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.
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.
“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.” &