2017 Power Broker

At Large

Working Magic With Carriers

Katherine Glancy Johnston
Assistant Director
Aon, Chicago

For one industrial multinational client based in the Midwest, Aon’s Katherine Glancy Johnston secured physical damage and business interruption coverage against cyber attacks within the property program itself — a fairly unusual coverage in the industry.

How did she do it? “Magic, I guess,” quipped the company’s risk manager. Well, there might have been a little more to it than that.

“Katherine employed her contacts with the carriers to make sure that they understood that we are making a big effort to minimize our exposures. She showed them that we go beyond traditional loss control and try to think outside the box,” he said.

Rob Greiber, vice president of risk management at Reyes Holdings, pointed out that the open exchange of information with carriers — promoted by Johnston — helped his company attain important gains recently in its property program.

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“We have achieved significant growth and made changes to our organization in the past 12 months. Even then, Katherine has been able to renegotiate a multiyear placement that has resulted in premium relief, while also extending some of the coverages’ terms and limits,” he said.

“Katherine organized several site visits to make sure that there was no misunderstanding between what the carrier saw and what the risk is,” he added.

“She understands what is going on in the market, but she also took her time to understand our business, our operations and our exposures.”

The One to Turn to for International Expertise

David Johnson
Managing Director
Aon, New York

International insurance programs can be sources of stress for risk managers who need to manage them from the home base. They rely on brokers like Aon’s David Johnson, who can help them navigate intricacies as well as settle claims spread across the world.

“David really understands the nitty-gritty of an international program,” said Barbara Vitale, the director of corporate risk management and insurance at Avis Budget Group.

Iconex, a printing solutions firm, presented an interesting coverage challenge after it was formed in May 2016, when a unit of NCR was purchased by Atlas Holdings. A new insurance program encompassing all 22 foreign subsidiaries of the new firm had to be expediently implemented, and Johnson was instrumental in the process.

“We had to replace every casualty, employee benefits and property policy that the company had in place across the world, and David spearheaded the effort,” said David Dodson, the vice president of global treasury and risk management at Iconex.

“We are very lean in the risk management department, so I have to count on my broker team extensively to get things done in this area for our global business.”

When a company lays its trust on a broker to such extent, however, it is necessary to be confident that it will get prompt answers anytime issues arise. Which, in the case of Johnson, is another ticked box, according to Vitale. “He is very approachable and is always willing to drop everything in order to help us,” she said.

A Partner for Growth

Craig Joncyk
Senior Vice President
Krauter & Co., Spring, Texas

Clients say Krauter & Co.’s Craig Joncyk goes the extra mile, positioning them to further develop their operations. One such company is Dallas-based Pegasus Logistics, where Brian Cheshier is the director of business operations.

Pegasus is not a large organization, he said, and directors have to wear different hats. Therefore, Cheshier needs brokers he can trust.

“Craig listens to us, he tries to understand what we need, and is open to thinking outside the box,” he said. “When I first met him, I said that I was not looking for a broker, but for a business partner. And that is exactly what he is.”

The partnership paid off last year when one of Pegasus’ clients made changes to its contractual obligations, shifting more liability to transportation providers for expensive equipment being moved.

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“A couple of carriers decided not to participate in the program anymore due to the new liability exposures,” Cheshier said. “But with Craig’s help, we were able to find a creative way to obtain the coverages we needed. We adopted process changes that made the risk acceptable to carriers, while keeping premiums at a level where we can remain competitive.”

The solution produced a lasting reduction of damages and helped to strengthen the confidence of a vital client of Pegasus’ services. “Not only did we retain the business, but it has almost [tripled] in the past 12 months,” Cheshier said.

Helping Universities Protect What Matters Most

Kerry King
Partner
Mercer, New York

In a time when terrorism and political risks abound, ensuring the safety of stakeholders no matter where they are has become a vital task for risk managers and their brokers. This is a key service provided by Mercer’s Kerry King, to one of the largest education entities in the world.

“Kerry helps me bring together the right partners and tools to respond to emergencies when our students, faculty and staff are traveling,” said Cheryl Lloyd, chief risk officer at the University of California. The complexity of the task should not be underestimated. UC has more than 250,000 students and a similar number of faculty and staff. At any given time, thousands of them are traveling around the world.

Last year, there were UC students on the ground in places like Bangladesh when terrorist events took place. About 80 students were in Nice, France, when a suspected militant drove a truck into a crowd celebrating Bastille Day in July.

“Kerry has helped us put together a big program that allows us to provide pre-trip planning tools for the students as well as a 24/7 travel assistance hotline,” Lloyd said.

“Our travelers also get real-time travel warnings and alerts and — in the event of a medical or security evacuation — Kerry has gotten us an entity that provides that service as well. And we have access to all that by having to call a single telephone number.”

She added: “The system was put to the test in 2016 and it worked seamlessly. It is an invaluable service provided to our university.”

The Right Resources at the Right Time

Mike McCoy
Area President
Arthur J. Gallagher, West Des Moines, Iowa

Arthur J. Gallagher’s Mike McCoy has a keen sense of the best way to leverage resources for the benefit of clients.

“Mike has been the quarterback of our program,” said the risk manager of a company that manages large portfolios of real estate investments, demanding complex insurance programs.

“Recently, a foreign client came to the United States because we were advising them on a construction loan that exceeded $150 million,” he said. The client wanted to meet surety-bond experts to learn how bonds could help to protect their investment.

“Mike linked us with Gallagher’s San Francisco office and brought the managing director of Gallagher’s construction practice to meet our client,” he said.

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Making that happen in Iowa is something McCoy’s clients value, as they often have to compete with rivals who operate from centers such as New York or California.

“This is just one example of the kind of support that Mike provides, which enables us to provide high-quality services to our clients,” said Schaeffer.

That access to expertise is key when dealing with emerging risks such as cyber liabilities.

“We recently purchased cyber insurance for the first time,” said Jim Sarcone, risk manager at Hubbell Realty, which is also based in Des Moines. “Mike put together a program that not only managed to provide us more coverage than I thought that we would be able to buy, but also for a much better price.”

Superior Coverage Solutions for Complex Needs

John Minor
Director of Crisis Management, Political Risk
Aon, Chicago

In times of increasing uncertainty around the world, multinational companies are asking brokers to expand their political risk coverages, while keeping costs under control.

Aon’s John Minor helped Bunge Ltd. include some new markets in its political risk and terrorism programs.  At the same time, he achieved significant cost efficiencies with a proposal to combine two policies into one — even though he’d just taken over the account in late February, and renewal was looming on April 1.

“In the period of one month, John was able to combine two policies into one, market them, understand the risks, significantly increase existing limits, and add countries that we previously did not have under cover,” said Rick Bernstein, Bunge’s senior director of global credit risk and insurance. “We achieved almost a 40 percent reduction in premium costs.”

Bernstein praised Minor for his willingness to work with the client at every step of the process, keeping the risk management team in the loop and taking guidance even though negotiations had to be done in a tight time frame. “He kept working with us to make sure that he understood our needs and our requirements,” Bernstein said.

Another risk manager of a multinational company that performed a major restructuring of its political risks program raved about the support provided by Minor during the process. “He showed a very deep knowledge of the market and great relationships with all the key players, which was absolutely critical to get the deal done,” the risk manager said.

Helping Clients Take Control of Claims

Joseph Peiser
Executive Vice President
Willis Towers Watson, New York

Getting a handle on claims is a top priority for risk managers, and it’s an area where Joe Peiser, who is also head of casualty broking, distinguishes himself in the eyes of clients.

“Joe works hands on with our workers’ comp account and has really helped me to identify potential issues in our program and to restructure it,” said Lisa Drillich, the director of corporate risk and insurance at New York Community Bancorp.

Under Peiser’s supervision, Willis Towers Watson undertook a full-blown analysis of the company’s workers’ comp claims, identifying weaknesses and defining corrective actions. “Our previous brokers did not do that, and the carriers provided little information, so we often did not have the clearest picture of the state of claims,” Drillich said.

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“Joe has also hired a staff member within Willis with a much better skill-set to be our claims advocate with the carriers. Now Willis is doing claims analysis for us, looking for trends and loss control issues, and it has really made a big difference.”

The result has been a more efficient process overall, in which Drillich is kept in the loop about the progression of claims. She said that, to a large extent because of the progress achieved, a new team member was hired to focus on the safety side to further reduce workers’ comp losses.

“If I call him, Joe is always there for me,” she said. “He is great when it comes to providing services that go above and beyond, which is not often the case with other brokers.”

Always Meeting Clients’ Changing Needs

Brian Pfund, RPLU
Vice President
Marsh, Portland, Ore.

Every company has its particularities and, very often, standard products fail to meet specific insurance needs. That’s why Marsh’s Brian Pfund puts so much energy and creativity into developing tailor-made solutions that best serve his clients, particularly in segments such as D&O, E&O and cyber liability

Milton Hiura, vice president and controller at James Campbell, a Kapolei, Hawaii-based real estate firm, stressed how Pfund continually comes up with manuscripted policies for an organization that has changed considerably as it has transitioned from a trust to a limited liability company. And he has achieved improved coverages for financial lines every year.

“Brian has been able to maintain blanket, as opposed to scheduled professional services coverage, which is very rare for a diversified real estate company that does real estate development, asset management and property management work,” Hiura said.

The same approach is helping buyers to strengthen their coverages for emerging risks such as cyber liability. “Brian took over our cyber liability program last year. He concluded that we were paying too much in premiums and made it his mission to fix that,” said the risk manager of a Midwest-based retailer. “He not only managed to reduce premiums materially, but also obtained an additional layer of limits for us.”

After Pfund’s intervention, the company’s total limits increased by one-third, sublimits improved materially, and expenses with premium dropped by about one-quarter, he added.

Excellence at Crunch Time

Andrew Racle
Associate Director
Aon, San Francisco

Some may perceive corporate insurance as dull and slow-moving, but Aon’s Andrew Racle might beg to disagree.

Racle is typically elbow-deep in fast-paced M&A deals where access to data is granted at the 11th hour, but insurance coverages need to be put in place in the blink of an eye. Clients say Racle is in his element in high-stress situations.

“Many times, the definition of insurance coverages are delayed to the very end of a deal, and then it is important to do things extremely quickly,” said Garrett Shipp, vice-president at private equity firm HGGC.  “In a recent deal, the banks demanded that we have some specific D&O coverages in place. We contacted Andrew to go to the market and find us an underwriter in something like 24 hours. He achieved it for us. … It was a pretty amazing turnaround that enabled us to close the deal within the planned time frame.”

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Racle also excels in the area of due diligence, protecting clients from being blindsided by hidden liabilities. This is one of the most important contributions that Racle made to the recent acquisition of Twinkie-maker Hostess by UK-based Gores Group, especially after doubts emerged concerning the risk of peanut contamination from a supplier.

“Andrew did a very good job of getting us some answers around the potential risks, allowing us to cover the risks with the appropriate contractual protections,” said Robbie Reynders, managing director at the Gores Group. “His responsiveness is very important in an M&A situation, where time is critical.”

A Vital Member of the Team

Craig Santa Maria
President/COO
Santa Maria & Co., Walnut Creek, Calif.

When Craig Santa Maria talks about customer service, he’s not merely paying lip service to it.

“Craig is constantly asking questions about my business, and not only during renewal season,” said a treasury manager at a food manufacturer. “He wants to know how we do things and how the business is changing.”

That commitment has nurtured a relationship of trust that the treasury manager depends on. “We consider Craig a member of our risk management team,” he said. “He’s involved in many strategic and risk assessment meetings, usually in person. He brings to our attention issues that we may not have thought about before.”

Just one example: Santa Maria recently identified the potential risk of leaks at settling pools employed by the company to purify water used in the production process.

The manager said Santa Maria was also instrumental in helping make the case to operational staff about the need for insurance coverage for the exposure. “Craig was involved in what, in the end, was a long process of education of our staff about the risk, and we recently purchased a pollution policy to transfer it.

“We used to work with one of the largest brokers in the world, but I felt we were ignored because we became just another one of their clients,” he added. “They only wanted to get our business and move on. The only thing that can distinguish a broker is customer service, and that is what Craig provides.”

Solutions to Fit Every Need

Alicia Speight
Florida Market Leader
Willis Towers Watson, Miami

Risk managers who have worked with Alicia Speight say that finding creative and innovative solutions to deal with unusual risk situations is a hallmark of her work.

“Alicia is outstanding and her knowledge of the insurance industry is amazing,” said the risk manager of a real estate management company in Florida. “We have very specific insurance needs as a large developer, and she managed to structure a program for us that is quite unique. It does not look like any standard policy in the market.”

He recalled that last year, for a large project that was delivered by parcels, his company needed not only the typical permanent property coverage, but also ongoing construction insurance. Speight obtained a policy that contemplated both needs, which is unusual in the market, he said.

The insurance manager of an education client faced the challenge of setting up a new entity in a format foreign to the American market. She feared that its risks would be refused by carriers. But Speight was able to set up an insurance program anyway, even though the substance of the new entity changed several times in the course of the year.

“Without Alicia’s assistance, it would be extremely difficult to get it going,” she said.

Speight’s commitment to customer service is unparalleled, clients said.

“She’s very customer service oriented and, most importantly, she listens to her clients,” said the CFO of a cultural institution.

Cool Under Pressure

Eric Ziff
Managing Director
Aon, New York

The development of a new line of business is exciting, but often involves new and unfamiliar coverages — a situation where the guidance of a broker is a must.

Aon’s Eric Ziff took on that role recently, helping a client solve the tricky intricacies of representation & warranties coverages while the client was learning the ropes of its new transactional business.

Financial services group Orix USA recently created a strategic acquisitions and private equity arm. The firm faced the need to set up an R&W policy to close an M&A deal, but neither its own team nor its legal advisers were very familiar with the product.

“Because of the parties’ unfamiliarity with the product, there was much anxiety about its use,” said Cary Schmelzer, assistant general counsel at Orix USA. “Eric was cool under pressure, calmly and clearly answering questions and guiding the parties.”

“R&W insurance is a stressful placement,” said Michael Rosenberger, corporate risk manager at Charles River Laboratories, who has counted on Ziff’s support in several recent M&A deals.

Rosenberger noted that few carriers take the risks, policies are complex and they often need to be arranged in a short span of time. Therefore, the willingness of a broker to be always available at the home stretch is key to the success of an M&A transaction.

“Eric’s hours are endless when it comes to the deal,” Rosenberger said. “He truly understands the mechanics of an acquisition.”

Finalists:

Susan Buhl
Managing Director
Marsh, Southfield, Mich.

Natalie Douglass
Senior Managing Director
Arthur J. Gallagher, St. Louis

David Fraser
Senior Vice President
Aon, New York

Jean McDermott-Lucey
Director
Aon, New York

Laura Tesoriero
Managing Principal
Integro, New York

More from Risk & Insurance

More from Risk & Insurance

Risk Report: Hospitality

Bridging the Protection Gap

When travelers stay home, hospitality companies recoup lost income through customized, data-defined policies.
By: | October 12, 2017 • 9 min read

In the wake of a hurricane, earthquake, pandemic, terror attack, or any event that causes carnage on a grand scale, affected areas usually are subject to a large “protection gap” – the difference between insured loss and total economic loss. Depending on the type of damage, the gap can be enormous, leaving companies and communities scrambling to obtain the funds needed for a quick recovery.

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RMS estimates that Hurricane Harvey’s rampage through Texas could cause as much as $90 billion in total economic damage. The modeling firm also stated that “[National Flood Insurance Program] penetration rates are as low as 20 percent in the Houston area, and thus most of the losses will be uninsured.”

In addition to uninsured losses from physical damage, many businesses in unaffected surrounding areas will suffer non-physical contingent business interruption losses. The hospitality industry is particularly susceptible to this exposure, and its losses often fall into the protection gap.

Natural catastrophes and other major events that compromise travelers’ safety have prolonged impacts on tourism and hospitality. Even if they suffer no physical damage, any hotel or resort will lose business as travelers avoid the area.

“The hospitality industry is reliant on people moving freely. If people don’t feel safe, they won’t travel. And that cuts off the lifeblood of the industry,” said Christian Ryan, U.S. Hospitality and Gaming Practice Leader, Marsh.

Christian Ryan
U.S. Hospitality and Gaming Practice Leader, Marsh

“People are going away from the devastation, not toward it,” said Evan Glassman, president and CEO, New Paradigm Underwriters.

Drops in revenue resulting from decreased occupancy and average daily room rate can sometimes be difficult to trace back to a major event when a hotel suffered no physical harm. Traditional business interruption policies require physical damage as a coverage condition. Even contingent business interruption coverages might only kick in if a hotel’s direct suppliers were taken offline by physical damage.

If everyone remains untouched and intact, though, it’s near impossible to demonstrate how much of a business downturn was caused by the hurricane three states away.

“Hospitality companies are concerned that their traditional insurance policies only cover business interruption resulting from physical damage,” said Bob Nusslein, head of Innovative Risk Solutions for the Americas, Swiss Re Corporate Solutions.

“These companies have large uninsured exposure from events which do not cause physical damage to their assets, yet result in reduced income.”

Power of Parametrics

Parametric insurance is designed specifically to bridge the protection gap and address historically uninsured or underinsured risks.

Parametric coverage is defined and triggered by the characteristics of an event, rather than characteristics of the loss. Triggers are custom-built based on an insured’s unique location and exposures, as well as their budget and risk tolerance.

“Triggers typically include a combination of the occurrence of a given event and a reduction in occupancy rates or RevPar for the specific hotel assets,” Nusslein said. Though sometimes the parameters of an event — like measures of storm intensity — are enough to trigger a payout on their own.

For hurricane coverage, for example, one policy trigger might be the designation of a Category 3-5 storm within a 100-mile radius of the location. Another trigger might be a 20 percent drop in RevPAR, or revenue per available room. If both parameters are met, a pre-determined payout amount would be administered. No investigations or claims adjustment necessary.

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The same type of coverage could apply in less severe situations where traditional insurance just doesn’t respond. Event or entertainment companies, for example, often operate at the whim of Mother Nature. While they may not be forced to cancel a production due to inclement weather, they will nevertheless take a hit to the bottom line if fewer patrons show up.

Christian Phillips, focus group leader for Beazley’s Weatherguard parametric products, said that as little as a quarter- to a half-inch of rain over a four- to five-hour period is enough to prevent people from coming to an event, or to leave early.

“That’s a persistent rainfall that will wear down people’s patience,” he said.

“A rule of thumb for parametric weather coverage, if you’re looking to protect loss of revenue when your event has not actually been cancelled, you will probably lose up to 20 to 30 percent of your revenue in bad weather. That depends on the client and the type of event, but that’s the standard we’ve realized from historical claims data.”

The industry is now drawing on data to establish these rules of thumb for more serious losses sustained by hospitality companies after major events.

“Until recently the insurance industry has not created products to address these non-physical damage business interruption exposures. The industry is now collaborating with big data companies to access data, which in turn, allows us to structure new products,” Nusslein said.

Data-Driven Triggers

Insurers source data from weather organizations that track temperature, rainfall, wind speeds and snowfall, among other perils, by the hour and sometimes by the minute. Parametric triggers are determined based on historical storm data, which indicates how likely a given location is to be hit.

“We try to get a minimum of 30 years of hourly data for those perils for a given location,” Phillips said.

“Global weather is changing, though, so we focus particularly on the last five to 10 years. From that we can build a policy that fits the exposure that we see in the data, and we use the data to price it correctly.”

New Paradigm Underwriters collects their own wind speed data via a network of anemometers that stretch from Corpus Christi, Texas, all the way to Massachusetts, and works with modeling firms like RMS to gather additional underwriting information.

The hospitality industry is reliant on people moving freely. If people don’t feel safe, they won’t travel. And that cuts off the lifeblood of the industry.– Christian Ryan, U.S. Hospitality and Gaming Practice Leader, Marsh

While severe weather is the most common event of concern, parametric cover can also apply to terrorism and pandemic risks.

“We offer a terror attack quote on every one of our event policies because everyone asks for it,” said Beazley’s Phillips.

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“We didn’t do it 10 years ago, but that’s the world we live in today.”

An attack could lead to civil unrest, fire or any number of things outside an insured’s control. It would likely disrupt travel over a wide geographic region.

“A terrorist event could cause wide area devastation and loss of attraction, which results in lost income for hospitality companies,” Nusslein said.

Disease outbreaks also dampen travel and tourism. Zika, which was most common in South America and the Caribbean, still prevented people from traveling to south Florida.

“Occupancy went down significantly in that region,” Marsh’s Ryan said.

“If there is a pandemic across the U.S., a parametric coverage would make sense. All travel within and inbound to the U.S. would go down, and parametric policies could protect hotel revenues in non-impacted areas. Official statements from the CDC such as evacuation orders or warnings could qualify as a trigger.”

Less data exists around terror attacks and pandemics than for weather, though hotels are taking steps to collect information around their exposure.

“It’s hard to quantify how an infectious disease outbreak will impact business, but we and clients are using big data to track travel patterns,” Ryan said.

Hospitality Metrics

Any data collected has to be verified, or “cleaned.”

“We only deal with entities that will clean the data so we know the historical data we’re getting is accurate,” Phillips said.

“There are mountains of data out there, but it’s unusable if it’s not clean.”

Parametric underwriters also tap into the insured’s historical data around occupancy and room rates to estimate the losses it may suffer from decreased revenue.

Bob Nusslein, head of Innovative Risk Solutions for the Americas, Swiss Re Corporate Solutions.

“The hospitality industry uses two key metrics to measure loss of business income. These include occupancy rate and revenue per available room, or RevPAR. These are the traditional measurements of business health,” Swiss Re’s Nusslein said.  RevPAR is calculated by multiplying a hotel’s average daily room rate (ADR) by its occupancy rate.

“The hotel industry has been contributing its data on occupancy, RevPAR, room supply and demand, and historical data on geographical and seasonal trends to independent data aggregators for many years. It has done an exceptional job of aggregating business data to measure performance downturns from routine economic fluctuations and from major ‘Black Swan’ events, like the 9/11 terrorist attacks, the 2008 financial crisis or the 2009 SARS epidemic.”

Claims history can also provide an understanding of how much revenue a hotel or an event company has lost in the past due to any type of business interruption. Business performance metrics combined with claims data determine an appropriate payout amount.

Like coverage triggers, payouts from parametric policies are specifically defined and pre-determined based on data and statistical evidence.

This is the key benefit of parametric coverage: triggers are hit, payment is made. With minimal or no adjustment process, claims are paid quickly, enabling insureds to begin recovery immediately.

Applying Parametric Payments

For hotels with no physical damage, but significant drops in occupancy and revenue, funds from a parametric policy can help bridge the income gap until business picks up again, covering expenses related to regular maintenance, utilities and marketing.

Because payment is not tied to a specific type or level of loss, it can be applied wherever insureds need it, so long as it doesn’t advance them to a better financial position than they enjoyed prior to the loss.

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Parametric policies can be designed to fill in where an insured has not yet met their deductible on a separate traditional policy. Or it could function as excess coverage. Or it could cover exposures excluded by other policies, or for which there is no insurance option at all. Completely bespoke, parametric coverages are a function of each client’s individual exposures, risk tolerance and budget.

“Parametric insurance enables underwriting of risks that are outside tolerance levels from a traditional standpoint,” NPU’s Glassman said.

The non-physical business interruption risks faced by the hospitality industry match that description pretty closely.

“Hotels are a good fit for parametric insurance because they have a guaranteed loss from a business income standpoint when there is a major storm coming,” Glassman said.

While only a handful of carriers currently offer a form of parametric coverage, the abundance of available data and advancement in data collection and analytical tools will likely fuel its popularity.

Companies can maximize the benefits of parametric coverages by building them as supplements to traditional business interruption or event cancellation policies. Both New Paradigm Underwriters and Beazley either work with other property insurers or create hybrid products in-house to combine the best of both worlds and assemble a comprehensive risk transfer solution. &

Katie Siegel is an associate editor at Risk & Insurance®. She can be reached at [email protected]