Public Sector Risk

For Less Police Violence, Train More

Insurers who help pay for improved police training today may save on future claims.
By: | June 1, 2017 • 5 min read

In the emotionally and politically charged climate surrounding police violence, a consensus emerges from the right and the left, from cops, attorneys, academics and the insurance community: Mitigation depends on more and better training for law enforcement.

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Every stakeholder — from the cop on the beat through prison management and the insurance industry — has a role in affecting change.

“Sometimes police have to use force, and then bad things happen,” said Greg Champagne, a sheriff in St. Charles Parish, Louisiana, and president of the National Sheriff’s Association. “The best risk management is the best training a police force can afford. Insurers can help us provide free training.”

Communities are feeling the financial impact of police training. Bloomberg reported in February 2016 that spending on police training in 23 of the 25 biggest U.S. cities grew 17 percent to $317.9 million in 2015 from 2013.

The cost of not training may be even higher. For example, Chicago residents paid nearly half a billion dollars in settlements over the past decade, according to the Chicago Sun-Times, and spent $84.6 million in fees, settlements and awards in 2013.

Costs fall primarily on taxpayers, since most large cities are self-insured. Many smaller cities belong to self-insured risk pools.

Fewer than five insurers cover public entities nationally, said Scott K. Thomason, vice president, public sector, at Arthur J. Gallagher & Co., but the self-insured cities rely on reinsurers, which have a vested interest in improving risk profiles.

Greg Champagne, president, National Sheriff’s Association

“Civil unrest is not created equal, in likelihood and severity,” said Hart S. Brown, senior vice president, organizational resilience, HUB International. For example, riot-type events explode with high energy and emotion but usually dissipate within 72 hours. Labor unrest may last longer but has less geographical impact.

“Carriers and brokers can conduct real risk assessments of the kind of event that’s likely and its cost to municipalities.” Brown said.

Many experts believe that a disproportionate number of claims are caused by a small number of officers, said John Rappaport, assistant professor of law, University of Chicago School of Law.

Insurers “could be bolder” in urging departments to get rid of the bad apples, he said. While carriers don’t want to be perceived as interfering in personnel matters, he said, “this is an occasion for managing risk.”

Training, Training and More Training

In April, the National Association of Black Law Enforcement Officers Inc. (NABLEO) conducted a two-day de-escalation training program. The curriculum aims to unpack “implicit bias,” which the Justice Department defines as “the unconscious or subtle associations that individuals make between groups of people and stereotypes about those groups.”

“Our assumptions of who other people are dictate how we treat them,” said Charles P. Wilson, national chairman at NABLEO. “Assumptions create risk.”

Training aims to change the attitudes and behaviors that can erupt into violence. “How does the officer perceive the other person? How is he speaking to him? What kind of words is he using? How does he interpret body language? How does his cultural lens affect what he sees?”

Implicit bias training is part of the reform in some of the consent decrees the Justice Department reached under the Obama Administration with several troubled police departments.

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The current attorney general, Jeff Sessions, is seeking a review of the consent decrees, citing concerns about their overuse and potential stigma for the police departments.

The DOJ action is “a disservice to law enforcement and the community,” Wilson said. “Police have to understand what they’re doing wrong so they can stop doing it.”

The Fraternal Order of Police, which vociferously supports Sessions on its website, may disagree.

“Sometimes police have to use force, and then bad things happen.” —Greg Champagne, president, National Sheriff’s Association

Regardless, said Rappaport, if consent decrees were abandoned, affected municipalities could see more violent interactions and lawsuits to follow. Most of these cities are self-insured, so only their excess carriers might be affected.

And if federal funding for de-escalation and other training were withdrawn, would the insurance industry have a role in picking up the tab?

Derek Broaddus, senior vice president, Allied World Insurance

“Absolutely,” Rappaport said. “Carriers can do the calculations: Do we expect to save more on claims and lawsuits than we spend on training? Research suggests they will.”

Police liability insurers — many of which are non-competitive, state-specific municipal risk pools — are an important “bumblebee” in cross-pollinating best practices, he said.

Just as carriers share positive results about telematics devices installed in police cars, revealing location, speed and response times, they also share technology and training success stories.

The need for thorough training runs the entire law enforcement and judicial gamut, said Champagne.

“Use of force, medical care, automobile crashes — those are the liability triggers. Sheriffs run jails, and they and their deputies have to understand the law and procedures in their operations,” he said.

Body Cameras, Pros and Cons

With some reservations, body cameras attached to police officers’ shirts are almost universally hailed by police organizations, insurers, academics and even the ACLU.

Some insurers offer grant funding to municipalities to help finance the equipment, said Derek Broaddus, senior vice president at Allied World Insurance, a specialist primary and excess carrier.

Others offer grant-writing training to help put the funds within smaller municipalities’ reach.

The pros? “Body cameras can raise the level of officers’ responsibility because they know they’re being recorded,” said Thomason. They can also influence the behavior of the person on the other side of the lens.

The cons? At $400 to $1,000 apiece, they’re expensive, said Kenny Smith, risk control manager at OneBeacon.

“And then you have the cost of storage, retrieving images, copying and redaction when someone requests them through the Freedom of Information Act,” he said.

“Cameras alone may be prohibitively expensive for an entire police department,” said Brown, “and storage is expensive, whether on a municipality’s own servers or on the cloud.”

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Taser International — now Axon — announced in April a program to equip every U.S. police officer with a free body camera and provide police departments with supporting hardware, software, data storage and training, free for one year. After a year, cameras would cost $399 and use of the company’s Evidence.com platform $15 to $89 per month, per officer.

“The image that appears on the evening news can look awful, but it doesn’t show the run-up to the incident,” Broaddus said. “It doesn’t show the pre-arrest history between the participants, the altercation or instigation.”

“When you don’t have the full scope of context, it creates more risk,” said Thomason.

Video footage can stir up negative public perception, Smith said.

“Once it’s released to the public or the media, it can be very damaging. Police departments need to have their procedural ducks in a row before they venture into this thing.” &

Susannah Levine writes about health care, education and technology. She can be reached at [email protected]

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]