IRMI Update—Issue #177

An E-mail Newsletter for Risk and Insurance Professionals
ISSN: 1530-7948
February 6, 2008

In This Issue

• Message from the Editor
• Risk Tip: Avoid Conflicts between Property and Flood Insurer
• What's New in Your IRMI Library
• New Expert Commentary
• Registration Now Open for IRMI Seminars
• Your View—Catastrophe Fatigue
• Please Share This Issue with Your Colleagues
• How To Get IRMI Update E-mails

Message from the Editor

Colleague,

Have you heard about RMIS Review? The newest product from IRMI, RMIS Review is the only information service devoted to analyzing and comparing the various risk management information systems (RMIS) available to risk managers. It will save you an incredible amount of time and money in sizing up your current system or trying to choose between the available systems on the market. RMIS Review is researched and written by Albert Risk Management Consultants' David Tweedy, an internationally recognized expert in the RMIS and claims management arena.

If you are considering the purchase of an RMIS for your risk management department, advising clients on RMIS purchases or implementation, or simply struggling to make sure you are using your RMIS as you should be, RMIS Review will give you time-saving and money-saving information available nowhere else. Learn more here.

Lastly, we are proud to announce that registration is now open for our spring construction risk management seminar series. We are offering four top quality seminars focusing on contracts, including the new ConsensusDOCS, wrap-ups, and construction defect.

Thank you for subscribing to IRMI Update.

Have a great day.

Jack

Jack P. Gibson, CPCU, CRIS, ARM
President
IRMI

Risk Tip

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

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.

What's New in Your IRMI Library

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. To make sure you don't miss any of this new information take 30 seconds to scan the "What's New" summary page.

For IRMI Online and Print subscribers

For SilverPlume Sage subscribers

New Expert Commentary

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.

• Loss Notice and Reporting Clauses in Reinsurance Contracts—Larry Schiffer discusses these clauses and some of the ramifications that flow from the obligation to report and provide notice of claims.
• The Three Pillars of Litigation Management—Lawyers can and should be managed, just like any other outside service vendor. Kevin Quinley explains why and how.
• The Burden To Allocate Insurance Claims—Steve Rawls and Rebecca Appelbaum examine the caselaw surrounding the allocation issue.
• Efficient Samples for Control and Audit—Matthew Leitch explains how the logic and calculations required for the Bayes's Rule approach are surprisingly simple, intuitive, and practical.
• Trigger Theories in Homeowners Insurance—Brent Cooper relates a case showing the difficulty of applying trigger theories in progressive or continuous property damage claims.
• Spill Fund Reimbursement Allowed because of Willful Misconduct—Michael Orlando describes a maritime case that sheds much needed light on reimbursement claims under the Oil Pollution Act.
• Worker Must Be Furnished by Third Party To Qualify as "Temporary Worker"—Kevin Merriman relates a Missouri Supreme Court decision distinguishing an exception to the co-employee exclusion in CGL and umbrella policies.

Registration Now Open for IRMI Seminars

You can choose from four different IRMI Construction Risk and Insurance Seminars. 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.

Your View—Catastrophe Fatigue

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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