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:
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
website.
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
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