Tag Archives: Business Risk

The Litigation Trends Behind Deteriorating Profits in Commercial and Personal Auto

The commercial auto line showed a spectacularly rapid deterioration of reserves beginning in 2012. In 2013 carriers begin to cite their trucking books as the source of increased frequency of severe claims, higher than expected large losses and deteriorating loss ratios. This recent GenRe article examines the causes which include:

  • A driver shortage affected the quality of the driver pool with more young, inexperienced drivers operating trucks.
  • Vehicle utilization levels increased due to an improved economy and lower gas prices.
  • Increase in vehicle miles travelled
  • Greater availability of safety data on motor carriers has led to attorneys use of this information to target commercial auto cases and win them.
  • Attorneys are succeeding in shifting responsibility from the person behind the wheel to the employer and winning large “nuclear verdicts” of over $10 million.
  • Increase in traumatic brain injury (TBI) cases. if an attorney can find an expert to allege a TBI, verdicts can be driven to higher levels. The “super experts” are winning TBI arguments in front of today’s jurors.

Some of these trends are the same ones affecting personal auto lines. The author warns that claims departments need to be prepared and proactive.

Will your baby need to learn to drive?

“They’ll be driving soon,” a friend said recently when I sent him a photo of my two young sons. “Hoping car will do that,” I responded, only half-joking.

But if you think about it, we may not be so far from that scenario and insurers are among those saying sooner, rather than later for self-driving cars.

From across the pond, this:

“Babies born today may never have to take a driving test.”

Axa UK’s chief executive Amanda Blanc told The Telegraph that autonomous vehicles could be on the roads within 15 years.

In preparation Ms. Blanc said it is crucial for the insurance industry to build a framework for what happens in the event of a car accident that is caused by a computer, rather than a human.

“Driverless cars will not be able to take to the roads [without that],” she added.

Insurers know that new technology, particularly the rise of autonomous driving, will drive a big shift in liability claims and they are preparing accordingly.

For example, in our earlier post we reported that Allianz has already started building teams of engineers with experience in automotive and driverless technology.

The Trump administration is set to unveil revised self-driving guidelines within months, according to this Reuters report.

Despite advances in safety, the impact of collision/crash, particularly motor-related, is the main driver of liability loss activity in the United States, according to Allianz’s latest global claims review.

Check out the I.I.I. issues update Self-Driving Cars and Insurance.

Stable And Buyer-Friendly Commercial Insurance Marketplace

As hundreds of risk professionals gather in Philadelphia, the birthplace of insurance, for the annual RIMS (Risk and Insurance Management Society) conference, here’s the latest take on corporate risk costs:

  • Businesses saw a 5 percent decline in the total cost of risk (TCOR) in 2016—the third year in a row that corporates have benefited from lower prices, according to the latest RIMS benchmark survey. The study defines TCOR as the cost of insurance, plus the costs of the losses that are retained and the administrative costs of the risk management department. CFO.com has more on the findings.
  • The commercial insurance marketplace remains buyer-friendly and stable for North American insurance buyers, even as it braces for potential changes from Washington D.C. That’s the outlook from Willis Towers Watson in its 2017 Marketplace Realities report which points to the fluidity of capital as a key driver of current market conditions. The report’s line-by-line commercial insurance price predictions for the remainder of 2017 show a mix of increases, decreases and flat rates, as follows:

 

Impact Of Collision/Crash Top Cause of Liability Loss In U.S.

Despite advances in safety, the impact of collision/crash, particularly motor-related, is the main driver of liability loss activity in the United States.

The impact of collision/crash accounted for close to half (42 percent) of the value of business liability claims in the U.S., according to the latest global claims review by Allianz Global Corporate & Specialty (AGCS).

New technology will drive a big shift in liability claims, AGCS warns. For example, the rise of autonomous driving presents new loss scenarios for insurers:

“A decline in car ownership in favor of motor fleets, car-sharing and driverless taxis could see insurers move away from providing millions of single annual motor insurance policies to drivers, instead providing large policies purchased by manufacturers, fleet owners and operators.”

The shift to product liability will require insurers to develop technical expertise and not rely on historic data and driver profiling for pricing. Allianz has already started building teams of engineers with experience in automotive and driverless technology.

(Read this Insuring California blog post for more insight on how driverless cars will change auto insurance.)

The growing “sharing economy” also raises new liability questions:

”A road traffic accident featuring an autonomous car share vehicle could involve the vehicle manufacturer, software provider and the fleet operator, as well as third parties involved in the accident. This would make liability harder to apportion and claims more complex to settle.”

AGCS Global Claims Review analyzes over 100,000 corporate liability insurance claims from more than 100 countries, with a total value of €8.85bn (US$9.3bn), paid by AGCS, and other insurers, between 2011 and 2016.

Over 80 percent of losses arise from these 10 causes:

See Insurance Information Institute (I.I.I.) information on litigiousness here.

Minimizing Human Error At The Oscars

One week since we were left scratching our heads following the botched best picture announcement at the 89th Academy Awards ceremony, the liability ripples from an apparent act of human error continue to spread.

Just to recap: the mix-up occurred after a PricewaterhouseCoopers partner mistakenly handed presenter Warren Beatty the wrong envelope for the best picture award.

As the LA Times reported early on, the mistake instantly turned into a public relations nightmare for the accounting firm which has handled the balloting process for the Academy Awards for 83 years.

For its part, PwC quickly moved to mitigate damage to its brand, issuing an apology and accepting full responsibility for the mixup.

Brian Cullinan and Martha Ruiz, the two PwC partners involved, have been permanently removed from all Academy activities. PwC said the partners did not follow through protocols for correcting the error quickly enough.

Whether or not the Academy will terminate its contract with PwC, industry lawyers say there are a number of potential liability issues that could arise, per this article by The Hollywood Reporter.

Others say public perception and doubts about PwC’s expertise could be a costly risk factor going forward.

As the fallout continues, the two PwC accountants involved now need security protection due to the public backlash.

While this human error did not happen in the process of crunching the numbers, it does highlight how important it is for businesses to manage their professional liability risks.

Insurers have developed professional liability policies to meet the unique needs of a wide range of industries. Crisis response and helping businesses to protect their reputation are among the services insurers provide.

‘Tis The Season…For Lawsuits

In true holiday spirit we just got our kids to the mall to see Santa this week. Its an annual tradition, a visit that helps keep the magic alive in our all-too-knowing six and four-year olds’ minds and more importantly yields the holiday photo that keeps on giving throughout the years.

Every year Santa faces a barrage of questions. This year was no different. Our six year-old started: “Santa, I have a question. How come you know I want a two-wheeled scooter?”

Luckily, the letter from the North Pole had arrived a few days earlier telling him he had made the Nice List and that Santa knew from our elf Chippy just what he was wishing for.

This was confirmed by Santa at the mall who said: “Because you’ve been good and it’s magic.”

But what if the conversation had gone a different way?

Sometimes magic confronts reality and a lawsuit ensues, reminding us what’s at stake for Santa and the mall this Christmas.

Take this post over at Randy Spencer’s Open Mic published in the latest issue of online newsletter Coverage Opinions (edited by attorney Randy Maniloff of White and Williams LLP)

In the post, Court Holds a Mail Santa Liable: Damages Owed For Failure To Deliver A Toy Fire Truck, Randy Spencer – the only stand-up comic to specialize in insurance – tells of a Montana trial court that found a mall and its Santa liable for a child’s emotional injuries after promising a toy that was not left under the tree come Christmas Day.

How much damages did the court award in this case? $95,000.

All of which is a timely reminder that Santa (and the malls that embrace the Christmas spirit) need insurance too.

Which is why the Insurance Information Institute (I.I.I.) urges St. Nick to review his insurance policies to be sure he’s got the right insurance coverage with its Santa’s Insurance Wish List.

And we suggest the I.I.I.’s business insurance checklist would make a great stocking stuffer in this case.

All the best for a happy and safe holiday season!

What IoT Cyber Attacks Mean for Insurers

The massive global distributed denial of service attack (DDoS) against internet infrastructure provider Dyn DNS Co. that left over 1,000 major brand name sites including Twitter, Netflix, PayPal and Spotify, inaccessible Friday has implications for insurers too.

While the nature and source of the attack is under investigation, it appears to have been (in the words of Dyn chief strategy officer Kyle York) “a sophisticated, highly distributed attack involving tens of millions of Internet Protocol addresses.”

As Bryan Krebs’ KrebsOnSecurity blog first reported, the attack was launched with the help of hacked Internet of Things (IoT) connected devices such as CCTV video cameras and digital video recorders (DVRs) that were infected with software (in this case the Mirai botnet) that then flooded Dyn servers with junk traffic.

The World Economic Forum (WEF) recently warned that failing to understand and address risks related to technology, primarily the systemic cascading effects of cyber risks or the breakdown of critical information infrastructure could have far-reaching consequences for national economics, economic sectors, and global enterprises.

As the IoT leads to more connections between people and machines, cyber dependency will increase, raising the odds of a cyberattack with potential cascading effects across the cyber ecosystem, the WEF noted.

While IoT connected devices have the potential to transform how businesses and individuals—and their insurers—conduct, manage and monitor their operations, workplaces and their homes, clearly there are embedded risks that insurers need to consider.

Over at Celent’s insurance blog, Donald Light, director of Celent’s North America property/casualty practice, says the Dyn DDoS attack has a number of potentially serious implications for insurers.

Light writes:

“An insurer with a Connected Home or Connected Business IoT initiative that provides discounts for web-connected security systems, moisture detectors, smart locks, etc. may be subsidizing the purchase of devices which could be enlisted in a botnet attack on a variety of targets. This could expose both the policyholders and the insurer providing the discount to a variety of potential losses.”

If the same type of safety and security devices are disabled by malware, homeowners and property insurers may have increased and unanticipated losses, Light suggests.

The Insurance Information Institute white paper on cyber threats and opportunities is available here.

Charlotte Unrest and Business Insurance

Ongoing civil unrest and protests in Charlotte, North Carolina following the police shooting of Keith Scott are reported to have caused significant property damage to businesses in the central area of the city.

The Charlotte Observer reports that entertainment complex EpiCentre faced looting and sustained significant damage Wednesday night. Numerous businesses were damaged, including Sundries EpiCentre, CVS, Enso and Fleming’s Prime Steakhouse, it said.

The NASCAR Hall of Fame was among other sites hit by vandals, with adjacent restaurants and hotels also damaged after officials declared a state of emergency for the city.

As clean-up gets underway it’s important to note that most commercial insurance policies generally include coverage for losses caused by riots. civil commotions and fires.

The definition of rioting covers looting by people who steal merchandise or other property from a premises. Vandalism is also covered.

According to The Charlotte Observer, a possible curfew for Thursday night is being discussed by city officials.

The Insurance Information Institute (I.I.I.) notes that if a business has to suspend operations or limit hours due to rioting, business interruption coverage is only covered if there is direct physical damage to the premises, forcing a business to suspend operations.

A “civil authority provision” in a business policy provides coverage for lost income and extra expenses in the event the police or fire department bars access to a specific area as a result of the danger caused by a riot or civil commotion.

In April 2015, looting and arson in Baltimore, Maryland, following the funeral for Freddie Gray, a 25-year-old who died after suffering a severe spinal cord injury while in police custody, resulted in estimated property damage of about $24 million, according to the I.I.I..

Five of the costliest civil disorders in the U.S. occurred in the 1960s. Here’s they are:

screen-shot-2016-09-22-at-10-35-42-am

Samsung Recall Underscores Emerging Tech Fire Risks

A formal recall by US safety regulators of the Samsung Galaxy Note 7 smartphone due to serious fire and burn hazards should put users on notice to power down and stop using their devices immediately and return them for a free replacement or refund.

Samsung has received 92 reports of batteries overheating in the United States, including 26 reports of burns and 55 reports of property damage, including fires in cars and a garage.

In its warning, the Consumer Product Safety Commission (CPSC) states:

“The lithium-ion battery in the Galaxy Note7 smartphones can overheat and catch fire, posing a serious burn hazard to consumers.”

The recall covers 1 million phones in the U.S., but some 2.5 million of the devices need to be recalled globally, Samsung said.

It follows a Federal Aviation Administration (FAA) brief last week urging passengers not to use Samsung Galaxy Note 7 devices on planes, nor to stow them in their checked luggage.

As the Wall Street Journal reported, identifying a specific brand or model as a potential hazard is a highly unusual move for the FAA, though agency officials previously issued warnings about the overall dangers of checking any kind of cellphones, other battery-powers electronic devices or spare batteries in the holds of planes.

Following the FAA announcement, Samsung accelerated its massive recall.

The cost of the recall to Samsung have been estimated at about $1 billion, but the costs in terms of the hit to market value, tarnished brand and reputation, and lost revenues, as well as opportunity cost could be much higher, as Forbes reports. (Note: Apple’s new iPhone 7 goes on sale today)

From the insurance perspective, the story does underscore broader concerns over increased fire risks from lithium-ion batteries.

As this National Fire Protection Association blog post explains:

“Rechargeable lithium batteries overheat more than any other type of batteries and tend to have manufacturing defects. They are also very poorly regulated. The low weight batteries house substantial energy and fit into smaller devices, but have been causing fire safety issues in smart phones, tablets, hover boards and other emerging tech devices that are popular with the buying public.”

The homeowners line of business saw the majority of fire losses in 2014, according to Insurance Information Institute facts and statistics on fire losses here.

The risks of lithium batteries are also on the radar of commercial insurers. FM Global has partnered with fire protection groups to research the fire hazards of lithium-ion batteries in warehouse storage and cargo containers, for example.

 

 

Allergic Reaction: EpiPen Needed to Restore Reputation

As the mother of a young child with a life-threatening nut and sesame allergy, it’s hard to remain objective and impartial when it comes to a company increasing the price of EpiPen, the life-saving allergy injector, by more than 400 percent since 2007.

However, the latest example of a company facing a public backlash, political pressure and social media storm due to its business practices illustrates the importance of having the necessary resources in place to mitigate the effects of a reputational risk crisis if and when it occurs.

As we’ve noted before in an earlier blog post, reputational risk is among the most challenging categories of risk to manage. A survey from ACE Group found that 81 percent of companies view reputation as their most significant asset—and most of them admit that they struggle to protect it.

The survey suggests that organizations need a clear framework for managing reputational risk that reduces the potential for crises, taking a multi-disciplinary approach that involves the CEO, PR specialists and other business leaders.

Mylan, the company at the center of the EpiPen controversy, has moved quickly to respond to the angry mob and to stem the drop in its share price which has so far lost investors $3 billion.

Yesterday, Mylan’s CEO Heather Bresch went on CNBC to announce the company was increasing financial assistance to patients to offset out-of-pocket costs of the EpiPen.

However, as The New York Times reports, Mylan did not say it would lower the list price — which has risen to about $600 for a pack of two EpiPens, from about $100 when Mylan acquired the product in 2007.

By the way, actress Sarah Jessica Parker also announced she is ending her relationship with Mylan after the pricing debacle broke.

Wherever you stand in this debate, the reality is the pharmaceutical industry is for-profit, as noted by Ms Bresch, and in the absence of a competitor or a generic, EpiPen is the latest example of a company trying to maximize profit.

Reputational risk is not covered by a standard business insurance policy, but companies can purchase coverage via a stand-alone policy which typically would pay fees for professional crisis management and communications services; media spending and production costs; some legal fees; other crisis response and campaign costs including research, events, social media and directly associated costs.

Newer reputation insurance products have also been developed that would cover a company’s financial losses due to reputational and brand damages.

In the mean time, in a climate of increased public, regulatory and investor scrutiny, the Mylan case is a good example of why companies need to be more proactive than ever to respond to challenges before they do serious damage to their brand and reputation.