1. Business Continuity and Excess Liability BIBA Webinar
Presented by: Stuart Kenyon BEng (Hons), CEng, CSci, FIChemE Professional Process Safety Engineer Raman Mistry, Senior Casualty Underwriter, Manchester 25 June 2019

2. Contents Learning Objectives Introduction About CNA Hardy
Overview of Business Interruption
CNA Hardy Risk Control
Ogden discount rate – 2 yrs on…
CNA Excess of Loss
Summary
Questions and Answers

3. Learning Objectives

4. Learning Objectives
Why is Business Interruption important What are the factors to consider at the time of any unplanned Business Interruption Demonstrate the difference a Business Continuity Plan can actually make to an outage Typical periods of new builds and reinstatement Detail a number of factors which can impact on the reinstatement of construction projects Share learnings from a number of examples Personal safety and Process safety Impact of catastrophe/severity liability claims Ogden discount rate – 2 yrs on Solutions – CNA Excess

5. Introduction

6. One of my old projects… System owner for maintenance overhaul Hot Work
Vessel Entry
100+ contractors
In parallel, management of distillation column re-tray
Design
Major Job Risk Assessment
Crane installation
Scaffold build
Installation
Commissioning

7. About CNA Hardy

8. CNA Hardy - Company overview
120 years
track record
7000+
Colleagues worldwide
Claims, Risk Control and Underwriting
Strong
Financial Rating
GWP $10.7bn worldwide
72 offices
across the globe
CNA Financial:
40 years
at Lloyd’s
International Segment:
600+
colleagues
Capabilities in over
200 territories 19
Offices
GWP
$895mn International
Claims, Risk Control
and Underwriting

9. Overview of Business Interruption

10. Overview of Business Interruption
Why is Business Interruption Important?
Business Interruption is a significant part of most property & liability claims
24/7 Operations
Concentration of processes at a single location
Automated processes
Reduction in stocks held, due to cost
JIT (Just In Time) / Lean manufacturing
Protection of turnover generation
Every year, around 20% of all businesses across the United Kingdom face an event that is unplanned, unwanted and sometimes challenges their very survival. 80% of affected businesses will never fully recover
Ref. Business Resilience: A Guide to Protecting Your Business and its people. (2005) ISBN

11. Overview of Business Interruption
Why is Business Interruption Important contd…
Brand reputation
Duty to Shareholders
Business resilience and ability to supply
Key performance measure during supplier decision making process
Loss of Key Skilled Employee(s)
Additional costs – temp staff/overtime, investigation, preparing reports,
meeting loss adjusters, solicitors - all means time out & reduced resource
away from normal duties, particularly for managers & senior employees.

12. Overview of Business Interruption
Number of factors to consider at the time of any unplanned business interruption:
How many live orders or projects are there on the books?
Is there any seasonality in the production process or orders from customers?
What stage are the construction projects currently at?
% Completion
Deviations from original plan
Monitoring of accident rates
For Construction works, has a critical path analysis been completed?
Milestone plan
Long lead items
Contingency arrangements
Handover conditions
Nameplate duty to defined product specification

13. Overview of Business Interruption
Number of factors to consider at the time of any unplanned business interruption:
How much finished in-specification product is available and where is it located?
What back-up production options are available?
What production bottlenecks are present?
What utilisation rate is the process or plant currently operating at?
What product accreditations are in place?
What future product promotions and advertising campaigns are in the planning process?
Is there any obsolete equipment or prototype equipment in use?
rapid changes in technology
Current example would be the current analogue to digital transformation to UK telephone services, please refer to btplc.com/digitalserviceslab

14. Overview of Business Interruption
Three main stages of a loss:
Incident Management
Fire Brigade on-site
Business Continuity / Crisis Management
Activation of the BCP plan
Initial communication with Staff, Customers, HSE, Environmental agency, Press
Equipment design, manufacture and installation
Process commissioning
Manufacture of saleable product
Recovery of market position
Customer orders, Market share, Utilization rate

15. Diagram to demonstrate the difference a Business Continuity Plan can actually make to an outage
Please refer to CNA Hardy RCEGN09

16. Incident Management

17. Business Impact Analysis

18. Third party exposure – Ammonium Nitrate

19. Third party exposure – Ammonium Nitrate

20. Occupancy Hazards and Process Safety – Example of Third Party Exposure Buncefield (2005)
Online search at

21. HSE – COMAH search facility

22. BLEVE example

23. BLEVE example

24. BLEVE example

25. BLEVE example

26. Typical reinstatement periods

27. Typical periods of new builds and reinstatement
New warehouse nine to twelve months, with key milestone / periods including the planning permission and the provision of utilities. New manufacturing (non-chemical) process twelve to fifteen months, with long lead items being key items, for example food fryer on a potato crisp line (availability of equipment at the point of ordering). New chemical manufacturing process, eighteen to twenty four months, with key milestones / periods including any approvals (e.g. environmental) from the regulator, main plant items, process control systems, utilities and commissioning. Repairs post a significant flooding event, typically take twelve months, with the initial drying out period (couple of months), followed by the reinstatement of operations, e.g. water damage repairs to machinery (several months). Duration will be a function of what else is damaged nearby.

28. Factors which may impact on construction works
Listed buildings
Heritage buildings, please refer to
© Historic England

29. Factors which may impact on construction works
Restricted access in a busy city centre
Cranes
Laydown area
Workplace transport and Congestion
Upgrades to utilities or effluent treatment systems
Reliance on third parties
Excavation works
Additional approvals for the works
Bespoke equipment in place
Example – Copper still used in whiskey production

30. Factors which may impact on construction works
Availability of skilled labour for the build works
© Financial Times

31. Factors which may impact on construction works
Cash flow issues for contractors, recent example being Dawnus
Non availability of spare parts / computer systems
Out-dated equipment, especially on computers and process control systems
Microsoft on Windows 7 – ‘All good things must come to an end, even Windows 7. After January 14, 2020, Microsoft will no longer provide security updates or support for PCs running Windows 7.’
Use of specialist materials of construction
Examples include Tantalum, Titanium, Inconel or Hastelloy
Clean rooms
Regulator approval for new process machinery / line

32. CNA Hardy Risk Control

33. Our Approach Understanding the insureds business
Management of Risk based on the common root causes of loss
Historical learnings from claims
Liability  slips, trips, falls and manual handling
Property  arson, smoking, hot-work, electrical maintenance and control of contractors
Sharing of best practice with insureds
Corporate knowledge
Reduction in future claims
Business resilience
CNAH are members of
RISCAuthority and TAPA
Individual memberships
Association of Insurance Surveyors, IChemE SLPSG, Midland Security Risk Society, CIREG, IOSH & European Wind Turbine Committee

34. RCEGN09 – Business Continuity Planning

35. ‘Loss prevention really is better than a cure’
Risk and Confidence survey
Well documented incidents
Business Continuity Plan objectives
Is your business continuity plan current?
What technological changes or modifications are you planning on making this year and what is your formal management of change process for this modification?
Within your organisation, do you have clear responsibilities and accountabilities relating to the five main risk factors our research has identified (Economic, Political, Cyber, Technology, Interconnected risk)?
better-than-a-cure
More BCP content is in preparation

36. On-line Portal - http://cnahardy.bppp.riscauthority.co.uk/

37. Personal Safety –v- Process Safety

38. Summary

39. Summary BCP Why is Business Interruption important
What are the factors to consider at the time of any unplanned Business Interruption
Demonstrate the difference a Business Continuity Plan can actually make to an outage
Typical periods of new builds and reinstatement
Detail a number of factors which can impact on the reinstatement of construction projects
Share learnings from a number of examples

40. CNA Excess of Loss
Thankyou Stuart, that was really interesting. Generally I find that underwriters and brokers alike tend to think of BCP planning relating to property coverages only, however as we have seen liability exposures need to be an integral part of any BCP plan. Ok I’ll move on now to liability claims and excess layer coverage

41. Catastrophic Injury Claims
Typically claims of the highest value will involve brain injury, spinal injury or amputation of limb(s)
Largest element of losses are made up of earnings and care
Loss of earnings variable depending on claimant
Care claims depend on the needs of the claimant now & in future
Other aspects of the claim can include
accommodation
aids and equipment,
transport and travel claims
treatments and medication
Court of Protection costs
As we saw in the last slide, not all hazards are the same nor do they cause the same consequences. Occupational accidents affect the individual whereas a process hazard can cause a major accident resulting in catastrophic multiple injuries and fatalities. Either way the impact of a catastrophic injury to a person can be severe.
Typically claims of the highest value will involve some form of brain injury or spinal injury or an amputation or even a combination of all three.
The largest elements that then make up a claim will include loss of earnings and care and both will differ according to the specific circumstances of the particular claimant and as far as possible financially we will look to put the claimant in the position they would have been in but for the claim.
Care costs can start from £12-15 per hour rising at night and at weekends and if a case manager is required to organise and deliver a care package, these costs might be a further £15-20k a year.
Its not unusual to see a care package for a claimant needing 24/7 support costing upwards of £150k a year, particularly if specialist nursing care is needed .
Other aspects of claims can then include accommodation, installing aids and equipment, transport and travel claims plus treatment and medication costs, their may also be Court of Protection costs where the claimant no longer has the mental capacity to make their own decision.

42. Workplace injuries & illness
HSE Statistics 2017/18 (at Oct 18)
1.4m working people suffered work related illness
2,595 mesothelioma deaths due to past asbestos exposure (2016)
555,000 injuries occurred at work
144 workers killed at work
71,062 injuries reported under RIDDOR
£15bn estimate economic cost of injuries & ill health due to working conditions
Of which 35% from workplace injuries
Downward accident trend – improved H&S practices, BCP planning
Increase in costs – survival rate improved by medical advances
Just a few stats here for you published by the HSE last year. I won’t read them all out, but with over half million workplace injuries and 71,000 riddor reports we still have some way to go. Whilst there are continued improvements in H&S leading to downward trend particularly in fatalities, we still have some way to go in reducing accidents and to reiterate having a sound BCP with proactive risk management systems will certainly assist to reduce or mitigate the impacts of major incidents.
We also need to be mindful of increased costs associated with medical advances s and improving survival rates.

43. Ogden - Discount rate – 2 years on….
Feb 2017 Gov’t announces unexpected cut in discount rate from 2.5% to -0.75%
Wide-ranging impact;
dramatic increase in damages awarded under injury claims for future losses
Significant shift in reserves for insurers – continued impact on bottom line
Ogden rate under review as part of Civil Liability Bill 2018
Completion expected in first week of August 2019
Current observations are for a positive modification to the rate somewhere between 0% to 1%
even then unlikely to take effect until end of 2019
. Important clients have adequate limits of indemnity
Yes, it’s almost 2 and half years since the Gov’t announced the cut in the discount rate and we continue to see it’s dramatic wide ranging impact both on individual awards as well as on going review of insurers reserving strategy impacting on our bottom line.
As it stands the discount rate would still apply if a claim went to trial between now and August. However the Gov’t review is underway a decision is expected by 5th August for England & Wales. For Scotland this is likely to be Oct/Nov time. Northern Ireland currently remains unchanged at 2.5% out of interest our Discount Rate at 0.75% is one of the lowest in Europe and therefore the most costly, although we do need to bear in mind differing investment returns and interest rates.
Current observations are that the final figure will be somewhere between 0 and 1% either way it’s not likely to be a discount rate and even at 1% the impact on future loss of earnings and care cost can be significant and therefore it is still important as brokers to ensure the limit of indemnity purchased by your clients is adequate for serious and catastrophic personal injury claims.

44. Claims examples - Ongoing Impact
1. Collapse of works onto contractors - Design Errors - Liability Valuation £8m (£4.75m on old rate)
2. Child aged 9 in RTA sustained brain and spinal injury - Insured involved in construction work
Car found to be speeding. Valuation £20m (£8.75m on old rate)
3. A property owner had a diseased tree that fell on a child. Settled at the time for £5m.
In todays values likely this would be >£10m.
4. child trespassed and fell through the store roof . This claim has increased from £3.8m to £7.5m.
The final settlement will depend on various factors including life expectancy, loss of earnings, future care costs etc and of course investment returns which remains at the heart of the discount rates.
here are a few examples of the impact of the current Discount Rate verses the old rate, of course the more severe claims will include brain or spine injuries and the younger the claimant, the more extreme the change is.
whether your client is a manufacturing company, a contractor, a property land owner or a retailer, the consequences of an accident can be severe. The final settlement will of course depend on various factors including life expectancy and future loss of earnings etc.
Furthermore depending on where the revised discount rate is eventually set the eventual cost of a severity claim will change. Furthermore the new legislation is expected to include a more regular review period, which will bring new challenges for insurers reserving calculations.

45. Summary..
Relatively small incidents (e.g. fall downstairs) can result in multi-million pound liability claims. Impact on company’s balance sheet – both large corporates and small enterprises Many customers contracts now require increased limits in place before entering site The importance of having sufficient liability limits has therefore never been greater How can CNA/Hardy help you & your clients
We have also found that even a relatively small incident can result in multi-million pound claim, particularly where long term medical complications arise. Therefore going forward it is still imperative that the adequacy of your clients limits are reviewed regularly.
The majority of small-to-medium policyholders will tend to have limits of £10m for Employers liability and £5m for public/products liability as standard. Question is, is this enough?
Prior to the 2017 change, a single person bodily injury claim, exceeding £10m was extremely rare. However as we have seen in the new environment it is clear from what we have heard that £10m+ bodily injury claims will now be far more common. Certainly, it would seem that a client taking a £5m PL limit is accepting significant uninsured risk and the consequences of catastrophic events and inadequate liability limits are plain to see.
So as a broker this presents some potential enhanced E&O risks. How will you advise your clients on what limits to purchase? What factors do you consider?
Whilst the business activities and the size of a policyholder plus potential accumulation of employees and visitors etc, need to be taken into account in any risk assessment, this will also have a direct bearing on their exposure to large bodily injury claims, the reality is that any business of any size, in any trade, could be the subject of a large claim.
A number of brokers have already taken a proactive approach and now automatically include recommendations for increased limits. Providing £10m or £20m quotes as standard for all renewals. And making it clear that not purchasing the higher limits is against their advice.
Hopefully todays workshop has helped you formulate your views as to what advice you give to your clients.
Just a few words now on our solution and products offerings

46. CNA Hardy Excess of Loss
CNA Hardy are a leading provider of Excess of Loss insurance
Available to all BIBA members
Limits up to £20m for EL & PL/P
Simple Quote Form via
24 hr response
Competitive pricing starting at £400
Annual and project specific
Simple registration process
Replacement On-line facility being developed,
Continued direct access to CNA Underwriters
At CNA Hardy, we are a leading provider of Excess of Loss insurance, covering everything from one man bands to HS2 project
We consider this a key strength of ours and an area that we have great appetite to grow with our BIBA partner brokers. When you think about Excess of Loss, we want you to think CNA Hardy
We can provide capacity of £20m for both EL and PL, attaching as low as £1m,
Plus we can accommodate annual policies and contract specific cases.
I’m sure many of you are wondering what happened to our on-line facility. This was due to some IT technicalities, I can’t claim to understand, anyway it was necessary for us to close down the system, and I would like to take this opportunity to apologise s for any inconvenience this may have caused. Anyway, we are very much still open for business with direct access to our underwriters based in Manchester.
The good news is that work has began on developing a new system and I hope to be back to you very soon, so watch this space.
In the meantime if you have any queries please feel free to contact myself or my colleague Kim murphy, our contact details can be found under the BIBA schemes website.
Thanks very much for your time today, any questions. Finally here’s our usual disclaimer page.

47. Questions and Answers

48. Legal disclaimer
The information contained in this presentation does not represent a complete analysis of the topics presented and is provided for information purposes only. It is not intended as legal advice and no responsibility can be accepted by CNA Hardy for any reliance placed upon it. No representation or warranty, express or implied, is made as to the contents of this presentation, or for the omission of any material from this presentation. Legal advice should always be obtained before applying any information to particular circumstances. Please remember that only the relevant insurance policy can provide the actual terms, coverages, amounts, conditions and exclusions for an insured. All products may not be available in all countries.