Risk Insider: Terri Rhodes

2017 Forecasts for Absence and Disability

By: | January 25, 2017 • 3 min read
Terri L. Rhodes is CEO of the Disability Management Employer Coalition. Terri was an Absence and Disability Management Consultant for Mercer, and also served as Director of Absence and Disability for Health Net and Corporate IDM Program Manager for Abbott Laboratories.

Paid Family Leave

2016 was the year of paid family leave. While the chance of change at the federal level is unlikely, paid family leave remains the top absence and disability management trend of 2017. Work-life balance is especially important to younger employees, while the labor market continues to tighten. Thus, increasing numbers of large employers are offering paid parental leave as a central recruitment and retention strategy. We’ll see more of this in 2017.

Even more important, localities and states continue to pass paid family leave laws. New York City and San Francisco already have such laws. In 2016, California, New York, New Jersey, and Rhode Island were joined by the District of Columbia (D.C.) with paid leave laws. What is especially noteworthy about D.C.’s law is that it is funded by a tax on employers. The millions of dollars in revenue will be used to set up a separate department to administer the paid parental leave law. If this is imitated in other jurisdictions, it could have major ramifications for the “who pays” dimension of paid leave.

Paid Sick Leave

Over the last several years, paid sick leave laws have ranked high as a continued trend in absence management. Five states, 29 cities, two counties, and Washington, D.C. have some form of a paid sick leave law. We believe there are more to come with legislation pending in more than 25 states. Most paid leave laws offer job-protected absences and/or layer on top of other job-protected leaves, which provide a host of administrative issues. The laws themselves often differ in important ways. Those employers operating in a multi-state environment are left with an array of laws and regulations with which to comply. This will be a key issue in 2017.

Outsourcing ADA

Outsourcing absence management has steadily increased over the last several years, with ADA outsourcing now leading the way in growth. Technology has changed the cost equation. According to the 2016 DMEC Employer Leave Management Survey, even employers with fewer than 250 employees are outsourcing. The most common outsourced programs are state and federal FMLA. From FMLA, it is a natural leap to look for help managing ADA obligations. Medical information for documentation is similar for both laws. We will see this outsourcing trend continue in 2017.

Vendor Engagement

Vendor engagement emerged as a trend in 2016 and will come into its own this year with growing implementation of vendor summits.  Summits allow vendors to better learn the needs of employers and capabilities of other vendors. All concerned can step out of silos and look at absence and disability management in a holistic way. This can result in more efficiency and improved services. Summits help move relationships from “vendor” to “partner,” and we anticipate more employers will take this approach.

Workplace Mental Health

2016 witnessed both vendors and employers more focused on finding solutions to growing awareness of workplace mental health issues. At the 2016 DMEC Annual Conference, we dedicated a full-day preconference workshop to workplace mental health topics and discussion. 2017 will see even greater efforts to develop and implement behavioral health strategies. We also hope to see less stigma in mental illness.

Absence Management Professionals

Finally, we will continue to experience professionalization of absence and disability management in 2017. This has been and will continue to be driven by the growth and complexity of leave laws.  Adding value in these circumstances requires continuous learning.  Conferences, seminars, and professional designations like the new Certified Leave Management Specialist (CLMS) program give those in the field the tools to excel.

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The labor market should continue to tighten in 2017. That means richer benefits, increased employee mobility and higher costs for employers. Now more than ever, it is important for absence and disability management professionals to learn and use innovative skills and programs to help lower those costs. For those who do, 2017 should be a year of greater professional and personal rewards.

More from Risk & Insurance

More from Risk & Insurance

Alternative Energy

A Shift in the Wind

As warranties run out on wind turbines, underwriters gain insight into their long-term costs.
By: | September 12, 2017 • 6 min read

Wind energy is all grown up. It is no longer an alternative, but in some wholesale markets has set the incremental cost of generation.

As the industry has grown, turbine towers have as well. And as the older ones roll out of their warranty periods, there are more claims.

This is a bit of a pinch in a soft market, but it gives underwriters new insight into performance over time — insight not available while manufacturers were repairing or replacing components.

Charles Long, area SVP, renewable energy, Arthur J. Gallagher

“There is a lot of capacity in the wind market,” said Charles Long, area senior vice president for renewable energy at broker Arthur J. Gallagher.

“The segment is still very soft. What we are not seeing is any major change in forms from the major underwriters. They still have 280-page forms. The specialty underwriters have a 48-page form. The larger carriers need to get away from a standard form with multiple endorsements and move to a form designed for wind, or solar, or storage. It is starting to become apparent to the clients that the firms have not kept up with construction or operations,” at renewable energy facilities, he said.

Third-party liability also remains competitive, Long noted.

“The traditional markets are doing liability very well. There are opportunities for us to market to multiple carriers. There is a lot of generation out there, but the bulk of the writing is by a handful of insurers.”

Broadly the market is “still softish,” said Jatin Sharma, head of business development for specialty underwriter G-Cube.

“There has been an increase in some distressed areas, but there has also been some regional firming. Our focus is very much on the technical underwriting. We are also emphasizing standardization, clean contracts. That extends to business interruption, marine transit, and other covers.”

The Blade Problem

“Gear-box maintenance has been a significant issue for a long time, and now with bigger and bigger blades, leading-edge erosion has become a big topic,” said Sharma. “Others include cracking and lightning and even catastrophic blade loss.”

Long, at Gallagher, noted that operationally, gear boxes have been getting significantly better. “Now it is blades that have become a concern,” he said. “Problems include cracking, fraying, splitting.

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“In response, operators are using more sophisticated inspection techniques, including flying drones. Those reduce the amount of climbing necessary, reducing risk to personnel as well.”

Underwriters certainly like that, and it is a huge cost saver to the owners, however, “we are not yet seeing that credited in the underwriting,” said Long.

He added that insurance is playing an important role in the development of renewable energy beyond the traditional property, casualty, and liability coverages.

“Most projects operate at lower capacity than anticipated. But they can purchase coverage for when the wind won’t blow or the sun won’t shine. Weather risk coverage can be done in multiple ways, or there can be an actual put, up to a fixed portion of capacity, plus or minus 20 percent, like a collar; a straight over/under.”

As useful as those financial instruments are, the first priority is to get power into the grid. And for that, Long anticipates “aggressive forward moves around storage. Spikes into the system are not good. Grid storage is not just a way of providing power when the wind is not blowing; it also acts as a shock absorber for times when the wind blows too hard. There are ebbs and flows in wind and solar so we really need that surge capacity.”

Long noted that there are some companies that are storage only.

“That is really what the utilities are seeking. The storage company becomes, in effect, just another generator. It has its own [power purchase agreement] and its own interconnect.”

“Most projects operate at lower capacity than anticipated. But they can purchase coverage for when the wind won’t blow or the sun won’t shine.”  —Charles Long, area senior vice president for renewable energy, Arthur J. Gallagher

Another trend is co-location, with wind and solar, as well as grid-storage or auxiliary generation, on the same site.

“Investors like it because it boosts internal rates of return on the equity side,” said Sharma. “But while it increases revenue, it also increases exposure. … You may have a $400 million wind farm, plus a $150 million solar array on the same substation.”

In the beginning, wind turbines did not generate much power, explained Rob Battenfield, senior vice president and head of downstream at JLT Specialty USA.

“As turbines developed, they got higher and higher, with bigger blades. They became more economically viable. There are still subsidies, and at present those subsidies drive the investment decisions.”

For example, some non-tax paying utilities are not eligible for the tax credits, so they don’t invest in new wind power. But once smaller companies or private investors have made use of the credits, the big utilities are likely to provide a ready secondary market for the builders to recoup their capital.

That structure also affects insurance. More PPAs mandate grid storage for intermittent generators such as wind and solar. State of the art for such storage is lithium-ion batteries, which have been prone to fires if damaged or if they malfunction.

“Grid storage is getting larger,” said Battenfield. “If you have variable generation you need to balance that. Most underwriters insure generation and storage together. Project leaders may need to have that because of non-recourse debt financing. On the other side, insurers may be syndicating the battery risk, but to the insured it is all together.”

“Grid storage is getting larger. If you have variable generation you need to balance that.” — Rob Battenfield, senior vice president, head of downstream, JLT Specialty USA

There has also been a mechanical and maintenance evolution along the way. “The early-generation short turbines were throwing gears all the time,” said Battenfield.

But now, he said, with fewer manufacturers in play, “the blades, gears, nacelles, and generators are much more mechanically sound and much more standardized. Carriers are more willing to write that risk.”

There is also more operational and maintenance data now as warranties roll off. Battenfield suggested that the door started to open on that data three or four years ago, but it won’t stay open forever.

“When the equipment was under warranty, it would just be repaired or replaced by the manufacturer,” he said.

“Now there’s more equipment out of warranty, there are more claims. However, if the big utilities start to aggregate wind farms, claims are likely to drop again. That is because the utilities have large retentions, often about $5 million. Claims and premiums are likely to go down for wind equipment.”

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Repair costs are also dropping, said Battenfield.

“An out-of-warranty blade set replacement can cost $300,000. But if it is repairable by a third party, it could cost as little as $30,000 to have a specialist in fiberglass do it in a few days.”

As that approach becomes more prevalent, business interruption (BI) coverage comes to the fore. Battenfield stressed that it is important for owners to understand their PPA obligations, as well as BI triggers and waiting periods.

“The BI challenge can be bigger than the property loss,” said Battenfield. “It is important that coverage dovetails into the operator’s contractual obligations.” &

Gregory DL Morris is an independent business journalist based in New York with 25 years’ experience in industry, energy, finance and transportation. He can be reached at riskletters@lrp.com.