IRMI Update—Issue #76
An E-mail Newsletter for Risk and Insurance Professionals
ISSN: 1530-7948
November 4, 2003
In This Issue
Colleague,
My last message, on the refusal of many businesses to buy terrorism insurance,
drew many replies. I was relieved to learn I'm not the only person who is concerned
about this. If you were one of those who replied, thank you for doing so. You
can read a selection of the responses we received in this issue of IRMI Update.
If you are an agent or broker facing an impending year-end deadline to renew
your license, you might want to consider one of the continuing education (CE)
options IRMI offers. First, of course, is the 23rd IRMI Construction
Risk Conference, which is only a couple of weeks away. In most states, you
can earn up to 21 hours of CE credit by attending. In addition to the learning
experience, you will also benefit by networking with more than 1,000 other insurance
professionals and construction risk managers. See the Agents and Brokers CE Credit chart to see how much CE credit your state granted.
Another option is our online CE course offerings, which we make available
year round in conjunction with WebCE. IRMI has authored seven high quality commercial
lines courses that are available in most states and three personal lines courses
are coming soon. In addition, many more property-casualty and life-health courses
authored by WebCE are available. You can quickly and easily download the course
materials or order printed copies from our Web site. Online testing is offered
in most states or you can take a pen-and-paper test. And the pricing is incredibly
low; you can generally get all the CE credit you need to renew your license
for under $50. To learn more, go to the training
& CE section of IRMI.com.
Thank you for subscribing to IRMI Update and the confidence you place in
our company. I hope to see you at our conference in Chicago in just 2 weeks.
All the best,
Jack
Jack P. Gibson
President
IRMI
Your Complete Inland Marine Resource—The AAIS
Inland Marine Guide provides insurers, brokers, and risk managers the most comprehensive
resource for writing inland marine insurance for construction, transportation,
EDP, and other exposures. More than 200 forms, underwriting guidelines, endorsements,
pricing information, compliance requirements, and automated rating worksheets
are available electronically. For information contact Rick Anderer at (800)
564-AAIS or go to AAIS.
Protect Property Owners from Dry Cleaners' Pollution
Exposure—While dry cleaning operations can be found in almost any strip
shopping center or other retail location, they pose an environmental threat
that far surpasses almost any other retail business of similar size. Most dry
cleaners use a solvent called Perchloroethylene, or Perc, which is toxic and
a known carcinogen. Perc is heavier than water, and any spill or release can
result in cleanup efforts that are both difficult and expensive. Dry cleaners
also present a pollution exposure from solvent laden air filters, chemicals,
wastewater storage and disposal, leaking containers, and other related activities—all
part of the dry cleaning process.
Unfortunately, most dry cleaning operations are small businesses with limited
resources to pay for a significant pollution incident. Further, almost any businessowners
policy (BOP) or commercial package policy excludes pollution incidents. Even
BOP products targeted to dry cleaners offer only limited pollution coverage
(e.g., $10,000), which would be virtually worthless in the event of a pollution
incident requiring professional remediation.
To protect property owners, risk managers of lessors should consider requiring
that dry cleaner tenants purchase environmental liability insurance to cover
the pollution exposure. This requirement should be stipulated in the lease,
and the property owner should be named as an additional insured. Insurance policies
have been developed that specifically address the pollution exposures of dry
cleaners—with coverage and high limits that are appropriate for the risk. These
policies are reasonably priced, although many dry cleaning operators will not
voluntarily purchase the coverage.
The risk manager or agent for the property owner may need to direct the dry
cleaners to the markets offering this coverage. Many large property owners are
now doing exactly that, advising their lessee on the coverage to purchase and
directing them where to acquire.
By: Ron Tursovsky CPCU, AIT
Account Executive
Intercorp, Inc.
E-mail:
www.intercorpinc.net
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 471 articles on IRMI.com, and many more are in production.
Below you'll find summaries of some recent additions with links to the articles.
-
Return to Competition
for Some Commercial Insurance Lines—The Council of Insurance
Agents & Brokers has released its third quarter data showing competitive
pricing returning, and premiums flattening for commercial property accounts.
-
Risk Retention Group
Formations Increase—Abandoned in the soft market, RRGs are on
the rise, offering form, rate, claims, taxation, and admitted paper benefits.
Michael Mead discusses the opportunities and challenges.
-
Embedding Risk Management:
Easier, Faster, Better—Risk management workshops, while touted
as good practice, often fail to motivate employees to truly reduce risk.
Matthew Leitch explains how the process of embedding can make a real impact.
-
The Role of Development
Banks in Addressing Political Risk in Asia—Today, it is difficult
to tell the difference between "perceived" and "real" political risk, and
investors are wary. Daniel Wagner explains how development banks can support
access to trade finance.
-
Suing a Foreign Company
That Has No U.S. Presence—What do you do if your patent is infringed
by a foreign corporation without a U.S. office? Sanford Warren Jr. discusses
the far-from-obvious solutions available to the patentee.
What's New—We have recently updated IRMI Online to include the latest issues of our newsletters, The Risk Report, Captive Insurance Company Reports, and Financing Risk & Reinsurance, as well as
supplements to a number of the reference manuals. If you subscribe to IRMI Online,
please click below to go directly to a summary of the new issues and information with direct links into the publications.
Make
Your Hotel Reservation with Your Conference Registration—IRMI's room
block at the Sheraton Chicago Hotel and Towers in conjunction with the 23rd
IRMI Construction Risk Conference is fast filling up. To ensure you are included
in the IRMI room block, please register for the Conference and complete the
hotel reservation information as soon as possible. Special hotel discounts are
available. Call Campbell Travel at (800) 501-2570 (in Dallas (972) 716-2570)
for hotel options and room rates. Click here to register.
New Terrorism Book
from IRMI—Terrorism Insurance: What
Risk and Insurance Professionals Must Know is IRMI's latest softbound
book for the industry. Written by the IRMI editorial team along with guest contributor
Kathryn Westover, this book provides a concise but thorough explanation of the
state of terrorism insurance in the United States today. Ever since September
11, IRMI research analysts have closely followed terrorism developments affecting
the industry, from broad exclusions, to the Terrorism Risk Insurance Act (TRIA).
Now all that research can be yours, consolidated into one readable and affordable
reference.
Time Is Running
Out To Get 2003 CE—If you're still scrambling to fulfill your continuing
education (CE) requirement for 2003, IRMI has the answer with online courses
that are easy to take and informative as well. One new course is IRMI Commercial
Auto Insurance, which provides an introduction to commercial auto insurance,
focusing on the standard coverage forms developed for this line by Insurance
Services Office, Inc. (ISO). It examines some of the motor vehicle statutes,
the public policy issues behind them, and their effect on various types of commercial
auto coverages. For more information or to order one of these or other CE self-study
courses, see the Training and Education section of IRMI.com.
In IRMI Update 75, Jack Gibson expressed concern
over the apparent low purchase rate for terrorism insurance and asked for your
views on the matter: are businesses buying it, is the pricing reasonable, what
should agents recommend, should insurers make it a mandatory peril to get a
spread of risk and reduce adverse selection? We received many informative responses,
several of which are reproduced below. Some have been edited for length.
- My agency is not offering terrorism as an optional coverage. We include
terrorism coverage in every proposal and policy just as fire, wind, vandalism
and other perils are included. We don't sell insurance without terrorism
coverage....
Even an attack in another city, 100 miles or more, could impact one of
my clients. I just renewed a large manufacturing client whose biggest customer
is one of the largest defense contractors in the United States. My client
has contingent business interruption exposures. If my client's customer
was "hit" by a terrorist act, the result would be financial disaster for
my client (in the absence of terrorism coverage)....
We should all recall the time many years ago when only fire and lightning
coverage and, later, wind coverage were available. The perils being insured
were those that presented a catastrophic exposure. Later, as the population
grew and society changed, we were exposed to an ever-increasing array of
perils that eventually became the "norm," such as vandalism, theft, etc.
The U.S. Government established the Flood Insurance Program because of
the catastrophic exposure and lack of insurance industry willingness to
assume flood risks. Now we are faced with the new exposure of terrorism
and, again, the United States has stepped up to the plate, only this time
as a partner (albeit the "big" partner) with the insurance industry to offer
this coverage.
My largest business client is owned by a person whose residence is on
the coast. That individual has flood coverage on his residence through the
National Flood program and excess flood in the specialty market. I would
not consider flood coverage an "option" for his residence nor would I consider
terrorism coverage an "option" for his business. The primary difference
between terrorism and other catastrophic exposures, such as flood, earthquake,
hurricane, tornado, etc., is that a terrorist act is unpredictable. The
exposure is as real as any other.
—John DeLoach, DeLoach Insurance Services, Inc., Tallahassee,
FL
- Most of my clients are rejecting terrorism coverage in an attempt to
cut their insurance costs. I do not think the premiums are out of line for
this coverage; however, it is not consistent from one carrier to the next.
Our agency never recommends to the client that they cut coverage to save
money. I always recommend it, but most choose not to keep it.
—Greg Whitlock, Jim Anderson & Co., Lawrenceville, GA
- I agree that a broadly defined terrorism endorsement should be included
as a mandatory peril in property coverage. I have long thought that the
perils of flood and earthquake should have been included. In 30+ years as
an underwriter, agent, and broker I have seen the federal government respond
to one Midwestern flood after another that could have been insured if the
risk had been spread economically over the whole country.
I would add whatever weight my opinion has to any activity to include
terrorism as an automatically insured peril and stop the same kind of insurance
roulette that has occurred in the flood and earthquake area.
—William Brookshire, SR VP Marketing, Rebsamen Insurance,
Inc., Little Rock, AR
- We too are concerned that so few people buy terrorism coverage—hardly
anybody does down our way. But in their defense, the carriers are all over
the board with this, and there is no consistency. That makes for a tougher
sell in areas where people think, "It can never happen here." However, I
have found some success in pointing out the "Failure to Maintain Insurance"
clause in many D&O policies. Could a D&O insurer come back and deny coverage
since the insured elected not to buy terrorism coverage which was readily
available? That is, they failed to maintain this insurance? I bet they could.
And they would. So, based on this, more of our insureds buy the cover. We
do need to make this coverage mandatory. For us, if the cost is minimal,
say, under $100 for a line of coverage, we often make the decision for the
insured and just include it in the quote/proposal and say they have the
coverage. We feel it is our responsibility as a broker.
—Ray Klembith, Summit Global Partners, Austin, TX
- Century Surety Company charges 4 percent and makes it mandatory. I think
that is absolutely the smartest move. As a surplus lines broker, I do not
have access directly to the insured to make recommendations, but have been
recommending to the agents that they sell the terrorism coverage. Pricing
is all over the board from the max at 10 percent of premium subject to $250
minimum to less than 1 percent of premium.
Century Surety is the only carrier in my stable making coverage mandatory,
and it isn't slowing down sales at all. We get a lot of grumbling that the
agents wish they could waive it—but they are grumbling with bind orders
so I think this approach is not hurting anyone. On the contrary, it is helping
the insured and the carrier to spread the risk. What really concerns me
are the agents that are successfully selling a monoline policy with Century
Surety—including terrorism—and also a monoline coverage line with another
carrier that waives terrorism. And the agent doesn't understand the increase
in potential E&O with this approach.
—Tracy Engel, London American General Agency, San Diego
CA
- As to TRIA and whether or not coverage should be mandated—I feel that
once again the U.S. Government missed the boat entirely when they "mandated"
insurance carriers provide the coverage, and then left them to figure out
how they were going to rate and charge for a coverage that had previously
been excluded. If the government had gone about it in a similar manner as
how FEMA was originally developed, come up with "Special Hazard Zone" modeling,
community participation, even a participating government insurance program
especially for the hazard of Terrorism—then not only would the carriers
have a clearer idea of a justifiable rate structure, but the policyholder
would be able to understand what their particular needs would be for this
coverage.
—Robyn Burgess, Van Gilder Insurance Corp., Denver
- You put it right—I think clients have been lulled into a false sense
of security in the absence of any terrorist acts, particularly in urban
centers, hence the decision on the part of most buyers not to purchase terrorism
coverage. I guess the fact that TRIA passed at all is a good sign. Our firm
handles a lot of New York real estate clients, and we have found that they
normally will not purchase coverage, regardless of cost, if they are located
above 60th or 70th Street, but the purchase rate downtown is greater. The
fact that overall property rates are declining is a good sign and may result
in more clients purchasing coverage. Then, of course, there is the issue
of whether clients' banks are requiring purchase of "all risk" coverage,
which basically requires purchase of the terrorism option.
In my opinion, the coverage should be mandatory. This would put more
money in the till in the event of future terrorist incidents and would take
the option out of hesitant purchasers' hands. TRIA expires in 2005, and
it remains to be seen what will happen after that, whether we have another
incident or not.
—Robert C. Meder, Vice President/Sales Manager, Kaye
Insurance Associates, Inc., New York
- I don't necessarily agree to make terrorism a mandatory peril. Most
of the clients are purchasing the coverage because the premiums are certainly
low enough.
One way to sell the coverage would be to remind clients that they may
have a credit line against any business property, or a mortgage on buildings
that the financial institutions require the customer to purchase "all risk"
physical damage coverage and this would mean including terrorism.
—Louise D. Neigel, CIC, The Pilgrim Organization, Lyndhurst,
NJ
- Most of my agents' clients are not buying the coverage. Some companies
are only charging 3 percent of the premium for the coverage, which is not
expensive, but they are still not buying. I don't think it has anything
to do with the price. People don't feel the need.
—Lynda Parry
- I think making it mandatory and spreading the risk on the surface sounds
like a good idea. As an agency practice on the smaller accounts, we do not
give our insureds a chance to reject the coverage. We do allow them once
the charge exceeds around $1,000 or so if it represents a large percentage
increase in their overall premium. Our advice is always to accept it, because
you never know what can happen, just ask New York.
—Joey O'Connor, Eustis Insurance & Benefits, New Orleans
- Clearly the companies are overpricing terrorism coverage and, as a result,
insureds are not buying the coverage. If the industry got smart and priced
terrorism coverage reasonably, I think 80 to 90 percent of commercial insureds
would purchase the coverage.
—David J. Skolsky, CPCU, Insurance Analysts & Consultants,
Avondale Estates, GA
- Main issue I have is regardless TRIA, Non-TRIA, stand-alone, US, WW,
etc., is that NBC "nuclear biological and chemical attacks" are excluded
under property policies. NBC threats are what we hear daily about. We need
all terrorist attacks covered. An anthrax attack would not be covered. TRIA
may not exclude NBC, but the property contracts do.
We did elect this year to purchase TRIA and Non-TRIA this year as premiums
were reasonable from our new property insurer, FM Global. NBC is not covered.
—David Kervin, Tech Data Corp., Clearwater, FL
- Regarding terrorism coverage, you are correct in your assessment that
premiums are all over the board. I recently had a company that wanted to
charge my condominium association client $900 for terrorism coverage on
their earthquake policy. It appears to be a way for companies to pad their
bottom line.
—Gary M. Pehaim, CIC, Pehaim & Snipper Insurance Services,
Inc., San Diego
- Our head office is located in Edmonton, Alberta, Canada. While the threat
of terrorism may not be as great here, it still exists. We should consider
adding the peril of terrorism as a mandatory coverage in light of the apathy
in purchasing this coverage when given the choice. The rate should be a
minimal rate, say .005 and subject to a $2,500 deductible similar to flood
damage here in Canada and .01 subject to $5,000 deductible for higher risk
targets. This is no different than the current earthquake coverage pricing
in Canada. More and more clients are becoming reluctant to purchase the
coverage in Alberta, now that it's actually being charged for in the hard
market, and the cost in the high risk zones in British Columbia has increased
dramatically while capacity shrinks. If the cover were added as suggested
above on the terrorism issue, it would be affordable for everyone, insureds
and insurers alike. Spread of risk—what a concept!
—Doug Davis, CIP, CRM, Vice President, Phoenix Insurance
Group Edmonton Inc.
- Jack, as TRIA does not cover acts committed by domestic terrorists,
such as the Oklahoma City bombing, and has several other coverage holes,
many people see no real solution. I recommend that they set up an offshore
captive and fund it for future events.
—Michael R. Mead, CPCU, President, M.R. Mead & Company,
LLC, Chicago
- It never ceases to amaze me how our industry continues to make the same
mistakes. We still have not figured out that most insurance coverage being
sold is a socialistic product in a capitalistic society. By allowing the
capitalistic freedom of choice to purchase or not to purchase, the insurance
industry is basically allowing itself to be "selected against," which in
my underwriting days was considered a "no, no." Just like several other
coverages (example D&O, EPLI) that do not have much spread of risk and where
the industry is selected against, the exposures are not spread (law of large
numbers), and thus the premium costs per unit will be high.
That said, what is right or wrong, in most cases, depends on one's position.
Should tax payers be forced to pay taxes to support the Terrorism Act so
building owners in New York can afford insurance? Or should lenders be force
to make decisions to loan money, or not, to those with greater exposures?
I guess I am glad these type of decisions are made by people smarter than
me... or is it just that the golden rule applies here, i.e., he who has
the gold, rules?
—Jim Sammons, VP, Guaranty Insurance Services, Inc.,
Austin, TX
- It is a cost/benefit issue dependent upon the attractiveness of your
enterprise and its vulnerability to attack. A vulnerable facility in an
unattractive location—i.e., low impact in the event of a terrorist attack—may
not decide to purchase at current pricing and definitely shouldn't have
in last year's environment....
I contacted a broad spectrum of entities in the local marketplace. Of
the 17 response, 12 have some coverage; 6 have some level in their primary
general liability (little or none in excess layers); 11 have TRIA and domestic
coverage in their primary property policies; and 2 have stand-alone full
property coverage....
Most seem to have analyzed the issue and elected to protect their company's
assets, but do not perceive much third-party liability exposure....
—Michael F. Grace, ARM, CPCU, Risk Manager, Gary-Williams
Energy Corporation, Denver
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