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RMC 2010 Chicago Telcom Insurance Group Get Blown Away by Our Educational Programs Presented by: Peter J. Elliott, CPCU President and CEO Insurance Topics.

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Presentation on theme: "RMC 2010 Chicago Telcom Insurance Group Get Blown Away by Our Educational Programs Presented by: Peter J. Elliott, CPCU President and CEO Insurance Topics."— Presentation transcript:

1 RMC 2010 Chicago Telcom Insurance Group Get Blown Away by Our Educational Programs Presented by: Peter J. Elliott, CPCU President and CEO Insurance Topics Because it has always been a matter of trust…

2 RMC 2010 Chicago Because it has always been a matter of trust… Topics to be Covered What is Underwriting? TeleTracker Audits Business Income and Extra Expense Network Security/Data Liability Telcom Errors and Omissions Exposure Executive Liability

3 Because it has always been a matter of trust… What is Underwriting? To subscribe or agree to, as by signature To agree to pay for the cost of or pledge to cover the financial losses of (an undertaking, etc.) Insurance To write one's signature at the end of (an insurance policy), thus assuming liability in the event of specified loss or damage To assume liability to the amount of (a specified sum)

4 Because it has always been a matter of trust… What is Underwriting? The history of the title and the role of the position realistically Exposure analysis versus data collection: What is the difference? Example alarm installation

5 Because it has always been a matter of trust… Teletracker- Underwriters & Insureds Risk Analysis Tool Purpose: to review liability and business income exposures of a communications company that could in the event of a severe loss if not understood and addressed could lead to financial ruin. Catastrophic losses do not occur often but when one does without proper protection a business could be bankrupt- so the goal is to eliminate surprises when a loss occurs and the consequences were not played out.

6 Because it has always been a matter of trust… Teletracker- Underwriters & Insureds Risk Analysis Tool Cat protection is not a new concept many insureds purchase umbrella policies to protect against a catastrophic loss. It adds an extra limits layer over what was once known as general liability. The problem is liability is no longer simple and general. Can property losses be catastrophic? Of course they can but we don t fear them like liability exposures- why? Is it a lack of understanding of the topic ? Direct or indirect losses can wipe out a business.

7 Because it has always been a matter of trust… TeleTracker- Common Themes Lack of NSDL and Tons of Sensitive Data in Hand Lacking adequate BI/EE limits and understanding Contractual nightmares Equipment that cannot easily be replaced Lack of a catastrophe plan Informal Procedures that deserve formalization Unintentional discrimination against customers Few employees with knowledge of a process and no written trail Large EFT happening Service partnerships with third parties

8 Catastrophic Property Protection = Business Income Finding it is a case made for Magnum BI… Though no one can go back and make a brand new start, anyone can start from this point in time and make a brand new ending. Because it has always been a matter of trust…

9 Basic Concept Defining a Catastrophe 1.the final event of the dramatic action, especially of a tragedy 2.a momentous tragic event ranging from extreme misfortune to utter overthrow or ruin 3.a violent and sudden change in a feature of the earth or a violent usually destructive natural event

10 Because it has always been a matter of trust… Basic Concept We can all agree a catastrophe can strike property and impact a business by destroying the physical assets it owns. This is defined as a direct loss.

11 Because it has always been a matter of trust… Basic Concept If your office building with COE is destroyed in a catastrophe what happens to your revenue, customer base, and your ability to transact business? You need to define indirect loss, business interruption, and time element exposure.

12 Because it has always been a matter of trust… Basic Concept In order to have a Business Income loss (indirect damage or time element loss) there must be direct physical damage to the described property which impairs the operations and causes an income loss even if the business is unprofitable.

13 Because it has always been a matter of trust… Basic Concept In an attempt to demystify Business Income coverage think of what disability insurance does for someone personally and relate that to what would happen to a business if they suffered damages/injuries that interrupted their flow of income. Fact: 75% of businesses that suffer major property damage are out of business in 3 years.

14 Because it has always been a matter of trust… Basic Concept Coverage pays for actual lost income and lost future sales while the business is rebuilding or putting the pieces back together. Fact: Future income loss can be substantiated by use of sales forecasts with historical support, specifics on lost contracts, and expected sales.

15 Because it has always been a matter of trust… Basic Concept The second coverage part of most indirect loss polices is Extra Expense. This coverage grant is intended to cover additional costs a business incurred due to the property damage that they normally would not have endured.

16 Because it has always been a matter of trust… Concepts- Claim Example Fire A wildfire destroys a community and the telephone equipment located in it. Most of the telco property was equipment on loan to customers. The customers HO Policy would replace the damaged equipment. What about indirect loss? The policy had 2 potential coverage locations: Undescribed Premises and Dependent Properties which could apply. Total property in customer homes valued at $24K. The loss of income is valued at $85K.

17 Because it has always been a matter of trust… Concepts- Claim Example Fire Issues: Direct Damage to Scheduled Insured Property Period of Recovery if Homes are Not Rebuilt (Resort Area)

18 Because it has always been a matter of trust… Concepts- Claim Examples Hurricane Property located in a tier one coastal zone and had to be insured in a surplus property market. The policy contained a 5% wind deductible. This retention was greater than the direct loss amount but it triggered BI/EE. The BI loss was $325K ($295K Customer Credits and $31K Lost Revenue) and there was $120K in EE (Overtime, Generators and Fuel).

19 Because it has always been a matter of trust… Concepts- Claim Example Hurricane Issues: Direct Damage or Payment Required to Trigger BI/EE Customer Credits Voluntary or Mandatory Confusing Extra Expense with Expediting Expense (would not have had versus reduction of loss)

20 Because it has always been a matter of trust… Concepts- Claim Example Hurricane 2 Poles and lines damage from the hurricane. Policy limit was $100K for both direct and indirect exposure. The limit was exceeded. Since some of the equipment damaged was on leased space on poles of others, when the poles and lines limit was exhausted, the utility services indirect limit was available for the claim. The total claim amount was $137K.

21 Because it has always been a matter of trust… Concepts- Claim Example Hurricane 2 Issues: Sub-limits in a policy Direct loss being covered but not indirect damage No utility service coverage or scheduled location

22 Because it has always been a matter of trust… Concepts- Claim Example Ice Storm An ice storm knocked out electricity and the telco was unable to provide service to some of their customers despite the use of generators. They incurred a $35K loss ($20K EE and $15K BI for customer credits)

23 Because it has always been a matter of trust… Concepts- Claim Example Ice Storm Issues: Mandatory or voluntary customer credits Utility Services Direct and Indirect loss Extra Expense versus Expediting Expense

24 Because it has always been a matter of trust… Coverage Business Income defined to be net profit or loss and continuing normal operating expenses. Determined by sales - cost of sales = lost revenue One expert states, for service based businesses, that 12%-15% of revenues if ordinary payroll is included, should be used for BI/EE limits.

25 Because it has always been a matter of trust… Coverage Terms, Conditions, and Options Common Pitfalls to Coverage Limit: Market changes for your products and service Impact of the countries economic condition Newly introduced products or services

26 Because it has always been a matter of trust… Coverage Terms, Conditions, and Options Business Income Limits can be: Per Occurrence or capped as part of an Aggregate Agreed Amount or Specified Dollar Subject to Coinsurance or Actual Loss Sustained Have a Maximum Period of Indemnity 120 Days or a Monthly Period of Indemnity

27 Because it has always been a matter of trust… Coverage Terms, Conditions, and Options Business Income Retention beyond coinsurance if not waived can be: a Dollar Deductible; or the policy may have a Time Waiting Period Is the time deductible business hours only or does anytime meet the requirements of the deductible?

28 Because it has always been a matter of trust… Coverage Terms, Conditions, and Options Ordinary Payroll inclusion or exclusion creates confusion. It is defined in the policy as everyone below department manager status. When ordinary payroll is excluded and the operation is unable to operate no payroll reimbursement would be granted for anyone lower in the operation than a department manager. Either self-funding the income, or firing all these employees can be a big problem.

29 Because it has always been a matter of trust… Coverage Terms, Conditions, and Options Law and Ordinance if not on the property direct loss form will not trigger indirect coverage. There have been cases where the required ordinance upgrade created a delay in recovery time and therefore lost income.

30 Because it has always been a matter of trust… Coverage Terms, Conditions, and Options Civil Authority protection should be checked because in the event that damages to an adjacent property occurs some forms with this coverage grant will respond as if the location with the damage is scheduled on the policy. Examples- Hurricane evacuations or closing of Ronald Reagan Airport after 9/11 Attacks.

31 Because it has always been a matter of trust… Coverage Terms, Conditions, and Options Extended Period of Recovery protects a business after the damage is repaired for an agreed amount of time. This extension compensates the insured for lost customers that did not return when operations began again.

32 Because it has always been a matter of trust… Coverage Terms, Conditions, and Options Loss Settlement Fees do you have a limit for this? With all the financial analysis required to determine actual lost profit and especially lost future profits an expert in this area of coverage can be valuable and your policy may even pay for the cost! $25K limit

33 Because it has always been a matter of trust… Coverage Terms, Conditions, and Options Loss Payment Clause read this carefully or make sure your agent does. Many state that it will pay 30 days after a settlement is agreed upon and not 30 days after the claim is submitted. Your agent can also seek partial payments in the event that there is some level of agreement despite the fact that the amount is in dispute.

34 Because it has always been a matter of trust… Management and Analysis Tools Only through preparation can the BI/EE exposure of a business be protected. The end goal of risk management and a sound business resumptions plan is their minimization of the risk of being put out-of- business because your BI/EE coverage was not properly valued or accurately protected with the right coverage.

35 Because it has always been a matter of trust… Management and Analysis Tools Business Resumption Plans are not all that needs to be explored because they will miss other business income and extra expense exposures that only a risk audit can catch. Examples- contracts, equipment, geographic location and network redundancy could all be factors that impact coverage and value requirements.

36 Because it has always been a matter of trust… Management and Analysis Tools Once you have a resumption plan and your risk audit is complete you can use a few tools to work on the valuation piece: Financial Statements Business Income Worksheets

37 Because it has always been a matter of trust… Management and Analysis Tools Business Income/Extra Expense Worksheet Example: ADDITIONAL EXPENSES AT PREMISES 1st Month2nd Month3rd Month Additional MonthsTOTAL Expense of Moving Equipment to and from Former Premises $ - Insurance Expenses $ - Labor, Altering and Equipping $ - Light, Power, Heat $ - Rent $ - Transportation Costs $ - Advertising/Postage Expense $ -

38 Because it has always been a matter of trust… Management and Analysis Tools Still the single best tool available to any management team when it comes to dealing with a catastrophe is--preparedness!

39 Because it has always been a matter of trust… Network Security and Data Security Liability Is created by a breach. So, what is a breach? Personal information that is an a format that can be easily read and used by a third party is stolen and personal information is in unauthorized hands!

40 Because it has always been a matter of trust… Network Security and Data Security Liability Breaches in Telecommunications type businesses: Apple I-Pad Communications- 6/2010 password of 100,000 customers T-Mobile- 7/2009 unauthorized access to records including social security numbers AT&T - 6/2009 employee of service provider improperly removed paper files containing customer data- considered theft.

41 Because it has always been a matter of trust… Network Security and Data Security Liability Flow of a breach and parties involved. Business Customer Breach State AG FTC/FCC Industry

42 Because it has always been a matter of trust… Network Security and Data Security Liability Insurance Protection is available for risk transfer in a few different formats: General Liability coverage extensions Monoline NSDL policies As part of an Errors and Omissions Policy

43 Because it has always been a matter of trust… Network Security and Data Security Liability Insurance Protection varies but a few of the common coverages that are offered include: Indemnification of 3 rd party claims for damages Expense Reimbursement to clean-up your system Expense Reimbursement for required corrective actions to assist victims Regulatory fine reimbursement

44 Because it has always been a matter of trust… Network Security and Data Security Liability Insurance Protection varies but a few of the common coverages that are offered include: Public relations expenses Media and Communications liability Errors and Omissions (more on this later) First party property coverage direct and indirect loss Extortion

45 Because it has always been a matter of trust… Network Security and Data Security Liability Insurance Protection the common format: Claims-made and reported policy form Defense inside the limit Duty to defend Shared limits Retentions only and no coinsurance Claim specialist services

46 Because it has always been a matter of trust… Network Security and Data Security Liability Insuring Agreement: We will pay for loss that the insured becomes legally obligated to pay, and defense expenses, as a result of a claim first made against the insured during the policy period or during the applicable Extended Reporting Period for a wrongful act or a series of interrelated wrongful acts taking place on or after the Retroactive Date, if any, shown in the Declarations, and before the end of the policy period.

47 Because it has always been a matter of trust… Network Security and Data Security Liability Coverage Trigger: E-commerce incident means a: Virus; Malicious instruction; or Denial of service attack; Introduced into or enacted upon your computer system (including electronic data) or a network to which it is connected, that is designed to damage, destroy, delete, corrupt or prevent the use of or access to any part of the system or otherwise disrupt its normal operation.

48 Because it has always been a matter of trust… Network Security and Data Security Liability A Common Exclusion: Based upon, attributable to or arising out of any action by a governmental or quasi-governmental authority or agency including, but not limited to, regulatory actions brought against you on behalf of the Federal Trade Commission, Federal Communications Commission, or other regulatory agency. However, this exclusion shall not apply to the actions brought by governmental authority acting solely in its capacity as a customer of the named insured or one of its subsidiaries.

49 Because it has always been a matter of trust… Network Security and Data Security Liability What if a third party we use, like a billing entity, has a breach? Employee means: a.Permanent, temporary or leased employees; b.Officers; c.Volunteer workers; d.Partners; and e.Members (if a limited liability company); of the named insured and those of any organization qualifying as a subsidiary under the terms of this policy, but only while acting within the scope of their duties as determined by the named insured or such subsidiary. What about in the entity named insured section?

50 Because it has always been a matter of trust… Network Security and Data Security Liability What if a third party we use, like a billing entity, has a breach? Named insured means the entity or entities shown in the Declarations and any subsidiary. Subsidiary means any organization in which more that 50% of the outstanding securities or voting rights representing the present right to vote for the election of directors, or equivalent position, is owned, in any combination, by one or more named insured. Independent contractors need to be added by endorsement.

51 Because it has always been a matter of trust… Network Security and Data Security Liability Regardless of who causes it there still has to be liability… With respect to Insuring Agreement B – Network Security Liability, wrongful act means any actual or alleged neglect, breach of duty or omission by an insured that results in the unauthorized access to the insureds computer system by a non-insured and such access results in: 1.The unauthorized publication by a non-insured of an insureds clients personal information which was held within the insureds computer system; or 2.An insureds computer system transmitting, by or other means, a virus to a third party

52 Because it has always been a matter of trust… Errors and Omissions What are typical E&O drivers of allegations… Universally agreed upon and defined professional activities Certification or education that the general public does not possess Financial harm driven by advice or counseling

53 Because it has always been a matter of trust… Errors and Omissions Insuring Agreement: We will pay for loss that the insured becomes legally obligated to pay, and defense expenses, as a result of a claim first made against the insured during the policy period or during the applicable Extended Reporting Period for a wrongful act or a series of interrelated wrongful acts taking place on or after the Retroactive Date, if any, shown in the Declarations, and before the end of the policy period.

54 Because it has always been a matter of trust… Errors and Omission Covered Activities: Telecommunications Services means the following services provided by you: 1.analysis, design, integration, wiring, or cabling of telecommunications systems or networks; 2.designing, developing, programming, installing, servicing, integrating, supporting, maintaining, or repairing telecommunications software or hardware; 3.education and training in the use of telecommunications hardware or software;

55 Because it has always been a matter of trust… Errors and Omission Covered Activities: 4.telephone services, switching services, dial tone access, 911 emergency services, reseller services, interconnection services, long distance services, facsimile and interactive facsimile services; 5.cellular and wireless communication services including paging services and ground- based satellite communications; 6.call center services; 7.cable television services; 8.telecommunications information and consulting services; 9.internet services, including services as an internet provider, application service provider, web site host, web page designer or developer, or a domain name registrar.

56 Because it has always been a matter of trust… Errors and Omission Covered products…yes, E&O policies often throw in products: Telecommunications Product means the following products developed, distributed, manufactured, sold, leased or licensed by you: 1.hardware, including products, components and peripherals; 2.software, firmware and data; 3.electronic, telecommunications and wireless equipment

57 Because it has always been a matter of trust… Directors and Officers aka Executive Liability Trend Update: Increased financial pressures from the economy Increased regulatory oversight and pressures EPLI issues Wage and Hour Laws Background Checks and Discrimination Allegations Layoffs

58 Because it has always been a matter of trust… Directors and Officers aka Executive Liability Trend Related Issues: Family-owned businesses disagreeing and not working it out Wellness care allegations being brought against directors Ex-employees not being able to secure new employment and needing financial assistance and getting desperate Conflicting issue-need for higher limits and the inability to justify in bad economic times

59 Because it has always been a matter of trust… Directors and Officers aka Executive Liability Common Sources of Claims D&O: Merger and Acquisitions Financial Performance Executive Compensation Conflicts of Interest Inadequate Disclosure Faulty Financial Reporting Deceptive Trade Practices Contract Disputes Restraint of Trade Dishonesty Anti-Trust Tax Issues Regulatory Problems

60 Because it has always been a matter of trust… Directors and Officers aka Executive Liability Coverage Trends and Issues: Movement towards separate limits for coverages Insured versus insured exclusion problems for family businesses Non-rescinable coverage offerings Hammer clause softening

61 Because it has always been a matter of trust… Directors and Officers aka Executive Liability Quick Refresher D&O: Three Major Coverage Parts Director and Officer and Entity Coverage Fiduciary Liability Employment Practices Liability Insurance

62 Because it has always been a matter of trust… Directors and Officers aka Executive Liability Quick Refresher D&O: Director and Officer and Entity Coverage Coverage A- Protects Directors that are not indemnified by the Entity Coverage B- Covers the Entities obligation to indemnify the Directors and Officers via by-laws or state law Entity Coverage- Protects the entity itself

63 Because it has always been a matter of trust… Directors and Officers aka Executive Liability Quick Refresher EPLI: Protection against claims from employees- Wrongful dismissal Violation of Employment Laws Sexual and Workplace Harassment Discrimination Failure to Employ or Promote Wrongful Discipline Failure to Grant Tenure Negligent Evaluations Failure to provide Adequate Work Conditions

64 Because it has always been a matter of trust… Directors and Officers aka Executive Liability Quick Refresher Fiduciary Liability: With the enactment of the Employee Retirement Income Security Act (ERISA) in 1974, fiduciaries assumed new responsibilities relating to the management and administration of employee benefit plans.

65 Because it has always been a matter of trust… Directors and Officers aka Executive Liability Quick Refresher Fiduciary Liability: ERISA defines a fiduciary as…any person exercising any discretionary authority or control of the management or administration of a retirement plan or assets. Wrongful Act…any violation of responsibility or duty as defined by ERISA. Coverage protects the plan sponsor, the plan itself and any administrator of it for wrongful acts.

66 Because it has always been a matter of trust… What have we covered today? The main lesson we hope you learned is that catastrophe protection and planning is critical for businesses of all sizes if they hope to continue after a disaster, either of the natural or human kind, strikes them. Questions and Answers

67 Because it has always been a matter of trust… Thank you for attending this workshop! Please visit it with us again soon! Peter Elliott, CPCU Ext


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