IRMI Update—Issue #176
An E-mail Newsletter for Risk and Insurance Professionals
ISSN: 1530-7948
January 23, 2008
In This Issue
Colleague,
Is your executive management team (or are your clients) suffering from catastrophe
fatigue? "Catastrophe fatigue" is the numbness that overcomes people who have
been overexposed to dire predictions of pandemics, earthquakes, terrorist strikes,
and hurricanes. The predictions and ensuing dialog are usually well-intentioned
attempts to persuade others to devote time and resources to preparing for these
catastrophes. This approach works for a time, but at some point, catastrophe
fatigue sets in and attention is diverted to other activities. It might also
be called the "Chicken Little Syndrome."
This is the danger risk professionals face when they become dramatic in making
their cases for contingency planning and other risk management activities. Risk
management is not an end product, but rather a process that must be ongoing
to succeed. It is more like a marathon than a sprint. Any program you implement
must be continuously monitored and updated. Therefore, the one-time burst of
energy yielded by hysterically expounding on the risks that the organization
must protect against is not sufficient to keep the momentum going to successfully
manage the risk over the long term. Instead, it takes a steady and methodical
risk analysis and communication process.
So what are your thoughts? Have we been overly dramatic in recent years
with predictions of terrible pandemics and super hurricanes that have not
yet occurred? Are people being lulled into inaction by this? How do you
motivate an organization to implement and maintain risk management practices
for catastrophes that may never occur while avoiding catastrophe fatigue?
[See
reader responses].
Many thanks for subscribing to IRMI Update. Please recommend it to your colleagues.
Have a great day.
Jack
Jack P. Gibson, CPCU, CRIS, ARM
President
IRMI
Assess Site Pollution Exposures—It is important
to note that a core dynamic of site pollution coverage is time; both the past
and the future present exposure/coverage challenges. Exposure to, and migration
of, historical conditions can be qualified and managed. The potential future
occurrence of a pollution release, however, can be managed only through active
risk management best practices.
Legacy Exposures: These are the known/unknown
issues associated with the history of a site. Examples include a prior release
event, accumulations of small discharges over time, or a leaking storage tank.
Other legacy issues may include past storage and handling practices, structural
integrity, and the use of pesticides and herbicides on the property. These sleeping
giants can surface during site development, operation expansion, or on neighboring
properties. They may be former release events that were thought small or remediated
and now require additional cleanup. Regulatory standards change over time as
well, which can present new challenges.
Operational Exposures: These represent
exposures to future events that lead to a cleanup and/or a bodily injury/property
damage loss, such as a tank failure or indoor/outdoor air release. These can
be sudden and easily identified, or gradual and unnoticed. The exposure is underwritten
on how the insured actively manages the dynamics that affect the risk.
Although every property/facility has some level of environmental exposure,
it is generally considered a catastrophic exposure. With a well-defined pollution
exclusion on current general liability policies, environmental risk is a crystal
clear gap in standard casualty coverage. Environmental insurance is a specialty
product, but a common one for real estate owners, fixed facility operators,
and/or those with a financial interest in a site. It is generally not a cookie
cutter product, but is crafted to address the specific risks of each insured.
An environmental policy addressing pollution exposures can be crafted to cover
just legacy concerns (common in a transaction where there is a risk transfer
from seller to buyer), apply to just operational risks (for a leased location
or an insured comfortable with prior site history), or designed to provide full
coverage for a single facility or a portfolio of locations.
By: Steve Tinder, Assistant Vice President/Senior Underwriter
XL Insurance—Environmental, XL Specialty Insurance Company
Exton, PA
steve.tinder@xlgroup.com
www.xlenvironmental.com
Suggest a Risk Tip.
Send us a practical tip (less than 300 words) for identifying and managing risks,
buying insurance, managing claims, or filling gaps in insurance coverages.
Submit your risk tips. We'll
acknowledge your contribution as we did for Steve.
The January issue provides Robert Hartwig's predictions for 2008 for the
commercial insurance market, and by default, the alternative risk market. Read
this and other articles on capital markets and liquidity.
For
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articles on IRMI.com. Below you'll find summaries of some recent additions
with links to the articles.
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of how to allocate risks in all types of contracts. You'll save hours of drafting
time with "boilerplate" insurance clauses. Use the state-by-state analyses of
how the courts interpret hold harmless and indemnity clauses to bulletproof
your clauses. Explains when and how to require additional insured status. Plus,
many more strategies to protect your company!
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