2015 Power Broker

At Large

Earning Respect and Trust

Mickey Brown, CPCU, ARM         Senior Vice President Marsh, Atlanta

Mickey Brown, CPCU, ARM        
Senior Vice President
Marsh, Atlanta

Mickey Brown and his team won the opportunity to restructure an insurance program for a synthetic siding products manufacturer. For workers’ comp, Brown’s request for a change in governing classification was initially rejected by the NCCI, but he successfully appealed and obtained a lower-rated code. He also suggested a change in general NAICS (or SIC) coding, which put the client into a more appropriate grouping for credit analysis.

For trade credit insurance, Brown’s marketing presentations provided a creative solution to insure key customers, at desired limits and terms, at a lower rate. The hedging opportunity provided by trade credit insurance permitted an extension of higher credit amounts and sales growth.

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For property insurance, Brown developed quality engineering data and moved mechanical breakdown perils to a separate policy, due to risks involving heavy press machines. This strategy proved successful in achieving cost savings and favorable coverage terms, including terrorism and other catastrophic perils. He also developed alternatives for supply chain risks and contingent business interruption.

“I have tremendous amount of respect for Mickey,” said Jim Shaffer, vice president and treasurer at Tosoh America Inc.

“The differentiator with Mickey is that if he wanted to, he could keep pushing different products, but he doesn’t. He introduces them to me, but it’s not a strong sales push.”

Two Green Thumbs Up

Justin Buren, CPCU, AU Territory Manager Buren Insurance, Columbus, Ohio

Justin Buren, CPCU, AU
Territory Manager
Buren Insurance, Columbus, Ohio

Justin Buren was able to convince an A+ carrier to provide coverage to fill an existing gap for chemical applicators within the lawn care industry, by helping the carrier to build a comprehensive green industry tailored program.

“We had two holes in our coverage that had to do with damaging individual lawns,” said Sam Morgan, owner of Weed Man in Charlotte, N.C. “Justin went to our insurers and presented on those gaps, not only to help me, but also the rest of the lawn care industry. He was able to create a policy around the missing coverage and get us protected.”

“Our insurance policy was cancelled in November 2013, even though we had not done anything wrong,” said Brandi Kellis, president of Kellis Vegetation Management Inc.

“We called Justin in a panic about what we were going to do, as there are not a lot of insurance companies covering our niche industry, industrial weed control. Justin was like, ‘Don’t worry about it — I’m on it.’ Not only had he seen this coming, he had done the legwork and already had a solution. We have more coverage now than under our old carrier.”

“A year or two ago I thought about expanding my business to also include fertilizing and lawn treatment,” said another lawn care client. “Justin explained to me the type of liability that would be involved as well as some of the nightmares that have happened to other companies. After talking to Justin, I decided to do what I do best – lawn maintenance and landscaping.”

Creative Carrier Liaison

Cara Cortes Vice President Aon, Pittsburgh

Cara Cortes
Vice President
Aon, Pittsburgh

One of Cara Cortes’ clients was sued several years ago, triggering an insurance claim. As settlement discussions between the client and the plaintiff solidified last year, the carrier issued an adverse coverage position citing very controversial interpretations of the policy.

After several tenuous discussions, the carrier compromised and participated in settlement discussions, resulting in a favorable claim outcome. But then at renewal, the carrier raised the client’s premium by 50 percent, and so Cortes had to remarket a directors and officers tower that exceeded $100 million in less than six weeks. The result: a program with a 30 percent lower premium than the incumbent market.

“Cara worked very hard to come up with effective carrier alternatives and insurance solutions for our executive liability programs during our renewal,” the client said. “Her creative ideas and strong negotiation tactics helped us to build an effective coverage tower with significant cost savings.”

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“Cara did an absolutely fantastic job and we really appreciate her hard work,” a grocer client said. “This year we had tricky litigation issues and the endorsements weren’t as clear as we had hoped. We didn’t foresee those types of issues, but she fixed everything with her ability to negotiate with the carriers. She probably saved my job!”

“Cara Cortes does a great job for us,” said Tony Cosentino, director of risk management at Highmark Health. “She’s very detail oriented, very customer focused, and she not only understands the lines of business she services for us, but she also understands our business.”

Going Beyond Insurance Coverage

Tiffany Davis Vice President Lockton, Los Angeles

Tiffany Davis
Vice President
Lockton, Los Angeles

A large corporation was spinning out two entities that were being merged by Oaktree Capital Management. Its broker, Tiffany Davis, established a competitively priced, comprehensive insurance program that was fully running when the deal closed. She also created an attractive benefits program, including an online portal and call center to streamline communications, which facilitated full employee participation.

“Tiffany helped us navigate through the various delicate and complex employee-related matters and made the transition seamless,” said Jimmy Lee, vice president of Oaktree Capital Management.

Another client, Neuberger Berman, purchased a bankrupt property that had sustained material construction defect losses. Davis secured wrap coverage reaching back to inception and did not exclude prior work. She developed a manuscripted policy, addressing the unusual situation for a realistic price. “Tiffany consistently works through complex insurance issues, identifying risks and helping us mitigate them, increasing coverage and usually decreasing our expense,” said Michael Holmberg, managing partner at Neuberger Berman.

Another client acquired a family-owned business that had not fully disclosed many important issues. After coordinating with multiple experts to better understand the acquiring risks, Davis convinced the client to adjust the purchase price accordingly. She then developed a comprehensive integration strategy for the two companies’ workers’ comp and benefits programs. “Tiffany is … dedicated to providing first-class service,” the client said.

Going Beyond

Michael Dellova Executive Vice President Willis, New York

Michael Dellova
Executive Vice President
Willis, New York

One of Michael Dellova’s clients, MetLife Inc., in 2013 acquired a subsidiary of Provida’s pension management company in Chile, with the intention to combine pension management services with already existing financial services such as annuities, life insurance and health benefits.

In July, Dellova traveled to Chile with Richard Barquist, the company’s vice president of corporate risk management, to meet with all stakeholders and explore the possibility of integrating the subsidiaries into the corporate master controlled property program.

Due to regulations, the former Provida and MetLife operations had to remain separate entities, each with their own business interruption/contingent business interruption exposure.

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Given the program covers all locations outside the United States and Canada, additional capacity and sub-limits were warranted. During renewal, Dellova and MetLife convinced the carrier to seek additional capacity from both its home office underwriting and within the facultative reinsurance market, to increase capacity and sub-limits for business interruption, contingent business interruption and earth movement.

Another client said that Dellova is a “seasoned professional, and is extremely knowledgeable concerning all international insurance matters.”

“He is dedicated to providing his clients with exceptional service, and is easily accessible and reliable,” the client said.

Enabling Executives to Lead

Andrew Doherty, RPLU Executive Vice President Willis, New York

Andrew Doherty, RPLU
Executive Vice President
Willis, New York

One of Andrew Doherty’s clients — a Fortune 500 insurer with private equity-type investments in various non-financial industries — last year ramped up its acquisition of companies and spin-off of non-core business. This activity created a new risk profile for the firm, leading to a variety of complications regarding its directors and officers coverage, particularly over the question of whether underlying subsidiaries should purchase their own D&O coverage versus relying on the parent’s coverage. Doherty and his team also analyzed whether the companies should purchase run-off or tail coverage.

The brokers put multiple policies in place to address key management liability exposures, coordinating overlaps in coverage to ensure that any claims would be adjusted correctly under each policy and that all D&Os are adequately protected.

“Andy’s attention to detail is second to none,” said a client that provides private mortgage insurance and related risk mitigation products and services to mortgage lenders. “He takes the extra time to listen and understand our needs and often makes suggestions for program enhancements or additions that strengthen our various executive risk programs. The few issues that have come up over the years are often resolved within 24 hours. His knowledge of the marketplace is immense and has a very collegial and collaborative way in which he works with the carriers.”

“Andy is forthright, diligent, and he delivered very positive results for the company,” a cable network client also said.

A Phenom

Larissa Gallagher, Cert CII Property Broker Aon, Southfield, Mich.

Larissa Gallagher, Cert CII
Property Broker
Aon, Southfield, Mich.

The risk manager for one of Larissa Gallagher’s clients, a large automotive parts supplier, said that after Gallagher had already “beat up on our carriers — in a nice way, of course — for a 10 percent drop” you’d think it would be tough to squeeze another 10 percent out of the markets, no matter how soft they might be.

But, Gallagher has been able to consistently beat market conditions. “She is probably the best property broker I have worked with,” the client said.

“She may have the best relationship with the markets of any broker I know. Gallagher’s strategy is to leverage the account — keep the incumbent carriers on board, but add some first-class competition to the mix. Push for rate and price reductions, but look for enhancements to the program. Increase capacity.

“She presented us with three options,” the risk manager said. The first was the status quo: Keep incumbent carriers only. Next was the cheapest pricing, and the third was the strategic option, priced between status quo and cheap.

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The strategic option positioned the client far better if the market turned hard.

“That would give us the best position for future renewals,” the risk manager said. “We chose the strategic option.”

The risk manager added, “She’s so young, less than 30 years old.  But she’s detail oriented and mature; she understand the markets and provides great service. I don’t know how she does it.”

Covering Counsel Across the Globe

Stuart Girling Senior Vice President Alliant, New York

Stuart Girling
Senior Vice President
Alliant, New York

Stuart Girling restructured a $250 million legal professional liability program for a law firm with 1,000 attorneys, which wanted to move out of a risk retention group program and into a more cost-effective solution. This required Girling to match the coverage exactly, while adding some improvements, and to structure the tower in the most effective way possible to achieve maximum savings.

This restructure allowed the firm to move out of the restrictive RRG/captive program, broaden its coverage, and realize more than $2.5 million in cost savings. The program also includes a rolling gate guarantee enabling for the calculation of savings over a two-, three-, and four-year period. Going into year two, the savings will exceed $5 million.

Girling has extensive broking and client service experience with law firms in the United States and Europe, and has leveraged his years of experience and targeted knowledge to provide specialized programs that account for the unique risks faced by today’s law firms.

“Stuart is relentlessly attentive,” said Barry Chasnoff, partner and general counsel at Akin Gump Strauss Hauer & Feld LLP. “He does a great job of negotiating on my behalf, keeping me informed, coming up with alternatives with coverage and helping me service my clients.”

“Stuart Girling is such a breath of fresh air because he does everything he says he’s going to do,” said Donald Ridge, managing partner at Morris Polich & Purdy LLP. “He never says no, he assists in client development, he assists in insurance questions — for us, he’s been the epitome of client service.”

Prioritizing Risk Management

Alexander Gold, CRM, CIC Attorney Risk Specialist Jacobson Professional Insurance, West Orange, N.J.

Alexander Gold, CRM, CIC
Attorney Risk Specialist
Jacobson Professional Insurance, West Orange, N.J.

Many of Alexander Gold’s small law firm clients are having much greater difficulty in procuring malpractice insurance coverage than ever, especially since several of the carriers that were previously writing coverage for small firms recently exited the market. Compounding the issue is that the remaining carriers have increased their rates, tightened their underwriting criteria, or both.

One of Gold’s clients was not renewed, and the firm could not obtain admitted terms for its area of practice — personal injury/medical malpractice. Gold then had the client complete a detailed claim prevention questionnaire on the firm’s existing policies and procedures, used that to recommend improvements and claim prevention techniques, and then positioned the firm as a safe one to insure from the perspective of the carrier. The result was admitted coverage at a 20 percent lower premium than the carrier’s original quote.

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“Our insurer decided to no longer underwrite in New York, but Alexander was able to find another carrier and negotiate a lower price, in part because he had us conduct a risk management assessment,” the client said. “He’s the first broker I’ve had that talked to us about how to better manage risks, taking time to clarify the process, discuss minimizing risks, etc.”

“Alex is an energetic young man, intelligent and perseverant,” another law firm client said. “He’s an agent who understands the importance of client service — fast, competent, responsive and fighting for competitive rates.”

Customer Service at the Forefront

Scott Gronholz, ARM, CIC, AAI Senior Sales Executive, Commercial Wells Fargo, St. Louis Park, Minn.

Scott Gronholz, ARM, CIC, AAI
Senior Sales Executive, Commercial
Wells Fargo, St. Louis Park, Minn.

Scott Gronholz had a client that was acquiring a company with specific indemnification requirements, which presented a significant exposure that neither party was comfortable assuming — nor one that most industry experts would feel was insurable.

After countless hours, conference calls and due diligence, Gronholz and his team were able to provide specific data points to enable the carrier to be comfortable in providing terms and conditions to the client, because Gronholz convinced the client to retain a portion of the exposure. The client was able to proceed with the $2 billion deal.

“Scott Gronholz has given us exceptional service,” said a client that provides workers’ compensation and risk management solutions to transportation industries. “First, he was successful in finding a hard-to-place litigation buyout policy, which other brokers were unsuccessful in placing. Second, he put together a team of claim service consultants and they were successful getting a large, international insurance company to accept an alternative process for handling our claims. This will result in material cost savings for us.”

“Scott has done an outstanding job, going above and beyond,” said a client that distributes automotive parts for commercial uses. “He spent lots of weekends, he was on call at all times, very responsive. He came up with some very creative solutions working with the carriers directly, as well as myself. We had conferences with the carriers developing modified products.”

According to a client that provides integrated audio visual solutions, “Scott Gronholz is very diligent in satisfying our needs and our insurance requests.”

Battle Hardened

Sandra Gulick, CPCU Senior Vice President     Aon, Southfield, Mich.

Sandra Gulick, CPCU
Senior Vice President    
Aon, Southfield, Mich.

Sandra Gulick is a veteran of the car wars. She’s been handling auto and related manufacturing accounts for 27 years for some of the largest auto companies in the world. Her specialty — mergers and acquisitions. The latest deal involved a foreign manufacturer that merged with another related company. As with any merger, she had to make sense of the two different insurance programs — different terms, different renewal dates, different coverage and retentions and, of course, different risk management departments.

Gulick, after extensive internal and external negotiations, was able to restructure and improve the program, lower retentions and improve cost structure. An important part of the process was convincing and educating the new risk management team to better understand the options and benefits that she proposed. That was a challenge because the longtime incumbent carrier was an insurance company based in the company’s home country.

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When faced with the assignment, she introduced market competition into the process despite the fact that it was acknowledged that the client already benefited from lower than market rates. The result — premiums were reduced substantially and the relationship with the incumbent carriers remained strong.

Gulick is the manager of Aon’s local client service team and she’s committed to providing excellent service. She has a record of excellent client retention. Said one client: “She’s a true professional and she’s done a great job for us.”

Passionate About Insurance

Kenneth Mackunis Executive Vice President Aon, Hatboro, Pa.

Kenneth Mackunis
Executive Vice President
Aon, Hatboro, Pa.

Under Kenneth Mackunis’ lead, the American Institute of Certified Public Accountants’ comprehensive member benefits program has expanded from one to 15 solutions. Mackunis and his team also developed a robust risk control program to help CPAs mitigate their exposure to data breaches and employee theft risks.

The two coverage enhancements launched after the 2014 tax season were CPA NetProtect, a comprehensive solution to protect firms in the event of a data breach, with privacy event expense coverage and network damage claim coverage; and employee theft coverage, which provides cover for employee theft of firms’ properties or third-party properties.

As a result of these enhancements, more than 25,000 CPA firms are insured nationwide under AICPA’s program. CPA NetProtect extensions to professional liability policies increased by more than 93 percent from 2013 to 2014, and employee theft extensions to professional liability policies increased by more than 70 percent.

“Ken is the ultimate professional when it comes to an insurance broker,” said Kevin Murphy, chairman, AICPA professional and personal liability programs committee.

“I think Ken is extremely conscientious, intelligent and innovative,” said Jack Finning, chairman of AICPA’s life and disability insurance trust. “He really focuses on timely client service.”

“Ken is passionate about insurance — I really haven’t experienced anybody who loves being in the insurance industry like he does,” said a client at a trade group.

Taking a Team Approach

Scott Meyer, ARM, CIC Managing Director Willis, Chicago

Scott Meyer, ARM, CIC
Managing Director
Willis, Chicago

Scott Meyer recently took over a multimillion dollar premium program with a publicly-traded consulting firm. The firm had previously experienced a significant claim that was not covered by insurance due to poor policy language; additionally, the client had just undergone a major internal reorganization and needed to be assured they would be adequately insured in new endeavors.

Meyer leveraged key resources including attorneys and subject-matter experts to provide suggestions, employed benchmarking and analytics, and solicited feedback from the client to ensure he understood the goals the client had for its business under its new structure.

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Meyer and his team tailored a program with effective policy language and relationships with global insurance carriers that had not previously been included in the client’s program. These efforts saved the client nearly $1 million upfront. Even more importantly than initial cost savings is the assurance the client now has that they will not face another uninsured loss that would carry significant economic and reputational damages.

“Scott is phenomenal,” said Anne Oliva, chief financial officer at Consecra Corporation. “He has a lot of integrity and wants the best for his clients. Scott’s knowledge and professional expertise continues to help us manage our portfolio in the best possible way.”

“Scott responds unbelievably quickly to any inquiries, and is efficient, thorough and concise in all he does,” said Drenna Shive, human resources manager at RHC Holding Corp.

Helping Clients Hit the Books on Coverage

Kathy Phillips, CISR, CIC Senior Vice President Alliant, Thousand Oaks, Calif.

Kathy Phillips, CISR, CIC
Senior Vice President
Alliant, Thousand Oaks, Calif.

Kathy Phillips had placed D&O coverage for Ventura County Law Library for many years. While shopping the renewal, she discovered that the county was passing on insurance costs to the law library.

After making several phone calls, Phillips determined that there was no memorandum of understanding in place. In fact, no one truly understood the nature of the coverage or if there was duplicate coverage in place. She then coordinated discussions between the library’s board of trustees and the county’s risk manager to determine whether the library should continue its coverage or cancel it.

“Kathy used due diligence and initiated an exploration of our risk management relationship with the County of Ventura, and through her perseverance, discovered that we actually had insurance coverage through the county,” said Stuart Comis, a member of the board of trustees of Ventura County Law Library. The library was able to cancel its coverage “which saves us substantial money and enables us to better meet the public’s needs by the purchase of many additional books.”

“Kathy continually goes above and beyond the expected level of service, often offering creative solutions, answering calls and emails off-hours, and providing rapid turnaround of requests,” a parking management client said. “Whether negotiating extended policy terms, assisting with the management of overall claims experience or a particularly difficult claim, or providing us with proactive solutions, we have always been able to count on Kathy to deliver far more than just another policy.”

Sure of Surety Approach

Tom Rhatigan Director, Surety Aon, New York

Tom Rhatigan
Director, Surety
Aon, New York

Energy Solutions was required to provide nearly $145 million in financial assurance security to various state agencies for environmental liabilities. The firm was utilizing mostly letters of credit, which were costly, tied up cash and impaired availability on its credit facility.

The firm’s broker, Tom Rhatigan, learned that the firm’s treasurer, David Nilsson, had explored surety as an option, but the large aggregate size of the various obligations was seemingly too much for a single surety to handle. To maximize the use of more economically attractive surety bonds, Rhatigan introduced a multi-surety approach that spread the various risks over eight markets, building enough capacity to use surety to cover all of the firm’s financial assurance obligations.

“Tom successfully got $140 million of market capacity from the surety companies, which netted us $108 million in restricted cash that was released to pay down our debt,” Nilsson said. “Through Tom’s skill and efforts, this project was a huge success and is saving the company $4.5 million on an annual basis.”

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“Tom has almost single-handedly resurrected the surety program for us and made it a responsive outstanding program with superior sureties,” said Lisa Nargi, vice president at Foster Wheeler.

“Tom is fantastic – extremely knowledgeable, easily reachable,” said a client at a specialty contractor. “He has spent countless hours with me teaching me the ins and outs of bonds. That, to me, is the key to a superior broker.”

Quick Turnaround on Global Challenges

Xiaomei Rodrigues, CPCU, ARM Senior Vice President Marsh, Hartford, Conn.

Xiaomei Rodrigues, CPCU, ARM
Senior Vice President
Marsh, Hartford, Conn.

One of Xiaomei Rodrigues’ clients had a few significant liability claims several years ago, which caused some insurers to be unwilling to provide capacity, resulting in premium hikes. When Rodrigues and her team were appointed to the account, she conducted risk finance modeling that helped the client understand the inefficiency of its insurance program retention, layer pricing and limits. Rodrigues helped the client achieve significant premium savings by restructuring its casualty program.

For another client that acquired a multinational company, Rodrigues and her team were only given a few days to place product recall coverage with a very high limit. Working closely with Marsh’s recall team, she successfully obtained the capacity and also secured broader coverage. Moreover, Rodrigues helped the client integrate all its existing product recall policies in Europe into its global recall program, resulting in significant premium savings.

“Xiaomei is phenomenal,” said Gene Surrett, director of risk management at Hubbell Inc. “She has excellent control over the entire account and transcends multiple offices — she’s even been to China and Europe on business trips with us. She is extremely helpful in coordinating things. Without her I would still be in the Beijing airport.”

“Xiaomei is really diligent in terms of bringing resolution to any issue, whether big or small,” said an energy management client. “She will step outside the normal parameters to find the right resources, which can be very time-consuming for her. She’s very good at getting back to me with an answer or an explanation about why something is being delayed.”

Going Global

Martin Serbins Senior Broker Aon, Chicago

Martin Serbins
Senior Broker
Aon, Chicago

Martin Serbins received a midterm broker of record letter from a former client that was unhappy with their current broker and the results of the last renewal. This client’s property insurance program had a number of different expiration dates with various carriers and the client was displeased with the fragmented structure. The client’s foundries were the main exposure, as they were all in foreign countries, including countries such as India that posed particular business challenges.

Serbins contacted all the major insurers that had global capabilities and there was little interest in the account. He also contacted the carrier that had declined the prior broker in the past, since Serbins believed that broker hadn’t adequately presented the risk to the carrier. This carrier that had previously declined, then stepped up and provided a very competitive quote and was willing to work with Serbins and the client to consolidate the program.

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“Marty is consistently a top performer, with the ability to facilitate a relationship directly with the carrier which results in better service and more customized coverage,” said a client at a diversified global manufacturing, marketing and distribution company.

“With his help, we were able to consolidate with one carrier to provide global property insurance needs. With that purchasing power, we saw significant premium savings, and we continue to see premium reductions.”

“Marty has done a very good job for us,” said a client at a company that offers maintenance services to companies that own and/or lease rail rolling stock.

Better Service, Better Protection

Nicholas Warren Senior Vice President Marsh, Portland, Ore.

Nicholas Warren
Senior Vice President
Marsh, Portland, Ore.

Cyber security and privacy have been major topics of conversation with one of Nicholas Warren’s newspaper publishing clients. Warren and his team worked with senior management, along with finance, IT, business continuity and risk management, to analyze the company’s exposures in order to tailor policy language to meet the company’s needs. Warren and his team also educated the managers on what they should do in the event of a business interruption or crisis management event.

“Nick is a great broker, in terms of responsiveness and in terms of getting the right people in front of us,” the client said. “When I took over risk and insurance responsibilities, I was brand new to that area. He was able to provide me the education that I needed on our industry and our particular business. He was proactive in terms of addressing future issues.”

For another client, Bertelsmann SE, dust explosions have been a major focus given some issues at specific plants. Warren and his team assembled meetings with the various plant managers, provided loss control and preventative loss services to not only focus on mitigation of such claims, but maintenance protocols to assist the plant managers and their teams.

“Nicolas Warren provides very excellent service,” said Jurand Honisch, Bertelsmann’s senior vice president, corporate risk management and insurance.

“Nick is very responsive,” said a wheat exporter client. “He was able to expand our coverage this year in an area that we had been somewhat deficient in, which strengthened our policies so that we’re better protected than prior years.”

BlackBarFinalists:

David Eischeid Senior Vice President Wells Fargo, Tampa, Fla.

David Eischeid
Senior Vice President
Wells Fargo,br/> Tampa, Fla.

Ken Gould  Executive Vice President Lockton, Dallas

Ken Gould
Executive Vice President
Lockton, Dallas

Dave Harman Area Vice President Arthur J. Gallagher, Bellevue, Wa.

Dave Harman
Area Vice President
Arthur J. Gallagher, Bellevue, Wa.

Deneen Schmitt Executive Vice President Willis, Pittsburgh

Deneen Schmitt
Executive Vice President
Willis, Pittsburgh

Wynne Sharpe Senior Vice President JLT Specialty Insurance Services, Houston

Wynne Sharpe
Senior Vice President
JLT Specialty Insurance Services, Houston

More from Risk & Insurance

More from Risk & Insurance

Black Swan: EMP

Chaos From Above

An electromagnetic pulse event triggered by the detonation of a low-yield nuclear device in Earth’s atmosphere triggers economic and societal chaos.
By: | July 27, 2017 • 9 min read

Scenario

The vessel that seeks to undo America arrives in the teeth of a storm.

The 4,000-ton Indonesian freighter Pandawas Viper sails towards California in December 2017. It is shepherded toward North America by a fierce Pacific winter storm, a so-called “Pineapple Express,” boasting 15-foot waves and winds topping 70 mph.

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Normally, Pandawas Viper carries cargo containers. This time she harbors a much more potent payload.

Unbeknownst to U.S. defense and intelligence officials, the Viper carries a single nuclear weapon, loaded onto a naval surface-to-air missile, or SAM, concealed below deck.

The warhead has an involved history. It was smuggled out of Kyrgyzstan in 1997, eventually finding its way into the hands of Islamic militants in Indonesia that are loosely affiliated with ISIS.

Even for these ambitious and murderous militants, outfitting a freighter with a nuclear device in secrecy and equipping it to sail to North America in the hopes of firing its deadly payload is quite an undertaking.

Close to $2 million in bribes and other considerations are paid out to ensure that the Pandawas Viper sets sail for America unmolested, her cargo a secret held by less than two dozen extremist Islamic soldiers.

The storm is a perfect cover.

Officials along the West Coast busy themselves tracking the storm, doing what they think is the right thing by warning residents about flooding and landslides, and securing ports against storm-related damage.

No one gives a second thought to the freighter flying Indonesian colors making its way toward the Port of Long Beach, as it apparently should be.

It’s only at two in the morning on Sunday, December 22, that an alert Port of San Diego administrator charged with monitoring ocean-going cargo traffic sees something that causes him to do a double take.

GPS tracking information indicates to him that the Pandawas Viper is not heading to Long Beach, as indicated on its digital shipping logs, but is veering toward Baja, Calif.

Were it to keep its present course, it would arrive at Tijuana, Mexico.

The port administrator dutifully notifies the U.S. Coast Guard.

“Indonesian freighter Pandawas Viper off course, possibly storm-related navigational difficulties,” he emails on a secure digital communication channel operated by the port and the Coast Guard.

“Monitor and alert as necessary,” his message, including the ship’s current coordinates, concludes.

In turn, a communications officer in the Coast Guard’s Alameda, Calif. offices dutifully alerts members of the Coast Guard’s Pacific basin security team. She’s done her job but she’s about an hour late.

At 3:15 am Pacific time on December 22, the deck on the Pandawas Viper opens and the naval surface-to-air missile, operated remotely by a militant operative in Jakarta, is let loose.

It’s headed not for Los Angeles or San Diego, but rather Earth’s atmosphere, where it detonates about 50 miles above the surface.

There it interacts with the planet’s atmosphere, ionosphere and magnetic field to produce an electromagnetic pulse, or EMP, which radiates down to Earth, creating additional electric or ground-induced currents.

The operative’s aim is perfect. With a charge of hundreds and in some cases thousands of volts, the GICs cause severe physical damage to all unprotected electronics and transformers. Microchips operate in the range of 1.5 to 5 volts and thus are obliterated by the billions.

As a result, the current created by the blast knocks out 70 percent of the nation’s grid. What began as an overhead flash of light plunges much of the nation into darkness.

The first indication for most people that there is a problem is that their trusty cellphones can do no more than perform calculations, tell them the time or play their favorite tunes.

As minutes turn to hours, however, people realize that they’ve got much bigger concerns on their hands. Critical infrastructure for transportation and communications ceases. Telecommunication breakdowns mean that fire and police services are unreachable.

For the alone, the elderly and the otherwise vulnerable, panic sets in quickly.

Hospital administrators feverishly calculate how long their emergency power supplies can last.

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Supermarkets and other retailers anticipating one of their biggest shopping days of the year on that Monday, December 23, instead wake up to cold homes and chilling prospects.

Grocery stores with their electricity cut off are unable to open and product losses begin to mount. Banks don’t open. Cash machines are inoperable.

In the colder parts of the United States, the race to stay warm is on.  Within a day’s time in some poorer neighborhoods, furniture is broken up and ignited for kindling.

As a result, fires break out, fires that in many cases will not draw a response from firefighting crews due to the communication breakdown.

As days of interruption turn into weeks and months, starvation, rioting and disease take many.

Say good-bye to most of the commercial property/casualty insurance companies that you know. The resulting chaos adds up to more than $1 trillion in economic losses. Property, liability, credit, marine, space and aviation insurers fail in droves.

Assume widespread catastrophic transformer damage, long-term blackouts, lengthy restoration times and chronic shortages. It will take four to 10 years for a full recovery.

The crew which launched the naval surface-to-air missile that resulted in all of this chaos makes a clean getaway. All seven that were aboard the Pandawas Viper make their way to Ensenada, Mexico, about 85 miles south of San Diego via high-speed hovercraft.

Those that bankrolled this deadly trip were Muslim extremists. But this boat crew knows no religion other than gold.

Well-paid by their suppliers, they enjoy several rounds of the finest tequila Ensenada can offer, and a few other diversions, before slipping away to Chile, never to be brought to justice.

Observations

This outcome does not spring from the realm of fiction.

In May, 1999, during the NATO bombing of the former Yugoslavia, high-ranking Russian officials meeting with a U.S. delegation to discuss the Balkans conflict raised the notion of an EMP attack that would paralyze the United States.

That’s according to a report of a commission to assess the threat to the United States from an EMP attack, which was submitted to the U.S. Congress in 2004. But Russia is not alone in this threat or in this capability.

Wes Dupont, vice president and general counsel, Allied World Assurance Company

North Korea also has the capability and the desire, according to experts, and there is speculation that recent rocket launches by that country are dress rehearsals to detonate a nuclear device in our atmosphere and carry out an EMP attack on the United States.

The first defense against such an attack is our missile defense. But some experts believe this country is ill-equipped to defend against this sort of scenario.

“In terms of risk mitigation, if an event like this happens, then that means the best risk mitigation we have has already failed, which would be our military defense systems, because the terrorists have already launched their weapon, and it’s already exploded,” said Wes Dupont, a vice president and general counsel with the Allied World Assurance Company.

The U.S power grid is relatively unprotected against EMP blasts, Dupont said.

And a nuclear blast is the worst that can occur. There isn’t much mitigation that’s been done because many methods are unproven, and it’s expensive, he added.

Lloyd’s and others have studied coronal mass ejections, solar superstorms that would produce a magnetic field that could enter our atmosphere and wipe out our grid.  Scientists believe that an EMP attack would carry a force far greater than any coronal mass ejection that has ever been measured.

An extended blackout, with some facilities taking years to return to full functionality, is a scenario that no society on earth is ready for.

“Traditional scenarios only assume blackouts for a few days and losses seem to be moderate …” wrote executives with Allianz in a 2011 paper outlining risk management options for power blackout risks.

“If an event like this happens, then that means the best risk mitigation we have has already failed … because the terrorists have already launched their weapon, and it’s already exploded.” — Wes Dupont, vice president and general counsel, Allied World Assurance Company

“But if we are considering longer-lasting blackouts, which are most likely from space weather or coordinated cyber or terrorist attacks, the impacts to our society and economy might be significant,” the Allianz executives wrote.

“Critical infrastructure such as communication and transport would be hampered,” the Allianz executives wrote.

“The heating and water supply would stop, and production processes and trading would cease. Emergency services like fire, police or ambulance could not be called due to the breakdown of the telecommunications systems. Hospitals would only be able to work as long as the emergency power supply is supplied with fuel. Financial trading, cash machines and supermarkets in turn would have to close down, which would ultimately cause a catastrophic scenario,” according to Allianz.

It would cost tens of billions to harden utility towers in this country so that they wouldn’t be rendered inoperable by ground-induced currents. That may seem like a lot of money, but it’s really not when we think about the trillion dollars or more in damages that could result from an EMP attack, not to mention the loss of life.

Allianz estimates that when a blackout is underway, financial trading institutions, for example, suffer losses of more than $6 million an hour; telecommunications companies lose about $30,000 per minute, according to the Allianz analysis.

Insurers, of course, would be buffeted should a rogue actor pull off this attack.

Lou Gritzo, vice president and manager of research, FM Global

“Depending on the industries and the locations that are affected, it could really change the marketplace, insurers and reinsurers as well,” said Lou Gritzo, a vice president and manager of research at FM Global.

Gritzo said key practices to defend against this type of event are analyzing supply chains to establish geographically diverse supplier options and having back-up systems for vital operations.

The EMP commission of 2004 argued that the U.S. needs to be vigilant and punish with extreme prejudice rogue entities that are endeavoring to obtain the kind of weapon that could be used in an attack like this.

It also argued that we need to protect our critical infrastructure, carry out research to better understand the effects of such an attack, and create a systematic recovery plan. Understanding the condition of critical infrastructure in the wake of an attack and being able to communicate it will be key, the commission argued.

The commission pointed to a blackout in the Midwest in 2003, in which key system operators did not have an alarm system and had little information on the changing condition of their assets as the blackout unfolded.

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The commission’s point is that we have the resources to defend against this scenario. But we must focus on the gravity of the threat and employ those resources.

Our interconnected society and the steady increase in technology investment only magnify this risk on a weekly basis.

“Our vulnerability is increasing daily as our use of and dependence on electronics continues to grow,” the EMP commission members wrote back in 2004.

But “correction is feasible and well within the nation’s means and resources to accomplish,” the commission study authors wrote. &

Dan Reynolds is editor-in-chief of Risk & Insurance. He can be reached at [email protected]