2016 Risk All Star: Kristy Harris

Flipping Coverage on Its Head

For almost 50 years, Southwest Airlines cemented a reputation for innovation and cost control. The company’s risk management department is no exception to the rule.

Kristy Harris, risk manager, Southwest Airlines

Kristy Harris, risk manager, Southwest Airlines

Under the leadership of risk manager Kristy Harris, Southwest developed answers to coverage challenges that helped to enhance protection while keeping tariffs in check.

A typical case is a solution created to provide Side A coverage at rates that recognize the strength of the company’s balance sheet by literally turning upside down the structure of the D&O program, when some differences in conditions apply.

Southwest’s D.I.C. Flipp solution is, at first sight, a simple one. As with usual ABC-tower D&O structures, Side A coverages sit atop Southwest’s program. However, if one of the special circumstances that can trigger the coverage applies, the Side A block drops to the bottom of the pyramid, and its primary insurer becomes the leader of the whole D&O program.

The solution looks simple, but its implementation required months of negotiation, as lawyers and brokers discussed the fine print with dozens of underwriters. Key to implementing the new arrangement was to bring on board the lead D&O insurer, which had to agree to another insurer’s wording when the flip occurs.

This mission was accomplished with a little help from the baseball gods.

Harris met her broker and the D&O leader at Stan’s Sports Bar, the legendary sports bar right across the street from the Yankees’ stadium in New York. With the game delayed two hours because of rain, Harris and ExecutivePeril’s Peter R. Taffae took the opportunity to do their own pitch to the insurer. It proved to be a home run.

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“We were able to get this additional amount of coverage without having to pay more premium for it,” Harris said.

But the D.I.C. Flipp also reflects Southwest’s development of long-term, trust-based relationships with underwriters and brokers, a strategy that may not produce the biggest cost savings during a soft market, but helps to produce sustained enhancements to the insurance program.

“We are not necessarily focused on getting the lowest price. We are more interested in getting the best product.” — Kristy Harris, risk manager, Southwest Airlines

“We are not necessarily focused on getting the lowest price,” she said. “We are more interested in getting the best product.”

Southwest aims to develop creative solutions during soft cycles.

“We sit down with each carrier separately and … talk about risks and areas where we feel that we need new or improved coverages,” she said. “It is a matter of engaging underwriters in the search of solutions. In a soft market, they are looking for premium dollars. They want to be profitable, and for that they need innovation.

“I never imagined that I would end up in risk management,” she said. “But what I’ve learned is that risk management is … about knowing the company as a whole, so that it is possible to analyze a risk and control it all the way down to the management of claims.”

Relationships are an area Harris excels at as well, said Taffae.

“Kristy is extremely bright and very humble,” he said. “She is detail-oriented, but does not micromanage. And she is fun. You want to work with her.” &

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AllStars2016v1oRisk All Stars stand out from their peers by overcoming challenges through exceptional problem solving, creativity, perseverance and passion.

See the complete list of 2016 Risk All Stars.

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]