Risk Insider: Mike Mascolo

ACA Reform: Time to Get Comfortable With Uncomfortable

By: | June 22, 2017 • 3 min read
Mike Mascolo is the Employee Benefits National Practice Resource Leader at Wells Fargo Insurance, with expertise in funding arrangements, provider network evaluation, clinical health/wellness strategies, benefits administration technology and consumer engagement designs. He can be reached at [email protected]

When it comes to health care reform, I hear one constant question from employers these days: What’s going to happen and when?

Unfortunately, I don’t have the answer.

It’s normal to prefer getting answers, even if that answer is painful. For example, according to research, people who were given the choice between receiving an immediate, definite shock would choose to be zinged, rather than have only a small possibility of a shock to come later without warning.

I can relate. Earlier this year, I was recruiting a high-potential new employee who had offers from other firms. I did all I could to make our offer as attractive as possible, and was waiting for the candidate’s final decision. I came to the point of needing an answer, even if it was to accept another offer over ours, just to get on with Plan B to move forward. The delay and inaction was bad for my business.

Uncertainty around the Affordable Care Act reform is similar. It’s ambiguous and confusing. Many of my clients are stuck in this grey space—somewhere between complying with existing laws and anticipating the unknown.

Instead of focusing on the unknown, however, companies should stay focused on what’s within their control. It’s easier said than done, but making a mindful effort to focus on the ‘now’ truly helps.

When it comes to health care reform, I recommend employers do the same. Stay in the ‘now’ by focusing on a three key strategies.

Engage millennials. Seventy five percent of employers are concerned about retention rates with millennials, yet only 28 percent of companies plan to make benefit-offering changes this year to accommodate them.  According to the American Psychological Association, millennials are more prone to experience anxiety and financial stress than any other generation. Potential solutions for millennials include tuition-forgiveness incentives, financial planning programs (such as tailored apps) and mentoring programs.

Instead of focusing on the unknown, however, companies should stay focused on what’s within their control.

Review prescription drug costs. Costs for pharmaceuticals have risen for the past few years, and that trend is anticipated to continue through the remainder of the decade. Employers should review current benefit design/pharmacy data and revisit current pharmacy benefit manager (PBM) contracts to ensure that the most aggressive unit cost and appropriate-use strategies are in place. Businesses can also ask their current PBM about what measures are in place to review providers that may have opioid prescribing issues.

Explore adding voluntary benefits. While the pressures and uncertainty of healthcare legislation can make it challenging to add new employee benefits, voluntary benefits allow companies to add value without adding direct costs. Businesses choose which benefits to offer based in part on the company’s demographic profile; employees simply pay for the products they want.

Voluntary benefits can help improve employee retention, reduce employees stress and increase productivity. They help companies become employers of choice, prepare for uncertainty, address the challenges of the new health care environment, and manage costs. These benefits allow organizations to add flexibility, employee choice, and even portability to their benefits menu while addressing the needs of a diverse workforce.

Despite the uncertainty surrounding ACA legislation, employers have the opportunity to positively engage their workforce and evolve benefit programs to meet needs of their employees. Most importantly, employers should consult with an employee benefits professional to help navigate the changing landscape of health care.When all else fails, there’s always therapy. Maybe even shock therapy!

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.


“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.”


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 [email protected]