One of the things I try to avoid with this newsletter is political debates because the weekly and daily press already inundate us with them. But I have had to bite my tongue so many times since last October that I have decided to weigh in on a single aspect of the AIG meltdown by focusing attention on the biggest victims of the entire mess: the employees who work for the AIG insurance units that were totally uninvolved with the financial products which imperil the company.

The property and casualty insurance companies have been well managed and are in excellent financial condition. Unfortunately, the press and politicians paint with a very broad brush when they talk disparagingly about AIG practices and people. Additionally, some of this criticism seems to be keeping the insurance companies from engaging in practices that their competitors are free to do, such as rewarding their best independent agents and brokers for placing business with them. It is ironic that the United States bought 80 percent of the company and then, through speeches by elected officials, has contributed to the demise of the brand and the morale of the talented AIG people who remain.

Whenever the subject of AIG comes up with my friends outside the insurance biz, I explain to them that the 40,000 or so employees of the P&C insurance companies had nothing to do with the debacle and have certainly not benefited from it in any way. Indeed, as both taxpayers and probably holders of at least some AIG stock through the various company benefit plans, they likely have suffered financially as much or more than most Americans. And the stress of the whole thing must be absolutely overwhelming at times. Since the perceived integrity of the entire industry is affected by the situation, I hope you are also making these points to others, even if you compete with AIG.

If you are one of the many people at AIG who subscribe to this newsletter, please know that I for one still greatly respect you and the AIG franchise. Be proud that you helped build one of the most important insurance organizations in the world and that, without the protection that it continues to provide, commerce would suffer immensely, the economy would be in even worse shape, and many more people would be losing jobs. Hold your head high with the knowledge that at least some Americans understand that you are far from the cause of the problem, and indeed the fruits of your labors will be a major contributor to the final solution.

If you are not an AIG employee, would you like an opportunity to offer some words of encouragement to the hardworking people of the insurance units? Well, here it is. [See reader responses].

On another note, several of us at IRMI will be attending the annual RIMS Conference in Orlando in a few weeks. If you plan to attend, please stop by exhibit booth #2001 and say "Hello." Many thanks for choosing to be a member of the 35,000 strong IRMI Update subscriber family.

All the best,

Jack

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

Risk Tip

Best Use of Construction Inspections

Quality assurance and control (QAC) has become an increasingly important issue for contractors and project owners alike for both residential and commercial projects. Inspections are a key part of any QAC program, and there are two fundamentally different inspection protocols utilized by independent third-party inspectors during the construction process. The first protocol is generally referred to as "completed assembly inspection." This type of inspection is performed at specific, predetermined stages of construction on completed elements only. This is the same type of protocol used by municipal (e.g., building code) inspectors. As each building component is completed, an inspection is requested. If the inspection results are satisfactory, the item or process is "signed off," and construction proceeds to the next construction element. With this approach, each "completed assembly" is inspected.

The second inspection protocol is commonly known as "process inspection." Process inspections are performed randomly, generally during unannounced site visits, throughout the course of construction. Predetermined construction "milestones" are reviewed by the inspector as they present themselves. This type of inspection verifies that, in general, each process is being performed properly. It should be noted that an inspector performing process inspections may be able to honestly assert that "everything" has been inspected. However, while true that everything was inspected at some stage of the process and at some location, every installation will not have been inspected at each stage. Process inspections therefore do not ensure that each completed assembly has been satisfactorily installed. For example, there is no safeguard against defective workmanship by different field crews.

Process inspection programs typically require fewer site visits and are (or should be) less costly than completed assembly inspection programs. While process inspections can be a cost-effective alternative to establish an overall audit of construction processes, the risk of undiscovered construction defects may be substantially higher than with completed assembly inspections. Therefore, process inspections are effective for risk audits and completed assembly inspections are most effective for quality control risk.

By: Sam A. McInnis
Pacific InterWest Building Consultants, Inc.
Southern California Division Manager

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What's New in Your IRMI Library

Get Business Income Coverage Right

Business income (aka business interruption) insurance is certainly one of the most complex and difficult to understand lines of coverage. Studies have revealed that the majority of businesses that do not have the coverage never resume operations following a catastrophic property loss. Thus, it is important for risk professionals to make certain they "dot all the I's and cross all the T's" when buying or selling this insurance.

We have recently updated the annotated business income coverage discussion in Commercial Property Insurance to help you do just that. The section now addresses all the changes made in the 2007 revisions of the ISO forms and includes significantly expanded coverage analysis on all parts of the form. These analyses rely on and reference nearly 100 applicable court cases interpreting coverage. Check them out:

The most significant 2007 changes to the ISO form were with the coverage for actions of a civil authority. Even if you don't have time to review the entire business income discussion, this discussion would be worth a quick read:

For summaries of other new and updated information in your IRMI library, go to either:

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.

Construction Risk Management in a Hard Economy—Economic downturns greatly affect construction. TJ Lyons shows how inappropriate cost cutting can spell disaster.
Do Employee Layoffs Equal Litigation?—With discrimination charges on the increase, costly lawsuits follow. Paul Siegel provides employers with risk management tips.
Crime Insurance—The Other Property Policy—William Austin examines how ISO crime policies provide theft coverage to replace what's excluded in commercial property policies.
Uncovering Business Fraud—Scott Langlinais explains the importance of looking beyond the requirements and guidelines established by laws and accounting pronouncements to discover wrongdoing.
Clash Cover Reinsurance and Economic Catastrophe Losses—Larry Schiffer explains how clash cover can protect insurers from economic disasters like the Madoff "Ponzi" scheme.
The Political Risks of the Global Recession—Daniel Wagner examines the rising political risks worldwide and stresses the need to take a defensive posture.

IRMI Professional Liability Insurance

Professional Liability Market Directory Update

We are in the process of updating our annual Professional Liability Market Directory. The directory listing is provided as a service to our readers and at absolutely no cost to you. If you are a direct source for professional liability coverage (e.g., insurer, managing general agent) you and your firm can have a free listing in the Professional Liability Insurance Market Directory. Simply complete the appropriate information.

IRMI Featured Publication

Assure Your Contracts Provide the Proper Protection

Contractual Risk Transfer is a one-of-a-kind reference manual with the most thorough explanation available of how to allocate risks in all types of contracts. You'll save hours of drafting time with "boilerplate" insurance clauses. Use the state-by-state analyses of anti-indemnity laws and how the courts interpret hold harmless and indemnity clauses to bulletproof your clauses. Understand when and how to require additional insured status. Plus, many more strategies to protect your company. See the table of contents for this IRMI best-seller.

If you already subscribe, scan the topics covered by Contractual Risk Transfer in the platform to which you subscribe:

IRMI Update