MIDWEST FLOODING DISASTER LESSON: The amazing thing about the destructive flooding in Iowa in June was not the extent of if, All areas of the country are zoned by FEMA to indicate the severity of the flooding No exposure to worry about outside of Zones A and V? Not true at all, though that is Said Craig Lang, president of the Iowa Farm Bureau, “This was not expected.” Donna
The risk management reality is that flood coverage should be carried in most situations As with due diligence in all areas of endeavor, a professional approach to risk management For more information, contact Debora Wu, at
THE STATE OF COMPUTER SECURITY Two recently released computer and information security surveys provide data on the subject:
Some key points from the surveys: Losses are Greater in Size More Attacks are Targeted Attacks The Insider Threat Continues to Rage In fact it is now becoming clear that the $7 billion trading loss suffered by French company Societe Generale in 2007 was enabled by a security breach, in that the employee had access to areas of the network he should not have had. More Companies are Getting Serious About Security We will address the state of the insurance market for computer and data security in a follow-up bulletin.
February 1, 2008 TERRORISM PROGRAM RENEWED A crisis has just been averted with the January 08 renewal of the federal terrorism law. The terrorism law, [TRIA (the Terrorism Risk and Insurance Act) in its original form], has just been renewed for seven years, to expire now at the end of 2014. The law requires insurers to include an offer of terrorism coverage with any policy they issue (with some exceptions). The law does not however control what they can charge for premium. One change effective with this extension is the inclusion of domestic terrorism in the program. This is an opportune time to reconsider the coverage. Undue complacency may have taken hold in the years since the World Trade Center attack. Consider that another event (or two) will result in a chaotic environment in which the coverage will be impossible to obtain. Think strategically rather than impulsively on this subject. "Let us not look back in anger or forward in fear, but around in awareness." --- James Thurber Insurance is not the cure for every risk, and risk management is more than just insurance. However terrorism has the characteristics for which insurance is ideally suited: high severity and low frequency. This combination serves the make the coverage necessary, and should serve to make the premium reasonable. In some cases, though, unreasonable premiums are being and have been quoted. This problem can be managed. DETERMINING THE RISK We need to have a feel for the risk in order to evaluate the premium. The insurance industry trade organization Insurance Services Office (ISO) has established guidelines for its members that evaluate exposure geographically and by target class: Geographic Risk Categories: Tier 1 (High Hazard) Tier 2 (Moderate Hazard) Tier 3 (Low Hazard) "Primary Target Types" are listed as follows: " Airport, Amusement Center, Bus Terminal, Capitol Building, Church, Clinic, Electric Power Facility, Event Stadium or Arena, Federal Building, Forbes 500 Corporate Headquarters, Foreign Embassy, Higher Education Institution, Hospital, Lower Education Institution, Marine Terminal, Medical Center, Natural Gas Facility, Oilfield, Post Office, Prominent Building, Railway Bridge, Religious Institution Excluding Church, Shopping Center or Major Retail Center, Train Station." Additionally, there are certain specific "trophy targets" which are famous buildings or facilities that have some special high profile. Proximity to any of these creates exposure as well, of course. THE NEED TO REVIEW PRICING The law allows the market to establish pricing, but not without some oversight. State insurance departments do have the right to determine whether rates are "excessive" and therefore against public policy, and to enforce a lowering of those rates. There has been little or no enforcement action to date and many insurers may have abused the situation; with the current market softening, this problem has in many cases disappeared What's a reasonable premium? The insurers' trade group originally (after 9/11) offered the following guidelines to its members (since 9/11 has faded into the past, and the market is softening overall, rates should be lower now): PROPERTY Rates are per $100 of property value insured, and are only "loss costs." Insurers will add their overhead and profit factors and miscellaneous charges: Tier Building Contents 1 .108 .078 2 .018 .012 3 .001 .001 These rates must be adjusted for characteristics of individual risks. According to the above, the loss cost (subject to the adjustments mentioned) for $10 million of building coverage in Boston would be $1800. The full premium could be around $2800. Outside of Boston, the loss cost would be only $100! This is a basis on which to have a rational discussion with an underwriter. LIABILITY Liability terrorism premiums are expressed as a percentage of the basic general liability premium that a company would pay without the terrorism coverage. The exposure is high for companies in the security business, for owners of high exposure buildings who are responsible for the security function, and for other special situations. For others, the premium should be affordable. For example a Boston company in an "average exposure class" should pay a premium equal to 3 1/2 % of its general liability premium. In Massachusetts outside of Boston, the percentage would be only 8 tenths of one percent. The costs for "above average exposure classes" will be considerably higher. Insurers are not all following the suggestions of ISO, as previously stated. However, ultimately insurers with an excessive price and a "take it or leave it" attitude may come to regret that posture. In risk management a short attention span is hazardous. We look to protect against the severe events. Because they happen only infrequently, this doesn't give us license to ignore them. Such large events seem almost predestined when looking at them in hindsight. For more information, or to attend, contact Debora Wu, at DWu@LicataKelleher.com
November 27, 2007 GLOBAL
WARMING PANEL IN Risk and insurance implications highlighted At a panel discussion November 16 at the World Trade Center in Boston, experts in the field discussed climate change, its impact on specific weather events, implications for personal and business risk, and its effect on property and D&O insurance coverage and markets. The program was sponsored by the Boston Chapter of the CPCU Society. Panelists were:
The
moderator was Robert Mansfield, Sr. VP, HUB International Brewer
& Lord.
PAST NEWS OF NOTE October 19, 2007 GLOBAL
WARMING SYMPOSIUM NOVEMBER 16, 2007 IN BOSTON
The moderator
will be Robert Mansfield, Sr. VP, HUB International Brewer &
Lord.
The cost is
$60.00 including continental breakfast and lunch. Clients of Licata
Kelleher will attend at no cost as our guests.
HURRICANE DEAN AN OMEN? Hurricane Season Is Far From Over Hurricane Dean notwithstanding, windstorm activity has been light again this year … so far. Unfortunately, however, hurricane season runs through the end of November. We even have over a month to go to get through the peak of the season which ends on September 30. Forecasters continue to predict greater than average hurricane activity not only for this year, but for the longer term. In fact one respected group, the Department of Atmospheric Science at Colorado State University, has published the following prediction for 2007 in the “Atlantic Basin”:
They put forth the following probabilities of at least one major hurricane (category 3,4 or 5) making landfall on each of the following coastal areas:
Even other areas
of the country are not immune from this kind of storm activity,
with New England now in the sights of some forecasters. In fact
New England does have a history: there have been six category 3
hurricanes in Massachusetts alone in the last century, with the
last one in 1969. Hurricane patterns are cyclical, and the thought
is that the pendulum has swung.
April 25, 2007 WHO’S LIABLE FOR PET FOOD CONTAMINATION – THE RISK OF PRODUCT LIABILITY China the source of the problem Pet food contamination has been traced to Chinese suppliers. Wheat gluten purchased from company in Xuzhou, China, north of Shanghai, contained the hazardous material, and other Chinese companies are now implicated. Food product
sellers have a special product liability exposure which is highlighted
by this incident. This applies to all players in the supply chain
from farmers to manufacturers to retailers. Liability arising from
death or injury can be substantial, and with products in general,
and food products in particular, there is the likelihood that the
defective product will affect large numbers of victims, resulting
in multiple claims.
For more information, contact Debora Wu, at DWU@LicataKelleher.com |