Presentation is loading. Please wait.

Presentation is loading. Please wait.

PRESENTER Patrick D. Kennedy, Vice President Kraus-Anderson Insurance | | O: 952.707.8236 |

Similar presentations


Presentation on theme: "PRESENTER Patrick D. Kennedy, Vice President Kraus-Anderson Insurance | | O: 952.707.8236 |"— Presentation transcript:

1

2 PRESENTER Patrick D. Kennedy, Vice President Kraus-Anderson Insurance | | O: | Presentation available at PRESENTER Patrick D. Kennedy, Vice President Kraus-Anderson Insurance | | O: | Presentation available at

3 REDUCE YOUR COST OF RISK STRATEGIES FOR SHORT & LONG TERM SAVINGS ON CORPORATE INSURANCE. PROPERTY & CASUALTY - MARKET TREND INSURANCE - A CORPORATE ASSET? COST OF RISK VS. COST OF INSURANCE CONTRUCTION RISK MANAGEMENT - BEST PRACTICE SUGGESTIONS FOR 2012

4 PROPERTY & CASUALTY INDUSTRY Carnac the Magnificent says Ratings company A.M. Best put the pre-tax tally from catastrophes through the first nine months of 2011 at $38.6 billion in the U.S. alone. That figure doesn't include still mounting losses from the record- breaking earthquake in Japan and massive flooding in Thailand. 12/06/2011; Dow Jones News Service First Half 2011 US CAT Losses Already Exceed Losses from All of Even Modest Hurricane Losses Will Make 2011 Among the Most Expensive Ever for CATs Insurance Information Institute August, 2011

5 Number of Federal Disaster Declarations, * *Through October 31, Source: Federal Emergency Management Administration: ; Insurance Information Institute.http://www.fema.gov/news/disaster_totals_annual.fema A new record set in 2011 with 90 declarations through December. It is no wonder that FEMA is broke! The average number of declarations per year is 34 from , though that few havent been recorded since 1995.

6 12/01/09 - 9pmeSlide – P6466 – The Financial Crisis and the Future of the P/C 5 Top 12 Most Costly Disasters in U.S. History (Insured Losses, 2010 Dollars, $ Billions) *Losses will actually be broken down into several events as determined by PCS. Sources: PCS; Insurance Information Institute inflation adjustments. Taken as a single event, the 2011 Spring tornado season would become the 5 th costliest event in US insurance history

7 PROPERTY & CASUALTY INDUSTRY Carnac the Magnificent says Travelers Chief Executive Jay Fishman, said his company had increased prices for business-insurance clients by 5.2% in October and 5.8% in November, the largest rates increase in several years. 12/06/2011; Dow Jones News Service - - S&P also called the workers comp industrys track record of underwriting results dismal, with only three years of underwriting profits being earned during the past two decades. Although many property/casualty insurers, especially those writing workers compensation, rely on investment incomes to offset underwriting losses, current historically low investment yields could also hinder such dependence going forward, S&P said. 1/23/2012; Standard & Poors Corporation Report.

8 PROPERTY & CASUALTY INDUSTRY Carnac the Magnificent says..... William R Berkley, CEO Berkley Companies.... Two and a half years ago, I thought the cycle was going to change because I expected AIG not to get the degree of help from the government that it did. I was incorrect. The government, as we all know, effectively bailed out AIG, which delayed the inevitable. Berkley says the assistance allowed AIG to cut prices, and it held the market in check, preventing widespread rate increases. NU Online News Service, December 7 th 2011

9 PROPERTY & CASUALTY INDUSTRY Carnac... Please Translate! What does all of this mean to me? Industry-wide Rate increases for first time in 7 years. Building/Property Rates are leading the way. Market trend will last 2 Years - minimum. Traditional Buyers: revise your composite rate / unit cost pricing renewal expectations. Traditional Buyers: conduct early pre-renewal meetings, discuss what renewal strategy changes should take place because of this market change.

10 PROPERTY & CASUALTY INDUSTRY Carnac... Please Translate! What does all of this mean to me? Consider Risk Financing Alternatives such as: - Higher Deductibles / Retentions - Loss Sensitive Plans - Self-Insurance - Captives A few ADDITIONAL STRATEGIES: - Consider changing your Anniversary Date to a less crowded time (i.e., 3/31, 6/30, 9/30). - Negotiate to extend current policies - at current rates - in order to accomplish a Renewal Date change.

11 PROPERTY & CASUALTY INDUSTRY Carnac... Please Translate! What does all of this mean to me? A few ADDITIONAL STRATEGIES: - Identify a Risk Control Action that you can specifically monetize as a direct savings in your upcoming renewal. - Update & document your Risk Control Program to make sure it is properly presented to Underwriters. - Update your Insured Property Values. Since the recession of 2007, many businesses are carrying Replacement Cost Values that are overstated.

12 INSURANCE IS AN ASSET, NOT A CERTIFICATE OF ACHIEVEMENT! Insurance Policies - - acquired and then put away. However, when Loss occurs, recovery of the Insurance Asset immediately becomes all too real. FUNDEMENTALS OF INSURANCE AS AN ASSET INSURANCE TEAM - Important to Work Together as Allies. Document Retention Policy Track / Retain Additional Insured Endorsements. Why? Because they are one of your Insurance Assets.

13 Focus on Risk Management Fundamentals INSURANCE TEAM Focus on Risk Management Fundamentals - Total Cost of Risk - Catastrophe Protection & Planning - Loss Prevention - Claims Management - Benchmarking & Record Keeping - Contract Compliance - Bottom-line Price INSURANCE IS AN ASSET, NOT A CERTIFICATE OF ACHIEVEMENT!

14 Reducing TCoR can increase profits with little interference of normal activities. CAN YOUR INSURANCE TEAM ANSWER THE FOLLOWING RISK COST QUESTIONS? What are our significant risk cost drivers? What is our organizations Annual Cost of Risk? What direction is it headed? TOTAL COST OF RISK

15 INSURANCE IS AN ASSET, NOT A CERTIFICATE OF ACHIEVEMENT! TOTAL COST OF RISK What are significant risk cost drivers? Common categories are: 1.Retained (Uninsured) Losses 2.Transfer (Insurance) Costs 3.Administrative (Labor) Costs 4.Risk Control Costs

16 INSURANCE IS AN ASSET, NOT A CERTIFICATE OF ACHIEVEMENT! TOTAL COST OF RISK Driver #1) RETAINED (UNINSURED) LOSSES Cost of accidental losses not reimbursed by insurance or other outside sources 1.ACTIVE RETENTION; such as Deductibles, Self- Insured Retentions or conscious noninsurance. 2.PASSIVE RETENTION; unplanned acceptance of losses because of failure to act, forgetting to act or failure to identify loss exposure.

17 INSURANCE IS AN ASSET, NOT A CERTIFICATE OF ACHIEVEMENT! TOTAL COST OF RISK Driver #2) TRANSFER COSTS 1.Insurance Premiums 2.Noninsurance Indemnity or outside sources to fund losses 3.Loss Funding 4.Agent/Broker Remuneration, if outside premiums 5.Broker Fees for (a) safety services, (b) claims administration, (c) consulting/training

18 INSURANCE IS AN ASSET, NOT A CERTIFICATE OF ACHIEVEMENT! TOTAL COST OF RISK Driver #3) ADMINISTRATIVE COSTS 1.Salary burden of in-house contract compliance (includes COI compliance) 2.Third Party claims administrator. 3.Public Adjuster or Claim Consultant. 4.Salary burden of in-house claims administration

19 INSURANCE IS AN ASSET, NOT A CERTIFICATE OF ACHIEVEMENT! TOTAL COST OF RISK Driver #4) RISK CONTROL COSTS The costs associated with the prevention or reduction of accidental losses. Training time & equipment costs, Safety Staff costs, OSHA Compliance, Jobsite Safety Compliance. Money spent on Risk Control can greatly influence the ultimate cost of (a) Retained Losses, (b) Transfer Costs, and (c) Claims Administration.

20 INSURANCE IS AN ASSET, NOT A CERTIFICATE OF ACHIEVEMENT! TOTAL COST OF RISK DOCUMENTING THE TOTAL COST OF RISK

21 CONSTRUCTION RISK MANAGEMENT BEST PRACTICE SUGGESTIONS FOR 2012 #1) Treat your Insurance / Risk Management Program as an Corporate Asset. Create a Risk Management TEAM. Have the TEAM Set Goals & Benchmark results. The TEAM should include Owner/Sr. Mgmt, Accounting, Safety, Legal and Insurance Personnel. Include your Agent/Broker or Consultant. If not able or willing, get a new one.

22 CONSTRUCTION RISK MANAGEMENT BEST PRACTICE SUGGESTIONS FOR 2012 #2) COST OF RISK IDENTIFY IT DOCUMENT IT BENCHMARK IT COMMUNICATE IT

23 CONSTRUCTION RISK MANAGEMENT BEST PRACTICE SUGGESTIONS FOR 2012 #3) CONTRACT ALERT: Fix Your Out-of-Date Insurance Requirements! Insurance Terms and Demands that use out dated language / terms / Forms. Indemnification Demand that does not match up with the Additional Insured Demand; and Vice Versa.... {Proviso; I am not a licensed attorney}

24 CONSTRUCTION RISK MANAGEMENT BEST PRACTICE SUGGESTIONS FOR 2012 #3) CONTRACT ALERT: Fix Your Out-of-Date Insurance Requirements! Stop treating Certificates of Insurance like Insurance Contracts - they are not! Changes to a Certificate do not change the Insurance Policy. Stop asking for out-of-date ACORD Certificate forms. Stop asking for Notification by Insurers that is different and/or greater than provided for to the Named Insured. Notification; try asking for the same notification rights granted to the first Named Insured. Simple / Clear. {Proviso; I am not a licensed attorney}

25 CONSTRUCTION RISK MANAGEMENT BEST PRACTICE SUGGESTIONS FOR 2012 #4) Build a BEST PRACTICE WC System Most Contractors still employ a reactive, non- integrated WC Management System. A modern WC Best Practice System that utilizes a cloud platform delivery, that educates, helps deliver disciplined proactive action, is owned by YOU and can work with any Insurance Carrier does exist. Start with this: Ask the Insurance Team- What is our lowest possible Experience Modifier? Ok, now, how are we going to get there?

26 CONSTRUCTION RISK MANAGEMENT BEST PRACTICE SUGGESTIONS FOR 2012 #5) UPDATE YOUR HIRING PROCESS Now is the time after Economic slowdown. Hire Slow & Fire Fast. Most do the opposite. Subject to your CBA - Make Employment offers in writing and make them Conditional upon: Physical Assessment (expensive but significant ROI). Drug Testing Background Check / MVR Review Update your Employment Application.

27 CONSTRUCTION RISK MANAGEMENT BEST PRACTICE SUGGESTIONS FOR 2012 #6) TECHNOLOGY E&O COVERAGE - CONSIDER IT Very Underestimated Risk. All Companies today have Internet & Technology-related exposures. Tech exposure rises as digital wireless networks create nearly limitless access to information. Liability associated with being breached by an outsider; Data Loss & Business Interruption. Liability associated with malicious code (viruses) transmitted to a third-party.

28 CONSTRUCTION RISK MANAGEMENT BEST PRACTICE SUGGESTIONS FOR 2012 #7) EMPLOYMENT PRACTICES LIABILITY (EPL) You dont have this? You're kidding, right? Could this happen to you? Employee sues for wrongful termination, age and/or disability discrimination, sexual harassment, failure to promote, discipline, or hiring (or failure to hire) practices. Lawsuit brought by customers, vendors, and service providers because your employee harassed them {Optional third-party coverage }.

29 CONSTRUCTION RISK MANAGEMENT BEST PRACTICE SUGGESTIONS FOR 2012 #8) CONSIDER FLOOD INSURANCE During a 30Yr Mortgage, 10.5% chance of Fire damage; 26% of experiencing flood damage (3X greater chance). Eff 1/1/09 (post Katrina) new mandatory ISO End. with broader water exclusionary language. Flood Coverage (including BI/EE) is available from private markets. Ask about ISO Flood End. CP6510. Ask Broker to Flood Map and present Coverage Options for all Owned Property. NFIP; minimum backstop, however no BI/EE offered.

30 CONSTRUCTION RISK MANAGEMENT BEST PRACTICE SUGGESTIONS FOR 2012 #9) HARD MARKET COMING? Concerned about - Rising premiums? Reduced or more expensive Specialty Coverages? Need to strengthen Loss Prevention Program but not sure you will see positive effect on your Cost of Risk? Budgeting your Cost of Risk on Projects that are 2 to 4 years to complete and collect just got tougher? - Explore Alternative Risk Financing Options; - Explore Alternative Risk Financing Options; Now vs Later!

31 CONSTRUCTION RISK MANAGEMENT BEST PRACTICE SUGGESTIONS FOR 2012 #9) ARE YOU A CANDIDATE FOR A CAPTIVE PROGRAM? Ask Yourself & Your Team: Are there sufficient premiums to justify the Captive option? Are you prepared to assume more risk? Do you have accurately documented loss experience and do you believe in that history? [ Look to your Cost of Risk benchmarked data ]

32 CONSTRUCTION RISK MANAGEMENT BEST PRACTICE SUGGESTIONS FOR 2012 #9) WHAT ARE THE BENEFITS OF A CAPTIVE PROGRAM? Because Funding is linked to your actual Loss Experience, the immediate savings can be significant. Joining a large financially sound Captive can provide more predictable short and long term pricing. Possible Tax burden relief. Investment Income on your Funding and all Reserves. More direct connection between enhanced Loss Control & Prevention program and your actual costs. MORE CONTROL OVER YOUR COST OF RISK! MORE CONTROL OVER YOUR COST OF RISK!

33 CONSTRUCTION RISK MANAGEMENT BEST PRACTICE SUGGESTIONS FOR 2012 CRM for REVIEW 1.Treat 1.Treat Your Corp Risk Mgmt Program more like the Corporate Asset that it is. 2.Cost 2.Cost of Risk: Figure it / Benchmark it / Communicate it. 3.Update 3.Update your Sub/Vendor Contracts; specifically update / coordinate your Insurance & Indemnity Sections.

34 CONSTRUCTION RISK MANAGEMENT BEST PRACTICE SUGGESTIONS FOR 2012 CRM for REVIEW 4.WC Best Practice Program; if you're not sure what this is, then you dont have it. 5.Update Your Hiring Process today to realize some long-term ROI. 6.Technology E&O Coverage; currently a very undervalued and underutilized Risk Transfer tool.

35 CONSTRUCTION RISK MANAGEMENT BEST PRACTICE SUGGESTIONS FOR 2012 CRM for REVIEW 7.EPL; a mature coverage that should be considered part of a standard Insurance Program. 8.Flood Insurance; consider it on all owned Property. 9.Hard Market Strategy; seriously consider an Alternative Risk Finance Option such as Large Deductible, Loss Sensitive or Captive Program.

36 Patrick D. Kennedy, Vice President Kraus-Anderson Insurance | | O: | Presentation available at Patrick D. Kennedy, Vice President Kraus-Anderson Insurance | | O: | Presentation available at

37 CONSTRUCTION RISK MANAGEMENT SPECIFIC INSURANCE STRATIGIES AUTOMOBILE INSURANCE REVIEW GARAGING TERRITORY OF ALL VEHICLES. IF YOUR FLEET CONSISTS OF 35 OR MORE PRIVATE PASSENGER VEHICLES, CONSIDER SELF-INSURING THE COLLISION EXPOSURE. MAINTAIN COLLISION COVERAGE ON HIGHLY VALUED VEHICLES. REVIEW IDEA OF DROPPING (A) MEDICAL PAYMENTS, (B) PIP, (C) UNINSURED COVERAGES. WHY? THE MAJORITY OF PERSONS DRIVING OR RIDING IN A COMPANY VEHICLE HAVE MEDICAL / LOST WAGE COVERAGE UNDER WC AND/OR AN EMPLOYEE BENEFIT PROGRAM. DELETE VEHICLES THAT QAUALIFY AS MOBILE EQUIPMENT FROM YOUR AUTO POLICY SCHEDULE [WARNING; REVIEW & UNDERSTAND THE DEFINITION OF MOBILE EQUIPMENT IN YOUR CGL POLLICY].

38 LIABILITY INSURANCE AUDIT AND UNDERSTAND YOUR CLASSIFICATION CODES. MAKE SURE THE LOWEST-RATED CLASSIFICATION CODES THAT APPLY TO YOUR OPERATIONS ARE BEING USED – BY ALL BROKERS. TRUCK DRIVER PAYROLL; EXCLUDE FROM YOUR CGL OPERATIONAL PREMIUM BASIS. WHY? NEGLIGENCE ARISING OUT OF THE OPERATION OF A VEHICLE IS COVERED UNDER YOUR AUTOMOBILE POLICY. OVERTIME SURCHARGES PAID TO EMPLOYEES – EXCLUDE IN PREMIUM COMPUTATION. CONSTRUCTION RISK MANAGEMENT SPECIFIC INSURANCE STRATIGIES

39 WORKERS COMPENSATION INSURANCE LOSS SENSITIVE PLANS; CONSIDER THEM. WHY? DEPENDING ON YOUR PREMIUM SIZE, YOUR ACTUAL LOSS HISTORY, AND IF YOU ACTUALLY BELIEVE IN YOUR OWN HISTORICAL DATA; A LARGE DEDUCTIBLE, RETROSPECTIVE OR SELF-INSURED PROGRAM CAN HELP COVERT YOUR WC PROGRAM INTO A PROFIT CENTER. CLASSIFICATIN CODES; CONDUCT YOUR OWN AUDIT. WHY? IN GENERAL, PROPER CLASS CODES ARE A BEST GUESS UNDERTAKING. INTELLIGENT USE OF THE SCOPES MANAUL CAN WILL EFFECT THE COST OF YOUR CURRENT & PRIOR YEARS COVERAGE. PAYROLL LIMITATIONS; UNDERSTAND THEM. WHY? IN MOST STATES, THERE ARE LIMITATIONS ON OWNER/OFFICER PAYROLL - NO MATTER WHAT CLASSIFICATION YOU ARE IN. CONSTRUCTION RISK MANAGEMENT SPECIFIC INSURANCE STRATIGIES

40 WC EXPERIENCE RATING CALCULATE A TEST MODIFIER WITH DATA YOU BELIEVE TO BE ACCURATE THEN COMPARE TO BUREAU ISSUED MODIFIER. OPEN CLAIMS; REVIEW & NEGOTIATE 7 MONTHS FROM YOUR RENEWAL DATE. LARGE LOSSES; VERIFY THAT THEY HAVE BEEN PROPERLY LIMITED. AUDIT RESULTS; VERIFY THAT CORRECT FINAL AUDIT DATA IS BEING USED IN YOUR CALCULATION. CONSTRUCTION RISK MANAGEMENT SPECIFIC INSURANCE STRATIGIES

41 CONSTRUCTION RISK MANAGEMENT ACTION PLAN PROPERTY INSURANCE BLANKET COVERAGE; DO WHAT YOU HAVE TO DO - BUT GET IT. DEBRIS REMOVAL INCLUDING POLLUTION CLEAN-UP COVERAGE; REVIEW / INCREASE IT. THIS CLAIM SCOPE HAS THE POTENTIAL TO COST MORE THAN REPAIR OR REPLACING THE DAMAGED PROPERTY. LAW & ORDINANCE COVERAGE; MISUNDERSTOOD AND UNDERVALUED. THE LACK OF THIS COVERAGE (OR ENOUGH LIMITS) IS A MAJOR REASON BUSINESS DO NOT REBUILD AFTER A SIGNIFICANT LOSS. BUSINESS INCOME & EXTRA EXPENSE COVERAGE; VERY MISUNDERSTOOD AND UNDERVALUED. FOCUS ON THE EXTRA EXPENSE COVERAGE! CONSTRUCTION RISK MANAGEMENT SPECIFIC INSURANCE STRATIGIES

42 CLAIMS ADMINISTRATION LOSS DATA; MAINTAIN YOUR OWN RECORDS. LOSS RUNS ARE YOUR PROPERTY - - DEMAND THAT YOU AUTOMATICALLY RECEIVE PERIODIC REPORTS. HAVE PERIODIC CLAIMS MEETINGS DIRECTLY WITH KEY STAFF MEMBERS OF YOUR INSURER. PROPERTY / BUILDERS RISK CLAIMS; REQUEST ADVANCE PAYMENTS. LARGE PROPERTY LOSS THAT INCLUDES LOSS REVENUE AND/OR SIGNIFICANT EXTRA EXPENSES; CONSIDER HIRING A PUBLIC ADJUSTER. THE COST/BENEFIT RATIO CAN QUICKLY MAKE THIS AN EASY DECISION. CONSTRUCTION RISK MANAGEMENT SPECIFIC INSURANCE STRATIGIES

43 MISCELLANEOUS PREPARE FOR AND DEMAND EARLY DATE TO REVIEW HARD RENEWAL OFFERS. PREPARE AND MANAGE PRECISE SPECIFICATIONS. PRECISE SPECIFICATIONS INCLUDE SIMPLE BUT ACCURATE DESCRIPTION OF OPERATIONS, SUMMARY OF RISK(S), AND OUTLINE OF MINIMUM COVERAGE SCOPE. CONSOLIDATE EFFECTIVE / RENEWAL DATES. REVIEW ALL CONTRACTS CAREFULLY. CONTRACTUAL RISK TRANSFER IS APPROPRIATE AND COMMON IN CONSTRUCTION; BUT BEWARE OF UNUSUALLY BROAD HOLD HARMLESS AND INDEMNIFICATION AGREEMENTS. CONSTRUCTION RISK MANAGEMENT SPECIFIC INSURANCE STRATIGIES

44 ACKNOWLEDGEMENTS INSURANCE INFORMATION INSTITUTE Gregory L. Peters, Seaton, Peters & Revnew, P.A. IRMI / Practical Risk Management IRMI / Construction Risk Management Mark Garbowski, Anderson Kill & Olick, P.C. Aaron A. Dean, Fabyanske, Westra, Hart & Thomas, P.A. Staff & Risk Management Team of Kraus-Anderson Insurance. National Underwriter Property & Casualty News


Download ppt "PRESENTER Patrick D. Kennedy, Vice President Kraus-Anderson Insurance | | O: 952.707.8236 |"

Similar presentations


Ads by Google