Congratulations to Kathryn A. "Kate" Westover for being named the recipient of the 2009 Captive Insurance Companies Association (CICA) Distinguished Service Award—the highest award possible in the captive insurance industry. CICA could not have picked a more appropriate person to recognize with this award when they presented it to her earlier this year. She is a true professional and a wonderful educator who wholeheartedly believes in the captive concept.

With over 20 years' experience in the captive insurance industry, Kate is a practitioner, author, and speaker on this topic. Her two companion books, Captives and the Management of Risk and Captive Practices and Procedures are published by IRMI, and she also contributes articles to both The Risk Report and Captive Insurance Company Reports.

She is vice president of Alternative Risk Financing Services for Innovative Captive Strategies, Inc., and serves as executive director for the Community Blood Centers' Exchange Risk Retention Group. Kate holds a B.A. and M.A. from Oxford University, England, as well as the CPCU designation.

Congratulations, Kate, on this well-deserved honor.

Lastly, I would be remiss if I didn't mention the upcoming IRMI Construction Risk Conference. It is shaping up to be one of our best conferences ever, and we still have room for you. All 50 states have approved it for insurance CE credit, and you can get as much as 27 hours credit in most states if you attend all the sessions. See the agenda and register on IRMI.com by October 16 to save $100.

All the best,

Jack

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

Risk Tip

Address the Electronic Data Liability Coverage Gap

A recent Risk Tip pointed out the importance of reading the policy. It used as an example the lack of coverage for electronic data claims. That's correct. The standard ISO CGL and most other CGL forms exclude liability coverage for damage to electronic data.

This gap can be partially closed with ISO Electronic Data Liability endorsement (CG 04 37 12 04). It does so by amending the definition of "property damage" to include loss of or damage to electronic data that results from damage to tangible property, such as a computer or server.

Many types of businesses face exposures that give rise to a need for this type of coverage. For example, the owner of a building might be sued based on its alleged negligence in maintaining plumbing when computers are destroyed by a water leak. A tenant might be sued based on its alleged negligence. An electrical contractor could cause a short-circuit that wipes out a firm's computer equipment. The list goes on and on. It's worth getting a quote and considering the coverage.

Unfortunately the CG 04 37 endorsement only partially plugs the liability coverage gap created by the exclusion. Note, for example, that the endorsement would still not provide coverage for liability arising from the transmission by the insured of malicious code, viruses, etc., since the loss does not result from damage to physical injury to tangible property. Specialized cyber liability policies are necessary for this broader scope of protection.

By: Jerry Trupin, CPCU, CLU, ChFC
Insurance Consultant/Expert Witness, Trupin Insurance
Services
Briarcliff Manor, NY

GET PUBLISHED IN IRMI UPDATE: 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 acknowledge your contribution as we did for Jerry.
Submit an IRMI Update risk tip.

What's New in Your IRMI Library

Managing "Distressed Project" Risks

As a result of the recession, both the residential and commercial real estate "roller coasters" have raced toward the bottom of this economic cycle in declining property values and sales/leasing activity. Lenders' balance sheets have ballooned with distressed and nonperforming assets.

Contractors and developers with patient capital and a long-term investment mindset have an opportunity to take over some assets at bargain prices, but these transactions present unique risks that must be addressed. An article included in the latest supplement to Construction Risk Management explores some of these risks as well as the options for evaluating the opportunities. If you subscribe to Construction Risk Management, read the article on your chosen platform:

For summaries of other new and updated information in your IRMI library, go to What's New on IRMI Online or What's New in SilverPlume.

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.

Creating a Personal Umbrella Coverage Checklist—An umbrella comparison form and checklist can help you pick the best umbrella policy for you. Jack Hungelmann shows how.
Strategic Considerations for Executives—Corporate fraud policies are hard to formulate. Scott Langlinais answers commonly asked questions.
First-Party Insurance for Cyber Risks—Risk controls should be used in conjunction with first-party insurance to cover unique and evolving cyber exposures, per William Austin.
Safely Building the Future—TJ Lyons looks at new ways to solve old construction safety problems.

IRMI Featured Publication

The Handbook for Risk Professionals

Designed to help risk management and financial executives start and maintain a risk management program, Practical Risk Management from IRMI discusses the entire process from exposure identification through implementation and monitoring of the program. You’ll get suggestions for risk management practices to implement, concise and understandable explanations of most types of insurance coverage, and tips on the best coverage options. See the table of contents and learn how you can become an even more valuable adviser.

Your View

2010 Market Predictions

IRMI Update 214 asked readers for their views on taking advantage of opportunities for lower cost construction and handling the risk with surety bonds. Below are some of the responses.

Capacity will shrink, and therefore rates will firm in the second quarter of 2010, starting with personal lines; 3%-7% increase in premiums in commercial lines by the third quarter of 2010.

—Shawn L. McKay, Assistant Vice President,
Grinnell Mutual Reinsurance Company, Grinnell, IA
I agree with most of what was indicated [in IRMI Update 214] as far as what is going on in the industry now. One thing we are seeing in the Midwest relates to habitational exposures (apartments, condos, residential rental property). Some companies are dramatically increasing property premiums, raising deductibles or introducing wind and hail deductibles. This is occurring in states where this is not the norm (IA and MN).

—Jake Rojohn, Commercial Lines Business Center Director,
Farm Bureau Mutual Insurance Company, IA
The market is soft. On certain good accounts, we are seeing property and general liability premium decreases of 20% or more.

—Steven R. Jacobs, Producer Partner,
Lawley Service Inc., Buffalo, NY
As the largest underwriter of the crane-rigging and related heavy equipment operators industry since the mid-1990s, we see flat rate levels on most renewals. However, larger accounts are still in a competitive bidding environment.

We do see less intensive competition from new entries in this high hazard-specialty marketplace, which historically (past 15 years) means the market is firming somewhat. However, ratable revenues are down 25 to 40%, so premium volume is depressed. Good news is that losses are down significantly, so it is giving us a little breathing room after "white-hot" work levels and intense competition had impacted our market over the past 5 years. End result being some relative change in today's market in terms of higher renewal retention—yet, economic conditions are holding premium levels down over last year.

—Kevin J. Cunningham, Executive Vice President,
NationsBuilders Insurance Company, Inc., Atlanta
Thanks so much for the research my friend. After speaking with my agent and carrier clients, here are the conclusions that I've made about 2010:

Rate erosion due to economic conditions is still the primary concern. Renewal income continues to be down dramatically due to reductions in sales numbers and employee counts. Though all key indicators point to a firming market—industry combined ration well over 100, increased reinsurance rates, questionable investment income, etc.—the scramble for top line revenue will continue to keep the market artificially soft while the industry tries to make up the loss from erosion and still try to grow a bit.

—Scott M. Primiano, Founder,
Polestar Performance Programs, Inc., Doylestown, PA
I tend to agree with what you are saying [in IRMI Update 214]. However, being in a Gulf Coastal area, we don't see any price increase for windstorm related coverages as you mention. The carriers would like to have an increase, but they are hard to sell, and the competition will take your business if you are asking for any increase or much of one.

—Ronald Anderson, President,
Underwood Anderson & Associates, Pensacola, FL
My company is not a market driver. The 2010 commercial lines market is too early to predict for me. If I had to guess, I would suspect the market will be conservative, meaning we will renew policies with current rates (to see if they stick), increasing or decreasing premium solely based on exposure changes.

—Ronald E. Sherer, Senior Underwriter, Commercial Lines,
Penn National Insurance, Harrisburg, PA
I agree with your thoughts [in IRMI Update 214] that the market remains soft in the property lines and flat for liability and auto coverage.

—Michael B. Couch, Risk Manager,
Precision Communications Inc., Grove, OK
The bottom line with rates depends on your current pricing and what your programs have experienced the last few years. If after 4-5 years of steady rate decreases and marketing the program for benchmarking, we know the rates are at bottom levels, a program will not simply experience the same "market pricing" that is being considered the average renewal results.

—Alan Kubitz, Director of Risk Management,
The HAVI Group LP, Downers Grove, IL
My company deals only with the trucking industry. I have seen more and more companies go out of business in the past 2 years than I could have ever imagined. Companies that had been in existence for over 50 years had to close their doors. Insurance costs, the price of fuel, and the state of the economy have all contributed to the problems of truckers.

The rates have not changed dramatically for this type risk. Carriers are continuing to stay on risks that have had very bad loss history and even stayed at the same price just to retain the business. Until the economy changes, I cannot see a lot of change in my segment. Truckers have to have freight to haul, and when construction decreases and consumers lower their spending, then there is no need for the trucker, or I should say, not as much need. Hence, less freight being hauled. I do feel like things will begin to turn around, but it will probably be the first or middle of 2010.

—Estelle Smith, CEO, Alabama Public Automobile
Insurance Agency, Inc., Birmingham, AL
There is much talk about the necessity of increasing rates especially with work comp in California. But only half the carriers have gotten the memo. There is predatory pricing still for good accounts. But that is typical of the precursor to a hard market. Gain market share and ride the rates up, adjusting at the re-quote to keep renewals. All the carriers have filed higher rates but seem to be offsetting increases with higher credits on good accounts. GL and property are flat, assuming you had a good deal to start.

—Bob Hessler, President,
Hessler Insurance Solutions, Lake Arrowhead, CA
Two of our contracted companies servicing our area have instructed underwriters to begin getting 2-5% increases on well-performing small business accounts...all lines.

—Kenneth F. Teglia, Mgr., P&C and Bonds,
Leonard H. Franks, CPCU & Associates, Inc., Northfield, IL
After the 1980s hard market, I heard for several years that the next one was imminent, along with (seemingly) good reasons why it had to be so. And yet we lived through 13 years or so of a soft market. The moral, to me, is this is the market we have to deal with, hard or soft. We use strategies that will allow us to help our clients manage when the next hard market hits, but trying to predict when it will happen is about as productive as trying to time the stock market. My energies are better directed at helping my customers manage the risks we can see.

—Brad Poggi, Principal,
Pinnacle Insurance Partners, L.L.C., Grand Rapids, MI
Humanity has never been where we are today. Today's business conditions resemble nothing in the past. The past can't be used as a future indicator. Anyone that takes a position on where we will be with insurance rates is doing so based on feelings. The jumble we call the insurance marketplace is that competition is depressing rates, surplus is under attack, combined ratios are going up, loss rates are declining, interest rates are low, debt ratios are high, investments are unstable, and the dog ate my crystal ball. Having said that, I believe rates will eventually rise. If they don't, I believe they will go down.

—Dan Sielicki, Risk Manager,
Baker Concrete Construction, Inc., Monroe, OH

IRMI Update