IRMI Update
Risk Management & Insurance
Commentary, Tips, and Tactics
October 8, 2009 | Issue 215 | ISSN: 1530-7948
In This Issue
Colleague,
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
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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.
Recent Articles on IRMI.com
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.
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