losses shown on the work sheet to the hard
copy loss runs, making sure losses are limited properly and verifying that the
appropriate expected loss rates and D-ratios are used. Also be sure to compare
the payroll to the premium audit report to assure it is correct. When an insured
is a single-state exposure, this doesn't take long. It takes more time for multi-state
accounts but is worth the effort.
About 6 months ago, I was checking a multi-state account's work sheet and
noticed that data from one state was missing for 1 of the 3 years. I first ordered
current loss runs from the insurer, and when I discovered there had been no
losses for that year, I pursued a recalculation by NCCI. This was not an easy
process, but I was able to decrease the mod from 1.05 to .95. In this instance,
it saved the insured about $6,000. As you can see, this is a great value-added
service for agents to provide for their clients.
By: Larry Jansen, CPCU, CIC
PJC Insurance
E-mail: jansen@pjcinsurance.com
Suggest a Risk Tip. Future issues of IRMI Update will include more risk tips from our readers. Send
us a practical tip (less than 300 words) for identifying and managing risks,
buying insurance, managing claims, or filling gaps in insurance coverages. We'll
give you credit for your contribution.
There are now 247 articles on IRMI.com, and many more are in production.
Below you'll find summaries of some recent additions with links to the articles.
-
You Say Professional
Services, I Say B2B Activities—In this Cyber Insurance column,
Mike Rossi looks at the question of whether standard "professional liability"
coverage applies to claims arising out of business-to-business "B2B" and
business-to-consumer "B2C" activities.
-
World Trade Center
Terrorist Business Interruption: Claims Will Challenge Policyholders—Daniel
Torpey and Jeffrey Phillips explain the challenges a company filing a property
or business interruption claim arising from the September 11 terrorist attacks
will face in pursuing its claims.
-
Captives 101: What Are
They, and Why Do I Want One?—In this new column, Michael Mead
provides the basics on captives: what they are; how they differ from traditional
insurance; and their purpose, structure, operation, and advantages.
-
Return to Work—A Forgotten
Aspect of Workers Compensation—Jim Pocius examines trends and
case law involving returning injured workers to productive lives after industrial
injuries, and the importance of doing so for both employers and claimants.
-
Consistent Procedures
Are Key To Avoiding Errors and Omissions Claims—The president
of the American Association of Managing General Agents (AAMGA) Baron Garcia
explains the importance of maintaining and documenting business procedures
to help avoid E&O claims.
-
Full Circle Regression:
The New ISO "Your Work" Endorsements—In December, ISO issued
two new endorsements for contractors' CGL policies eliminating coverage
for property damage arising out of their subcontractors' defective work.
Pat Wielinski examines the history and explains the problem.
-
Conducting a Site
Assessment—In this, the third of a four-part series, Ron Prichard
discusses how to tackle the task of gaining information about a construction
site by actually going on-site and determining what those working on-site
think of the project and its progress.
The 2001 ISO CGL Revision—A
new edition of the Insurance Services Office, Inc. (ISO), commercial general
liability (CGL) policy was implemented in December. This article summarizes
the significant changes in coverage, particularly as respects coverage for Internet
exposures.
Reserve November 11–14
on Your Calendar!—Plan to attend the 22nd IRMI Construction Risk
Conference in San Diego on November 11–14. We have already begun work on a curriculum
that will address the latest issues and concerns, such as the hardening market,
construction defect, mold, design-build, and OCIPs. Please reserve the dates
on your calendar right now and watch for more information in IRMI Update in
the months to come. For a quick overview of the conference, visit our conference web site.
The Last Word on Contractual
Risk Transfer—Contractual Risk
Transfer did such a great job explaining additional insured status, indemnity
clauses, waivers of subrogation, insurance certificates, and related topics
when it was introduced in 1996 that it was declared one of the top 10 new risk
management products of the year by Risk and Insurance magazine. Since then we've updated it 24 times, improving it every time. If
you need help fine-tuning the risk provisions in your contracts, check out this
valuable IRMI manual.
We received a number of comments on Jack's last
editor's message, both for and against Congressional action to provide a
backstop to support terrorism coverage. Here are edited versions of three representative
reader views.
- The Fed's involvement would be a quick fix that would relieve many immediate
problems in the finance and business world. However, it would, in my opinion,
further neuter an insurance industry that has within itself the capacity
to measure the risk, develop a flexible pricing system and solve the problem
itself. Perhaps I am asking too much, but I do believe that those most beset
by the problem (the insurers, reinsurers, and, ultimately, the commercial
insureds) can solve it and should.
Failing to do so will shove yet another hard one toward Washington where
politics and bureaucratic propensities will only ultimately make it worse.
Maybe that's the best we can hope for, even in the wake of the 9/11 attack.
Maybe I am overly optimistic in my old age, thinking that men and women
of goodwill can unite to solve this kind of a problem with integrity and
focus. For me, it is a kind of test, and I hope the insurance industry has
enough backbone and character to pass it.
But I understand where you're coming from and I suspect that, down deep,
you and I agree on this.
—Mike Dill, President, Riskmap Corporation
- I disagree with your opinion on the lack of Congressional action on
Terrorism coverage. Within the context that corporate taxes account for
an increasingly smaller share of federal revenue (and increasing personal
share) and the billions of bailout since 9/11, another taxpayer bailout
of a business matter is inappropriate and unnecessary.
Recall that the hard market in 1986 caused the creation of insured-owned
ACE and XL which have gone on to be public traded insurers. Well, if Fortune
1,000 companies would invest capital of $5 million per firm, and pay premium
of $10 million over 2–3 years, they would generate $20–$30 billion of premium
and $5 billion of capital for the terrorism risk. Businesses seem to want
to spend less in lobbying greedy politicians than seek a remedy from within.
There is no evidence that this so-called crisis is hampering economic activity,
and it is ironic that this recession or slowdown is a business driven one
caused by lower capex spending, not consumer spending.
As a taxpayer, I want to avoid another S&L or Airline ($15 billion!!)
bailout.
—Anthony Manero, Risk Manager for a Fortune 100 Financial
Services Company
- Your comment regarding "tort reform" ("Since a financial backstop could
have performed a great service without any tort reform measures, it looks
like the bill's sponsors were greedy and needlessly lost support.") completely
missed the mark. I have been unable to find specific written details on
any compromise legislation regarding tort "reform." There are only two references
to tort reform in the original House of Representatives bill that did pass
in December: a proposal to cap attorney's fees at 20 percent of any claim,
and a proposal to exclude punitive damages from damage awards.
There are several important things to keep in mind. First, at least in
the Senate proposal, the U.S. government was becoming a de facto excess
reinsurer, without collecting any compensation for bearing this risk, and
without any top-side limitation. Most of the discussion regarding the bills—in
both the House and Senate versions—refers to this as a temporary measure
until the private sector can develop a response. But where is the incentive
for the private sector to compete with something that is without cost to
the insurers? Who would pay for something they are getting for what appears
to be free? When the original legislation expires, it is not unreasonable
to expect that there will have been no private sector response other than
to press for an extension. So how this is set up matters over the long-term.
The arguments for having government involvement center on the limited
resources of the private sector and the inability to cope with a hopefully
infrequent, possibly catastrophic event. Insurers can't respond because
they can't predict either the frequency or severity. But, contrary to some
beliefs, the U.S. government does not have unlimited resources either. A
government's ability to pay is limited by the productivity of its citizens,
and in the long run, it cannot outspend that. So, in its fiduciary role
as a spender of its citizens tax dollars, why shouldn't the government try
to reduce the risk it assumes?
If there is any greed here, I think it is on the side of those who want
to leave the taxpayer exposed to pay punitive damages—not those who want
to eliminate them from this specific government program.
There are a number of things about both the Senate and House proposals
that could be improved, but I am glad someone is at least aware of trying
to reduce the ultimate cost to the taxpayer.
—Carol Pullekines, Consultant
A subscription to IRMI Update is absolutely free. Use the e-mail registration form to initiate or terminate
your subscription.