Risk Insider: Peter Taffae

You Can’t Handle the Truth!

By: | October 18, 2016 • 2 min read
Peter R. Taffae, is managing director of ExecutivePerils, a national wholesale broker. He can be reached at [email protected]

We all remember the famous court scene from “A Few Good Men” when Tom Cruise and Jack Nicholson come to a highly emotional face off on Code Red. Let’s pretend the case is about excess follow form policies; think of Cruise as the Insured and Nicholson as an excess underwriter. It would go like this:

Insured (Cruise): Is your “excess follow form” policy really follow form?

Judge: You DON’T have to answer that question!

Underwriter (Nicholson): I’ll answer that question (looking at Cruise).  You want answers?

Insured: I think I’m entitled to…

Underwriter: You want answers?

Insured: I want the truth!

(pause)

Underwriter:

Son, we live in a world that has many excess follow form policies, and those policies come off shelves and are used for all types of insureds. We don’t have the time or the aspiration to match underlying wordings. Who’s gonna to do it? You, Mr. or Ms. Insured?

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I have a greater responsibility to my shareholders than you could possibly fathom. You weep for generic excess policies that have their own terms and conditions.

You have the luxury of not knowing what I know. That the death of generic “excess follow form” policies, while fortunate, will result in a lot more claim payments and less litigation between Insureds and insurance companies.

My so-called excess follow form policy, while totally misleading and grotesque, pays my dividends. You don’t want the truth, because deep down in places you don’t talk about you are too busy, and lose interest when it comes to excess policies.

We use words like “exhaustion,” and “arbitration,” that are different than the same words used in the primary policy. We use these words as the backbone of a lifetime of denying claims.

I have neither the time nor the inclination to explain myself to a buyer that questions the status quo; or who questions the quote I provide. I would rather you just look the other way like the industry has done for decades and go on your way.

Otherwise, I suggest you get someone who really knows what they are doing.

Either way, I do not give a damn what you think you are entitled to.

Insured:  Do you bind excess policies with different terms?

Underwriter: I prefer to quote on my own excess follow form wording…

Insured: Do you bind excess policies with different terms?

Underwriter: You’re [email protected] right I do!!!!

A humorous approach to the dialogue that currently has started in the excess D&O, E&O, EPL, Cyber, etc. community.

In Part One- The Problem, we cited the challenges and often devastating results of having different contractual wordings on each layer of a multi-layer program.  Qualcomm litigation was an example of a real situation that lead to an unfavorable outcome to the Insured.

Today, we want to share the solution we have developed, and over 15 insurance companies have approved. The policy is called PurX® as in pure excess.

We’re not selling this. PurX is being offered on an open source which will allow all insureds and insurers access to the same wording.

It is a policy that is only 435 words versus the average 1,345-word “excess follow form” policies  traditionally used on excess.  PurX is a template that allows each underwriter to utilize their Declarations page (this is necessary due to the requirement of listing underlying insurers, claims notification addresses, limit of liability, etc.). PurX leaves the Item number as a fill in.

Most of the underwriting community sees this not only as an opportunity to avoid conflict, but the logical next step in bringing value to its excess layer. It might mean more underwriting, but is a differentiator.   It should be noted that not all insureds may qualify for a pure excess.

More from Risk & Insurance

More from Risk & Insurance

2018 Most Dangerous Emerging Risks

Emerging Multipliers

It’s not that these risks are new; it’s that they’re coming at you at a volume and rate you never imagined before.
By: | April 9, 2018 • 3 min read

Underwriters have plenty to worry about, but there is one word that perhaps rattles them more than any other word. That word is aggregation.

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Aggregation, in the transferred or covered risk usage, represents the multiplying potential of a risk. For examples, we can look back to the asbestos claims that did so much damage to Lloyds’ of London names and syndicates in the mid-1990s.

More recently, underwriters expressed fears about the aggregation of risk from lawsuits by football players at various levels of the sport. Players, from Pee Wee on up to the NFL, claim to have suffered irreversible brain damage from hits to the head.

That risk scenario has yet to fully play out — it will be decades in doing so — but it is already producing claims in the billions.

This year’s edition of our national-award winning coverage of the Most Dangerous Emerging Risks focuses on risks that have always existed. The emergent — and more dangerous — piece to the puzzle is that these risks are now super-charged with risk multipliers.

Take reputational risk, for example. Businesses and individuals that were sharply managed have always protected their reputations fiercely. In days past, a lapse in ethics or morals could be extremely damaging to one’s reputation, but it might take days, weeks, even years of work by newspaper reporters, idle gossips or political enemies to dig it out and make it public.

Brand new technologies, brand new commercial covers. It all works well; until it doesn’t.

These days, the speed at which Internet connectedness and social media can spread information makes reputational risk an existential threat. Information that can stop a glittering career dead in its tracks can be shared by millions with a casual, thoughtless tap or swipe on their smartphones.

Aggregation of uninsured risk is another area of focus of our Most Dangerous Emerging Risks (MDER) coverage.

The beauty of the insurance model is that the business expands to cover personal and commercial risks as the world expands. The more cars on the planet, the more car insurance to sell.

The more people, the more life insurance. Brand new technologies, brand new commercial covers. It all works well; until it doesn’t.

As Risk & Insurance® associate editor Michelle Kerr and her sources point out, growing populations and rising property values, combined with an increase in high-severity catastrophes, threaten to push the insurance coverage gap to critical levels.

This aggregation of uninsured value got a recent proof in CAT-filled 2017. The global tally for natural disaster losses in 2017 was $330 billion; 60 percent of it was uninsured.

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This uninsured gap threatens to place unsustainable pressure on public resources and hamstring society’s ability to respond to natural disasters, which show no sign of slowing down or tempering.

A related threat, the combination of a failing infrastructure and increasing storm severity, marks our third MDER. This MDER looks at the largely uninsurable risk of business interruption that results not from damage to your property or your suppliers’ property, but to publicly maintained infrastructure that provides ingress and egress to your property. It’s a danger coming into shape more and more frequently.

As always, our goal in writing about these threats is not to engage in fear mongering. It’s to initiate and expand a dialogue that can hopefully result in better planning and mitigation, saving the lives and limbs of businesses here and around the world.

2018 Most Dangerous Emerging Risks

Critical Coverage Gap

Growing populations and rising property values, combined with an increase in high-severity catastrophes, are pushing the insurance protection gap to a critical level.

Climate Change as a Business Interruption Multiplier

Crumbling roads and bridges isolate companies and trigger business interruption losses.

 

Reputation’s Existential Threat

Social media — the very tool used to connect people in an instant — can threaten a business’s reputation just as quickly.

 

AI as a Risk Multiplier

AI has potential, but it comes with risks. Mitigating these risks helps insurers and insureds alike, enabling advances in almost every field.

 

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