IRMI Update—Issue #195

An E-mail Newsletter for Risk and Insurance Professionals
ISSN: 1530-7948
November 12, 2008

In This Issue

• Message from the Editor
• Risk Tip: Be Prepared When "Greening" Existing Buildings
• What's New in Your IRMI Library
• New Expert Commentary
• Cutting-Edge Analyses for Risk Financing
• Please Share This Issue with Your Colleagues
• How To Subscribe/Cancel IRMI Update

Message from the Editor

Colleague,

Enterprise risk management (ERM) has been a buzz topic in the risk management community for some time now, but it has received little traction outside the banking and insurance industries. That may be about to change with the obvious breakdowns in AIG's ERM process and Standard and Poor's (S&P) plans to begin evaluating corporate ERM practices as part of its debt rating review process of all types of companies. If your company has (or some of your clients have) an S&P debt rating, get ready for inquiries from CEOs, CFOs, or other members of the C-Suite and possibly the board with respect to ERM practices.

Risk and insurance professionals should view this development as an opportunity to enhance credibility in their organizations or with their clients by proactively taking steps to show S&P the organization's risk management program in the most positive light possible. Conversely, of course, those who get blindsided by the new S&P inquiries risk embarrassment and loss of credibility.

If you are not already familiar with S&P's plans, it is time to do your homework. Get a copy of S&P's May 7 announcement and use it as a guideline for orienting your organization's risk management practices if you don't have a formal ERM program and as a model to develop a communications strategy for highlighting the ERM activities you do have in place. The objective for companies without a formal ERM program will probably be to avoid a score that places them in the bottom 10 percent or so of companies that S&P rates. This should be achievable with small steps using a methodical approach focused on the key ERM elements that S&P has said it will consider.

Is this an important development for the risk management community or simply another bureaucratic hoop that must be hurdled? If you are a risk manager, what are you doing to prepare for S&P's ERM program evaluation? If you are an agent or broker, how are you planning to use this development as an opportunity to provide value added advice to your clients? Please share your thoughts, ideas, and advice on ERM and S&P debt rating.

By the way, the October issue of The Risk Report provides more details on this topic and suggests some actions that companies can take to prepare. You probably have access through your Sage, IRMI Online, or a print subscription, so be sure to check it out. Also watch www.IRMI.com next week for "Where Was Enterprise Risk Management?"—Chris Duncan's article discussing how ERM has failed us during the current financial debacle and what we can learn to make ERM more effective in the future.

Have a great day.

Jack

Jack P. Gibson, CPCU, CRIS, ARM
President
International Risk Management Institute, Inc.

Risk Tip

Be Prepared When "Greening" Existing Buildings—The green building movement is not confined to new construction. Indeed, the process of retrofitting existing buildings and seeking Leadership in Energy and Environmental Design (LEED) certification has its own designation by the U.S. Green Building Council (LEED-EB). More and more, property owners are seeking LEED certification in conjunction with such retrofits. This gives rise to various risks that building owners should be aware of when contracting with design professionals, construction managers, and contractors for a "green" retrofit of their buildings. Below are some tips to be considered:

• Be sure to thoroughly discuss the scope of the project with all those involved prior to drafting plans, specifications, and contracts. Pay particular attention to which existing building systems will remain, which need to be upgraded and how, and which need to be completely replaced.
• The LEED certification system has four levels: certification, silver, gold, and platinum. The level is dependent on seven prerequisite points and 69 elective points. Be sure to agree ahead of time with potential design professionals, construction managers, and contractors on which level of certification you are seeking and which building systems need to be retrofitted to attain those elective points.
• Be conscious of the cost of replacing or upgrading certain existing systems versus the long-term financial benefits that will be attained by virtue of reduced energy costs.
• Be sure to retain a design professional with a background in LEED certified projects at the contract and the contract document stage. Design specifications should clearly define individual responsibilities for the construction manager and contractors in regard to building the project in accordance with plans and specifications.
• Ensure that the contract clearly specifies who is responsible for LEED certification and the ramifications for not achieving it.
• Be wary of the difference between design specifications and performance specifications. Generally, if a building is retrofitted in accordance with the owner supplied design specifications, the contractor will not be held responsible if that building fails to meet performance specifications.

Owners should be confident that their design professionals have developed a design for the retrofit that is attainable within a certain budget, and that such design will meet the desired certification. The contract between owners and design professionals should clearly spell out the remedies for a breach. In addition, owners and their attorneys should be certain that the contract language calls for specified relief against contractors if performance specifications aimed at attaining a certain LEED certification level are not met.

By: Vincent P. Pozzuto, Esq.
Member, Cozen & O'Connor
New York

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 Vincent.

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 subscribers

For SilverPlume Sage subscribers

New Expert Commentary

There are over 1,100 risk management and insurance articles on IRMI.com. Below you'll find summaries of some recent additions with links to the articles.

• Commercial P/C Premiums Continue to Drop in Third Quarter—While CIAB reports that property/casualty premiums continued a downward slide, these figures do not reflect the government bailout and current financial crisis.
• Coverage Trigger: Getting It Right for the Right Reason—Steve Rawls shows why an injury-in-fact or actual injury trigger is the only trigger theory he believes is supported by the language of the standard CGL policy.
• Injury-in-Fact Coverage Trigger—HO Policy View—Brent Cooper looks at Don's Building Supply and its application to the Texas Homeowners Insurance Policy HO-B.
• Opinion of Counsel after Broadcom v. Qualcomm—Sanford Warren shows why obtaining a validity or non-infringement opinion from counsel is a good idea.
• Nix Your Mediator's Prospective Waiver of Liability—Jeff Kichaven says it's important to hold your mediators to the same standards as you hold your lawyers.
• Construction Blasting Fundamentals—Peter Furst provides the basics on commercial explosives, blast physics, rock properties, construction blast design and techniques.
• The Examination under Oath—Barry Zalma explains why this is an important tool to help insureds prove their loss or to allow an insurer to cross-examine the proofs of loss to avoid potential fraud.

Cutting-Edge Analyses for Risk Financing

Many Fortune 1000 risk managers and the nation's leading insurance professionals use Risk Financing. This indispensable and easy-to-understand reference explains the traditional insurance rating plans and alternative funding options for your organization's risks. See a detailed list of the risk financing topics covered and how it can eliminate risk financing uncertainty.

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