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

2017 RIMS

RIMS Conference Opens in Birthplace of Insurance in US

Carriers continue their vital role of helping insureds mitigate risks and promote safety.
By: | April 21, 2017 • 4 min read

As RIMS begins its annual conference in Philadelphia, it’s worth remembering that the City of Brotherly Love is not just the birthplace of liberty, but it is the birthplace of insurance in the United States as well.

In 1751, Benjamin Franklin and members of Philadelphia’s first volunteer fire brigade conceived of an insurance company, eventually named The Philadelphia Contributionship for the Insurance of Houses from Loss by Fire.

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For the first time in America — but certainly not for the last time – insurers became instrumental in protecting businesses by requiring safety inspections before agreeing to issue policies.

“That included fire brigades and the knowledge that a brick house was less susceptible to fire than a wood house,” said Martin Frappolli, director of knowledge resources at The Institutes.

It also included good hygiene habits, such as not placing oily rags next to a furnace and having a trap door to the roof to help the fire brigade fight roof and chimney blazes.

Businesses with high risk of fire, such as apothecary shops and brewers, were either denied policies or insured at significantly higher rates, according to the Independence Hall Association.

Robert Hartwig, co-director, Center of Risk and Uncertainty Management at the Darla Moore School of Business, University of South Carolina

Before that, fire was generally “not considered an insurable risk because it was so common and so destructive,” Frappolli said.

“Over the years, we have developed a lot of really good hygiene habits regarding the risk of fire and a lot of those were prompted by the insurance considerations,” he said. “There are parallels in a lot of other areas.”

Insurance companies were instrumental in the creation of Underwriters Laboratories (UL), which helps create standards for electrical devices, and the Insurance Institute for Highway Safety, which works to improve the safety of vehicles and highways, said Robert Hartwig, co-director, Center of Risk and Uncertainty Management at the Darla Moore School of Business at the University of South Carolina and former president of the Insurance Information Institute.

Insurers have also been active through the years in strengthening building codes and promoting wiser land use and zoning rules, he said.

When shipping was the predominant mode of commercial transport, insurers were active in ports, making sure vessels were seaworthy, captains were experienced and cargoes were stored safety, particularly since it was the common, but hazardous, practice to transport oil in barrels, Hartwig said.

Some underwriters refused to insure ships that carried oil, he said.

When commercial enterprises engaged in hazardous activities and were charged more for insurance, “insurers were sending a message about risk,” he said.

In the industrial area, the common risk of boiler and machinery explosions led insurers to insist on inspections. “The idea was to prevent an accident from occurring,” Hartwig said. Insurers of the day – and some like FM Global and Hartford Steam Boiler continue to exist today — “took a very active and early role in prevention and risk management.”

Whenever insurance gets involved in business, the emphasis on safety, loss control and risk mitigation takes on a higher priority, Frappolli said.

“It’s a really good example of how consideration for insurance has driven the nature of what needs to be insured and leads to better and safer habits,” he said.

Workers’ compensation insurance prompted the same response, he said. When workers’ compensation laws were passed in the early 1900s, employee injuries were frequent and costly, especially in factories and for other physical types of work.

Because insurers wanted to reduce losses and employers wanted reduced insurance premiums, safety procedures were introduced.

“Employers knew insurance would cost a lot more if they didn’t do the things necessary to reduce employee injury,” Frappolli said.

Martin J. Frappolli, senior director of knowledge resources, The Institutes

Cyber risk, he said, is another example where insurance companies are helping employers reduce their risk of loss by increasing cyber hygiene.

Cyber risk is immature now, Frappolli said, but it’s similar in some ways to boiler and machinery explosions. “That was once horribly damaging, unpredictable and expensive,” he said. “With prompting from risk management and insurance, people were educated about it and learned how to mitigate that risk.

“Insurance is just one tool in the toolbox. A true risk manager appreciates and cares about mitigating the risk and not just securing a lower insurance rate.

“Someone looking at managing risk for the long term will take a longer view, and as a byproduct, that will lead to lower insurance rates.”

Whenever technology has evolved, Hartwig said, insurance has been instrumental in increasing safety, whether it was when railroads eclipsed sailing ships for commerce, or when trucking and aviation took precedence.

The risks of terrorism and cyber attacks have led insurance companies and brokers to partner with outside companies with expertise in prevention and reduction of potential losses, he said. That knowledge is transmitted to insureds, who are provided insurance coverage that results in financial resources even when the risk management methods fail to prevent a cyber attack.

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This year’s RIMS Conference in Philadelphia shares with risk managers much of the knowledge that has been developed on so many critical exposures. Interestingly enough, the opening reception is at The Franklin Institute, which celebrates some of Ben Franklin’s innovations.

But in-depth sessions on a variety of industry sectors as well as presentations on emerging risks, cyber risk management, risk finance, technology and claims management, as well as other issues of concern help risk managers prepare their organizations to face continuing disruption, and take advantage of successful mitigation techniques.

“This is just the next iteration of the insurance world,” Hartwig said. “The insurance industry constantly reinvents itself. It is always on the cutting edge of insuring new and different risks and that will never change.” &

Anne Freedman is managing editor of Risk & Insurance. She can be reached at [email protected]