2017 Power Broker

Environmental

Track Record: On Time and Under Budget

Laura Decker
Broker
Aon, New York

With less than two weeks before a client needed to conclude a major real estate acquisition, Laura Decker got to work. First she reviewed hundreds of environmental Phase I reports on the property.

Of even greater concern was the fact that many of the property’s environmental exposures fell outside of most insurers’ appetites. Subsurface investigations into historic contaminations at the site were infrequent. Worse still, lenders were starting to question if they should proceed with the deal altogether because of the potential exclusions.

Having gone through the reports and drawn up an action plan, Decker negotiated terms that satisfied all parties, walking the client through each property and its exclusions so that they could relay that information to the lender, enabling the transaction to move forward.

“Even with all of these challenges Laura was able to get us the coverage we needed under budget in a tight time frame,” said the client. “She’s good at getting a quick turnaround and has an extensive knowledge of the market and the products available.”

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Another client said, “We had two major challenging acquisitions over the past 18 months, where due to timing, we couldn’t get the necessary information to Laura on time.

“But she was savvy enough to organize and prioritize the data and get the carriers to allocate additional resources to not only get the renewal completed ahead of time under budget, but to get the best terms and conditions for the majority of these properties.”

Adapting to Rapid Growth

Brian Finnegan
Director
Aon, New York

When his client’s insurer decided not to renew its site pollution program after nine years, Brian Finnegan acted quickly.

The client owned more than 400 properties, including bulk petroleum storage terminals, port locations and gas stations. It also transported petroleum products, mostly in Alaska. This was no small task.

Added to which, the client, Saltchuk Resources, wanted to keep identical limits, terms and retention all at the same premium, while ensuring there was no coverage gap between the old and new programs.

Finnegan needed to learn the existing program as well as the business and its operating companies before going to market. To add to his task, he needed to carry out a comprehensive marketing effort during a time in which the client expanded rapidly.

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To meet this growth, he recommended higher limits and found a solution that combined two programs to maintain the retroactive dates of the old program, while keeping the same retentions.

It doubled limits for the highest exposures and reduced premium by 50 percent.

“We were left in a vulnerable position, but thanks to Brian it was an amazing result,” said Lisa McQueen, senior director of risk management at Saltchuk.

“Because of his environmental background he was able to understand our exposures and sit down and work out a solution that gave us the best of both worlds.”

Expertise in Environmental Risk

Allan Jackson, ARM, CPCU
Associate Director
Aon, Atlanta

With more than 600,000 borrowers from across the farming sector on its books, it’s almost impossible for FCC Services to know the full extent of its environmental exposure.

The government-sponsored enterprise provides credit to farmers, ranchers and other rural enterprises. It faces daily risks associated with its members’ large animal operations, power and waste management systems, and on-site air quality concerns.

So it was difficult to find an insurer willing to provide blanket coverage. Allan Jackson stepped in, quickly grasped the organization’s structure and found the best program.

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“We struggled for years to find a broker that could articulate the unique structure of our organization in the commercial insurance marketplace and the uniqueness of our program to our customers and board,” said Debbie Dettmer, FCC’s managing director of risk management and insurance services. “Thank goodness for Allan. He has used his relationships within the industry and his understanding of our exposure and structure to expand our potential markets from one insurer to four. Needless to say, this has resulted in better terms and conditions as well as more favorable pricing.”

Another client said, “Allan has a distinct knowledge of the environmental insurance marketplace and awareness of the specific appetite and competency of each underwriter he works with. He was able to navigate the marketplace to locate the right trading partner for our risk and tailor our policy to fit our specific needs.”

Leveraging Captives to Handle Complexity

Kimberly Mann
Vice President
Marsh, Philadelphia

Tasked with conducting a feasibility study into a global specialty chemical client’s insurance needs, Kimberly Mann first determined if all its stand-alone environmental policies could be integrated into one program.

She then looked into leveraging its captive to create a global program for all its operations. Having engaged the underwriter to review the engineering reports for each of the locations, she added these exposures to the captive, then renegotiated the excess layers of risk transfer with the carriers, structuring the captive as an excess program so as not to disrupt the elements already in place.

This insulated the carrier from the exposure until its policies expired. She was able to improve the terms for each of the facilities, including the addition of first-party trigger, legacy risk exposure, and refined exclusions for known contamination.

She also managed to increase the total limits for several of the sites, while reducing the premium by 77 percent.

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“Kim was instrumental in the leveraging and integration of our programs,” said her client. “She’s detail-oriented, a strong problem-solver and has been very responsive to our needs.”

Another client said, “Kim is a wealth of knowledge that we rely heavily upon in evaluating new construction projects and their specific needs, creating and implementing corporate-wide programs or creating specific programs that fulfill lender requirements.”

Coming Through in a Time Crunch

James Vetter
Managing Director
Marsh, Salt Lake City

Headache doesn’t even begin to explain the scale of the task facing James Vetter. He needed to help his client liquidate the assets of a refinery that was being sold through bankruptcy — all within a six-week window.

The sale of the multi-thousand-acre site involved multiple stakeholders, including the buyer and seller, and six different lawyers representing various aspects of its environmental issues and coverage. But to enable the sale and subsequent operation of the site, $100 million in pollution legal liability insurance first needed to be placed.

Drawing up a schedule for every task and the responsibilities of each stakeholder, Vetter held bi-weekly calls to coordinate the project. The end result suited all parties, and was placed on time and with superior coverage enhancements and policy wording.

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“This was a 50-year-old refinery that had not operated in over four years,” said his client. “I was amazed that Jim was able to not only get the policy in place, but get it done within the time frame we needed.”

Jeanne Cohn-Connor, a partner at Kirkland & Ellis, said, “Jim’s strength is in knowing the players in the environmental insurance space and in directing the work so it can get done, under time pressure, in a way that keeps everyone focused on the goal.”

In another case, Cohn-Connor said, Vetter put together a program with three insurers that showcased his unique talent for negotiating with diverse stakeholders.

Skilled at Satisfying All Parties

Max West
Senior Vice President
Aon, Chicago

When Commercial Liability Partners became involved in the divestment of a former foundry site in Columbus, Ohio, it faced huge environmental challenges.

The 44-acre Columbus Castings site manufactured steel parts for rail cars for more than 100 years. There was a legacy of pollution exposures that needed to be addressed.

Working with the available data, Max West was able to customize and negotiate coverage for the known contamination, as well as insure against bodily injury risk to neighbors and diminution in the value of their properties as a result of past pollution from the site.

The final policy provided $10 million in limits for 10 years, covering all of the site’s legacy environmental problems.

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“Max was successful in obtaining a policy at a better price and coverage with minimal exclusions,” said Ron Froh, CEO of Commercial Liability Partners. “Without the policy, the acquisition wouldn’t have been successful and that’s all down to Max. His ability to grasp the situation, think outside the box and convey our needs to the underwriter to secure the best possible coverage was top-notch.”

West helped another client secure coverage for environmental contamination on its sites as well. “Max is one of the best in the business. He has successfully solved more than a dozen environmental cases for us,” said Mike Baucus, managing partner at real estate investment firm AIC Ventures. “There isn’t another broker in the country we would use.”

Finalists:

Cristin Bullen
Senior Vice President
Marsh
New York

Louis Cipollo
Account Executive
Aon, Philadelphia

Amber Fixter
Vice President
Willis Towers Watson, New York

John Kim
Managing Director
Marsh, San Francisco

Rick Ringenwald
Executive Vice President
Willis Towers Watson
Radnor, Pa.

More from Risk & Insurance

More from Risk & Insurance

Cyber Liability

Fresh Worries for Boards of Directors

New cyber security regulations increase exposure for directors and officers at financial institutions.
By: | June 1, 2017 • 6 min read

Boards of directors could face a fresh wave of directors and officers (D&O) claims following the introduction of tough new cybersecurity rules for financial institutions by The New York State Department of Financial Services (DFS).

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Prompted by recent high profile cyber attacks on JPMorgan Chase, Sony, Target, and others, the state regulations are the first of their kind and went into effect on March 1.

The new rules require banks, insurers and other financial institutions to establish an enterprise-wide cybersecurity program and adopt a written policy that must be reviewed by the board and approved by a senior officer annually.

The regulation also requires the more than 3,000 financial services firms operating in the state to appoint a chief information security officer to oversee the program, to report possible breaches within 72 hours, and to ensure that third-party vendors meet the new standards.

Companies will have until September 1 to comply with most of the new requirements, and beginning February 15, 2018, they will have to submit an annual certification of compliance.

The responsibility for cybersecurity will now fall squarely on the board and senior management actively overseeing the entity’s overall program. Some experts fear that the D&O insurance market is far from prepared to absorb this risk.

“The new rules could raise compliance risks for financial institutions and, in turn, premiums and loss potential for D&O insurance underwriters,” warned Fitch Ratings in a statement. “If management and directors of financial institutions that experience future cyber incidents are subsequently found to be noncompliant with the New York regulations, then they will be more exposed to litigation that would be covered under professional liability policies.”

D&O Challenge

Judy Selby, managing director in BDO Consulting’s technology advisory services practice, said that while many directors and officers rely on a CISO to deal with cybersecurity, under the new rules the buck stops with the board.

“The common refrain I hear from directors and officers is ‘we have a great IT guy or CIO,’ and while it’s important to have them in place, as the board, they are ultimately responsible for cybersecurity oversight,” she said.

William Kelly, senior vice president, underwriting, Argo Pro

William Kelly, senior vice president, underwriting at Argo Pro, said that unknown cyber threats, untested policy language and developing case laws would all make it more difficult for the D&O market to respond accurately to any such new claims.

“Insurers will need to account for the increased exposures presented by these new regulations and charge appropriately for such added exposure,” he said.

Going forward, said Larry Hamilton, partner at Mayer Brown, D&O underwriters also need to scrutinize a company’s compliance with the regulations.

“To the extent that this risk was not adequately taken into account in the first place in the underwriting of in-force D&O policies, there could be unanticipated additional exposure for the D&O insurers,” he said.

Michelle Lopilato, Hub International’s director of cyber and technology solutions, added that some carriers may offer more coverage, while others may pull back.

“How the markets react will evolve as we see how involved the department becomes in investigating and fining financial institutions for noncompliance and its result on the balance sheet and dividends,” she said.

Christopher Keegan, senior managing director at Beecher Carlson, said that by setting a benchmark, the new rules would make it easier for claimants to make a case that the company had been negligent.

“If stock prices drop, then this makes it easier for class action lawyers to make their cases in D&O situations,” he said. “As a result, D&O carriers may see an uptick in cases against their insureds and an easier path for plaintiffs to show that the company did not meet its duty of care.”

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One area that regulators and plaintiffs might seize upon is the certification compliance requirement, according to Rob Yellen, executive vice president, D&O and fiduciary liability product leader, FINEX at Willis Towers Watson.

“A mere inaccuracy in a certification could result in criminal enforcement, in which case it would then become a boardroom issue,” he said.

A big grey area, however, said Shiraz Saeed, national practice leader for cyber risk at Starr Companies, is determining if a violation is a cyber or management liability issue in the first place.

“The complication arises when a company only has D&O coverage, but it doesn’t have a cyber policy and then they have to try and push all the claims down the D&O route, irrespective of their nature,” he said.

“Insurers, on their part, will need to account for the increased exposures presented by these new regulations and charge appropriately for such added exposure.” — William Kelly, senior vice president, underwriting, Argo Pro

Jim McCue, managing director at Aon’s financial services group, said many small and mid-size businesses may struggle to comply with the new rules in time.

“It’s going to be a steep learning curve and a lot of work in terms of preparedness and the implementation of a highly detailed cyber security program, risk assessment and response plan, all by September 2017,” he said.

The new regulation also has the potential to impact third parties including accounting, law, IT and even maintenance and repair firms who have access to a company’s information systems and personal data, said Keegan.

“That can include everyone from IT vendors to the people who maintain the building’s air conditioning,” he said.

New Models

Others have followed New York’s lead, with similar regulations being considered across federal, state and non-governmental regulators.

The National Association of Insurance Commissioners’ Cyber-security Taskforce has proposed an insurance data security model law that establishes exclusive standards for data security and investigation, and notification of a breach of data security for insurance providers.

Once enacted, each state would be free to adopt the new law, however, “our main concern is if regulators in different states start to adopt different standards from each other,” said Alex Hageli, director, personal lines policy at the Property Casualty Insurers Association of America.

“It would only serve to make compliance harder, increase the cost of burden on companies, and at the end of the day it doesn’t really help anybody.”

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Richard Morris, partner at law firm Herrick, Feinstein LLP, said companies need to review their current cybersecurity program with their chief technology officer or IT provider.

“Companies should assess whether their current technology budget is adequate and consider what investments will be required in 2017 to keep up with regulatory and market expectations,” he said. “They should also review and assess the adequacy of insurance policies with respect to coverages, deductibles and other limitations.”

Adam Hamm, former NAIC chair and MD of Protiviti’s risk and compliance practice, added: “With New York’s new cyber regulation, this is a sea change from where we were a couple of years ago and it’s soon going to become the new norm for regulating cyber security.” &

Alex Wright is a U.K.-based business journalist, who previously was deputy business editor at The Royal Gazette in Bermuda. You can reach him at [email protected]