Travel Risk

Businesses Prepare for Zika Threat

Employers face liability risks if the child of a traveling or expat female employee is infected.
By: | March 23, 2016 • 4 min read

As the Zika virus continues to spread, businesses are considering risks and reviewing their insurance coverage.

While Zika is not yet pandemic, experts say the disease could pose risks to employees, operations, and even clients, both abroad and in the United States.

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A survey of 321 respondents by the U.S. State Department in February found that 38 percent of U.S. multinationals, nonprofits and universities were allowing female employees to defer travel to or to leave regions impacted by the virus.

The biggest threat from the Zika virus is to pregnant women or those in their child-bearing years. Scientists are investigating a potential link between the virus and microcephaly, a condition where babies are born with abnormally small heads and developmental problems. The CDC advises pregnant women to consider delaying travel to areas with Zika.

With no known vaccine available, the Centers for Disease Control is predicting more than 4 million cases in the Western Hemisphere alone.

Patrick McDermott, an associate with the law firm of Hunton & Williams, LLP, in McLean, Va., has been contemplating risk and insurance implications should the disease spread to the United States.

More than one-third of U.S. multinationals, nonprofits and universities allow women employees to defer travel to or to leave regions where Zika virus has been reported.

He has yet to hear of any insurance cases involving direct liabilities related to the disease but said it’s something employers should be cognizant of.

So far, the Zika virus has largely been limited to Latin America and the Caribbean. As of mid-March, the CDC reported 258 travel-associated infections in the United States.

While there have yet to be any locally acquired vector-borne cases, data from the National Center for Atmospheric Research and the NASA Marshall Space Flight Center revealed that 50 U.S. cities could be at risk of Zika outbreaks.

Using information on climate, air travel, mosquito breeding patterns and socioeconomic factors, researchers determined some of the most vulnerable cities include Miami, Orlando, Houston, New Orleans, Atlanta and New York.

“It’s something to at least think about. You never know what’s out there, especially for a developing risk like Zika where there could be creative arguments to access certain [insurance policies],” says McDermott.

Currently, the biggest risk is to companies that have operations in or send their employees to Latin America.

Scott Lockman, director of commercial insurance at Clements Worldwide, said that while Clements has many clients with business operations in Latin America, “things have been relatively quiet because it’s not pandemic in nature.”

For most healthy adults, contracting Zika is not a serious concern and is something Lockman said should be handled by workers’ compensation or medical programs.

The virus is of special concern to the hospitality industry. –Christian Ryan, U.S. hospitality and gaming practice leader, Marsh

The symptoms are fever, rash, joint pain or conjunctivitis, but Zika’s impact tends to be mild. The CDC said “most people infected with the virus won’t even know they have the disease because they won’t have symptoms.”

“If you’re a normal healthy person and get [Zika], it’s going to be regular [medical] treatment and nothing unusual that would be excluded under a normal medical program,” said Lockman.

At this point, most of Clements’ clients have been working to educate their expatriate population as much as possible about the risks associated with Zika, he said.

Employers should identify at-risk areas and ensure that employees understand the risks, the symptoms of the disease and how to reduce their exposure. “You educate people and you give them choices,” he said.

Female Employee Risk

Mark Lies, labor and employment attorney and partner at Seyfarth Shaw, LLP, in Chicago, said companies could expose themselves to liabilities if they force a female employee to travel to an infested area and she gives birth to a child with physical or mental defects.

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Under Section 11 C of the Occupational Safety & Health Act, employers cannot take any adverse action against an employee who refuses to work if they feel they are in imminent danger, he said.

“I would not force [any pregnant woman] to travel to a Zika area. Once a fetus is born it has its own rights as a person and can file [a] own lawsuit against anything caused by a third party,” said Lies.

The virus is of special concern to the hospitality industry, said Christian Ryan, U.S. hospitality and gaming practice leader at Marsh.

Ryan said his firm is advising hospitality clients to educate employees and guests, and to prepare in case Zika comes to the United States.

“It’s a constantly evolving thing as the CDC continues to come out with new guidelines and recommendations,” he said.

Craig Guillot is a writer and photographer, based in New Orleans. He can be reached at [email protected]

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 [email protected]