IRMI Update—Issue #177
An E-mail Newsletter for Risk and Insurance Professionals
ISSN: 1530-7948
February 6, 2008
In This Issue
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Have a great day.
Jack
Jack P. Gibson, CPCU, CRIS, ARM
President
IRMI
Avoid Conflicts between Property and Flood Insurer—Whenever
possible, place the flood insurance with the same insurer as the one that writes
the property insurance. This results in one insurer and one adjuster handling
the loss. It prevents the wind insurer trying to push the loss off on the flood
insurer, or vice versa. As long as adequate flood limits have been purchased
(may involve purchasing excess flood coverage), any loss should be paid in full,
avoiding the pain and hassle we often still see today from so many insureds
whose insurance programs were not set up this way.
By: Bill Lockhart
Advanced Insurance Underwriters
Hollywood, FL
wlockhart@advancedins.com
http://www.advancedins.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 tips. We'll
acknowledge your contribution as we did for Bill.
We have recently updated a number of the reference manuals in the IRMI library
and published new issues of The Risk Report
and Captive Insurance Company Reports.
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There are over 1,000 risk management and insurance
articles on IRMI.com. Below you'll find summaries of some recent additions
with links to the articles.
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Check out the topics, detailed agendas, speaker bios, dates, and locations.
The first series will be in San Diego on March 25–27.
Reserve your spot now.
In IRMI Update 176, readers were asked whether
their executive management team (or clients) are suffering from catastrophe
fatigue and what to do to motivate them to implement and maintain risk management
practices for catastrophes that may never occur. Below are some of the responses.
-
I have also been seeing this type of overload issue at the audit committee
level. It appears that several forces are more and more bringing boards,
specifically audit committees, into the ERM oversight role. I believe that
this trend will continue, so it will become more important for audit committee
members to have some knowledge about risk management in the insurance context.
There is a definite risk of work overload, lack of direction, and burnout.
I am also seeing this in the area of internal control oversight by the audit
committee. It is difficult to decide what to do, how much to do, and what
not to do. In any event, you always risk doing too much, or the wrong thing,
or not enough. I believe that the appropriate approach is to have the responsible
people (the appropriate officer(s) and the broker(s), with some oversight
at the board or audit committee level) evaluate the significant areas of
risk or exposure, however "significant," define "risk or exposure," and
implement an insurance program that covers those concerns. The program should
be reviewed regularly. It is impossible to predict the future—the decision
makers need to be experienced and make diligent, informed decisions.
—Dave Tate, CPA, Esq., Attorney, San Francisco
-
No doubt we have been the recipients of information from the "Harbingers
of Doom," Y2K being the best example. There are questions to be raised over
other advice in respect to climate change and pandemics (e.g., Avian Influenza).
However, the facts remain that we are here to earn money for our shareholders,
and insurance is not a charity. Care and diligence must be maintained when
confronting any emerging risk. It is impossible to underwrite what we don't
understand properly, and we merely become crystal-ball gazers or soothsayers
under those circumstance.
—Stephen Loyer, Liability Underwriting Manager, Vero
Insurance Limited, Melbourne, Australia
-
Your comments regarding catastrophe planning was indeed thought provoking.
A tacit review of recent catastrophes would, however, indicate that there
is a good deal of substantiation for such planning. The old axiom of "you
can never be too prepared" still holds true. The problem that arises is
when the catastrophes we've been planning for so diligently do not occur,
we tend to become complacent in our risk management. A catastrophe that
can be avoided by proactive loss control and risk avoidance should never
occur as long as we are performing our duties well. It is, however the force
majeure catastrophes we must be ever vigilant against, and even an excellent
plan of action cannot be sufficient when the actual occurrence is upon us.
If you need convincing, just observe the next fire drill for your building!
You will become a follower of "you can never be too prepared."
—Bill Hemer, Program Underwriting Manager, EMGA,
Richardson, TX
-
The impact of catastrophes continues to increase as businesses become
more reliant on electronic data and as our markets expand. I don't share
the idea that people "tire" of it. I believe that reaction might be caused
by tiring of lack of response to the risk facing organizations. Stats show
that without preparation, businesses fail too often when faced with disaster.
—Chris White, Risk Manager, Sachs Electric Company,
St. Louis, MO
-
Regarding planning for catastrophes, here is a specific step which most
risk managers have not taken: to prearrange with local and state emergency
management agencies whom they should contact (name, title, etc.) and how
(cell phone, e-mail, Web site) to coordinate the three steps in emergency
response: 1. securing the area, 2. rescue and protection, and 3. restoration
of economic activity.
Overall, businesses lose more money in uninsured business interruption
from small and large events than they do in loss of personnel and property.
The feds and many state/local agencies are upgrading their coordination
and communications systems. Most insurers and risk managers are unaware
of that. I can tell you that Home Depot, Wal-mart, and other sophisticated
companies are extremely well hooked into these agencies, well before an
event. All companies should do no less than that.
—Peter Rousmaniere, Journalist, Woodstock, VT
-
Catastrophes are like most risks in that each year brings a unique (to
that year) set of variables that affect the probability of the number and
intensity of events such as hurricanes. The awareness of these variables
and our inability to accurately predict events and landfalls is generally
accepted by senior management. The P&C industry with Florida exposure will
have a difficult time forgetting the 2004 storm season.
—Paul Leftwich, Claims, Westpoint Underwriters, Clearwater,
FL
-
The fatigue we are experiencing in regards to catastrophes is the forecasting
and modeling which has stated for the past 2 yrs that we in New England
would be experiencing a serious hurricane. This has had a great impact on
the New England Mutual insurance companies and the national carriers as
they have been charged exorbitant reinsurance costs and have even had to
stop writing business in areas. Therefore, we are spending our time remarketing
existing accounts while premiums are shrinking 10% on renewal, causing us
to fight a never-ending, uphill, battle toward profitability.
—Sean Daly, Account Executive, AIM Insurance, Warwick,
RI
-
From the marketing/sales perspective, perhaps this "fatigue" is based
on our client's perception that we are just in the "dire prediction" business
for an "up-sell" (perhaps a reasonable belief in the competitive soft market).
To overcome this, we need to focus on the professional, and to the extent
possible, provide quantified presentation of options to our clients, pointing
out the risks and benefits, with a keen understanding of the clients' risk
tolerance. Once we have fulfilled these obligations, our clients are free
to make their own informed decisions regarding the extent and nature of
their coverages.
—Ron Musto, Senior Claims Coordinator, InterWest
Insurance Services, Folsom, CA
-
The entire matter of risk management as handled by institutions is the
same today, exactly, as it was a century ago. Having catastrophes, or not,
has never altered the primary ideology. Those for taking precautions use
appeals to the institution at maximum plausible emotional content under
the age-old notion that the institution amends its ways by the loudest shriek.
The lack of particular catastrophe examples has no utility for emotional
appeals.
As history shows, the only force that ever fostered institutional concern
about peril was the force of law—and nothing else. The laws that incentivize
risk management are appropriately classified by time horizon. We have hindsight
law (regulatory), distinct from foresight law (tort). The temporal distinction
is vital because the cognitive demand between reacting to damage (hindsight)
and preventing damage (foresight) is enormous. Institutions automatically
comply with hindsight law on an operational basis because the regulatory
rulebook is indistinguishable from company policy.
The domain of foresight is the antithesis of status quo ante. Whereas
history brands a line of system states through time, the future holds infinite
3-D possibilities. This infinity is multiplied by the fact that all prevention
is local and tangible. In most systems, like fractals, there is a lot of
local. The task of prevention design is knowledge development, a learning
process, and system engineering procedures to reduce the complexity to manageable
proportions. Since this requisite task is not the stuff of obedience to
authority, motivating an organization to engage pragmatic foresight is impossible.
—William Livingston, Compliance Engineer, FES, Ltd.,
Jensen Beach, FL
-
I think this issue represents another example of the irresistible force
versus the immovable object: catastrophe hysteria versus denial that "it
can't happen here." Neither is helpful. An All-Hazards approach to preparedness
represents a measured response to preparation as it addresses the critical
mass of issues common to any disaster while leaving flexibility to address
the specifics due catastrophic "creativity." As pertains to the human element
following a disaster, the pendulum quickly swings toward hysteria and away
from denial. Be prepared for Chicken Little to immediately lead a large
following of Monday Morning Quarterbacks!
—Bob VandePol, President, Crisis Care Network, Grandville,
MI
-
I have been mentioning to my clients that just because the pandemic flu
did not come, does not mean it will not. Historically, we are due, and they
say it can wipe out as much as 50% of the workforce. I ask if they are making
it easy for staff to obtain flu shots, by running clinics, etc. I talk about
other issues like Ontario Fire Code and Occupational Health & Safety fines.
My firm and I are running a seminar for local businesses on three topics:
Ministry of Transportation and changes with commercial vehicle operator
registration points system, Occupational Health & Safety, tips to avoid
being charged by the Ministry of Labor, and D&O to educate on the important
coverages they obtain by having D&O coverage.
—Judi Smith, Producer, Hub International Ontario
Ltd., Burlington, Ontario
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