Risk Insider: Joe Cellura

Made in America

By: | February 14, 2017 • 2 min read
Joe Cellura is President, North American Casualty, at Allied World, responsible for for the production and profitability of Primary Casualty, Excess Casualty, Environmental, Surety, Primary Construction and Programs. He can be reached at [email protected]

 

Made in America: What does that mean once you get past the patriotic slogan? How does the insurance industry prepare for potential upswings in manufacturing on its own soil?

President Trump has been quite vocal about bringing manufacturing jobs back to the United States. U.S. manufacturing jobs declined from 17.3 million in 2000 to 12.3 million in 2015. Industry innovation and technology significantly reduced the workforce, but clearly, many jobs also moved overseas.

The Wall Street Journal’s recent analysis of S&P 500 company communications found that many companies are speaking with investors about the impact of President Trump’s priority to “increase U.S. manufacturing employment.”

Opening new plants is not as easy as purchasing an empty manufacturing plant, and hanging your sign on the door. There are a host of environmental concerns whether a company chooses to build new or to renovate an old plant.

CEOs are strategizing about this policy priority, and the insurance and risk management community must work alongside the C-suite as a critical part of the strategic process, assessing the new risk picture and preparing to manage these risks.

Preparing the Insurance Industry

A manufacturing workforce shift would require top-notch leadership and risk management focus. Insurance underwriters will be assessing the risk by looking at a company’s management leadership qualities and their ability to recruit and train quality employees.

Evaluating this changing risk picture should include a detailed look at exposures related to physical plants, the workers, the product and the bottom line. This requires a look across the full spectrum of risks.

For example, what are the liability issues that might arise from an untrained workforce?  What are the construction risks involved in renovating old or building new manufacturing plants?

Consider the environmental exposures. Opening new plants is not as easy as purchasing an empty manufacturing plant, and hanging your sign on the door. There are a host of environmental concerns whether a company chooses to build new or to renovate an old plant.

Even with mothballing, which ensures that plants that have been out of use are still ready and safe to reopen, there is concern that old plants will not be up to safety and quality standards. There are an abundance of unused manufacturing plants all over the U.S. that are gathering dust. Companies are trying to unload, clean-up and reuse them.  If old or new plants have any proximity to waterways and wetlands, executives need to think about the possibility of exposing those habitats to contaminants.

Changing Risk Assessments

For companies that have been out of the U.S. manufacturing world for some time, how will they manage these operations?

The insurance industry, along with manufacturers, will need to build a new model for this era of manufacturing risk. Standards must be set and manufacturers must meet them for underwriters to properly assess premiums. Precedent would be helpful, but too much time has passed since the 1950’s U.S. manufacturing zenith, when workers were not joined by robots on the assembly lines.

Manufacturing risk assessments changed when companies moved overseas because brokers and insurers could not physically go to the plants and assess risks on-site.  With the possibility of companies moving back, the insurance industry has to be prepared to walk the floors and understand what they are seeing.

The insurance industry, like the manufacturers, will need to enhance its focus from foreign risk control and liability underwriting to the complex domestic landscape. This domestic operating theater will present a myriad of legal, environmental and management challenges. The opportunity lies in meeting those challenges.

As we anticipate change on the horizon, we must take a broad look at the risk picture and begin to lay a foundation for a smooth transition to more American production. The first building blocks need to be safety. Risk management planning will protect manufacturers and their shareholder value.

More from Risk & Insurance

More from Risk & Insurance

2017 RIMS

Resilience in Face of Cyber

New cyber model platforms will help insurers better manage aggregation risk within their books of business.
By: | April 26, 2017 • 3 min read

As insurers become increasingly concerned about the aggregation of cyber risk exposures in their portfolios, new tools are being developed to help them better assess and manage those exposures.

One of those tools, a comprehensive cyber risk modeling application for the insurance and reinsurance markets, was announced on April 24 by AIR Worldwide.

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Last year at RIMS, AIR announced the release of the industry’s first open source deterministic cyber risk scenario, subsequently releasing a series of scenarios throughout the year, and offering the service to insurers on a consulting basis.

Its latest release, ARC– Analytics of Risk from Cyber — continues that work by offering the modeling platform for license to insurance clients for internal use rather than on a consulting basis. ARC is separate from AIR’s Touchstone platform, allowing for more flexibility in the rapidly changing cyber environment.

ARC allows insurers to get a better picture of their exposures across an entire book of business, with the help of a comprehensive industry exposure database that combines data from multiple public and commercial sources.

Scott Stransky, assistant vice president and principal scientist, AIR Worldwide

The recent attacks on Dyn and Amazon Web Services (AWS) provide perfect examples of how the ARC platform can be used to enhance the industry’s resilience, said Scott Stransky, assistant vice president and principal scientist for AIR Worldwide.

Stransky noted that insurers don’t necessarily have visibility into which of their insureds use Dyn, Amazon Web Services, Rackspace, or other common internet services providers.

In the Dyn and AWS events, there was little insured loss because the downtime fell largely just under policy waiting periods.

But,” said Stransky, “it got our clients thinking, well it happened for a few hours – could it happen for longer? And what does that do to us if it does? … This is really where our model can be very helpful.”

The purpose of having this model is to make the world more resilient … that’s really the goal.” Scott Stransky, assistant vice president and principal scientist, AIR Worldwide

AIR has run the Dyn incident through its model, with the parameters of a single day of downtime impacting the Fortune 1000. Then it did the same with the AWS event.

When we run Fortune 1000 for Dyn for one day, we get a half a billion dollars of loss,” said Stransky. “Taking it one step further – we’ve run the same exercise for AWS for one day, through the Fortune 1000 only, and the losses are about $3 billion.”

So once you expand it out to millions of businesses, the losses would be much higher,” he added.

The ARC platform allows insurers to assess cyber exposures including “silent cyber,” across the spectrum of business, be it D&O, E&O, general liability or property. There are 18 scenarios that can be modeled, with the capability to adjust variables broadly for a better handle on events of varying severity and scope.

Looking ahead, AIR is taking a closer look at what Stransky calls “silent silent cyber,” the complex indirect and difficult to assess or insure potential impacts of any given cyber event.

Stransky cites the 2014 hack of the National Weather Service website as an example. For several days after the hack, no satellite weather imagery was available to be fed into weather models.

Imagine there was a hurricane happening during the time there was no weather service imagery,” he said. “[So] the models wouldn’t have been as accurate; people wouldn’t have had as much advance warning; they wouldn’t have evacuated as quickly or boarded up their homes.”

It’s possible that the losses would be significantly higher in such a scenario, but there would be no way to quantify how much of it could be attributed to the cyber attack and how much was strictly the result of the hurricane itself.

It’s very, very indirect,” said Stransky, citing the recent hack of the Dallas tornado sirens as another example. Not only did the situation jam up the 911 system, potentially exacerbating any number of crisis events, but such a false alarm could lead to increased losses in the future.

The next time if there’s a real tornado, people make think, ‘Oh, its just some hack,’ ” he said. “So if there’s a real tornado, who knows what’s going to happen.”

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Modeling for “silent silent cyber” remains elusive. But platforms like ARC are a step in the right direction for ensuring the continued health and strength of the insurance industry in the face of the ever-changing specter of cyber exposure.

Because we have this model, insurers are now able to manage the risks better, to be more resilient against cyber attacks, to really understand their portfolios,” said Stransky. “So when it does happen, they’ll be able to respond, they’ll be able to pay out the claims properly, they’ll be prepared.

The purpose of having this model is to make the world more resilient … that’s really the goal.”

Additional stories from RIMS 2017:

Blockchain Pros and Cons

If barriers to implementation are brought down, blockchain offers potential for financial institutions.

Embrace the Internet of Things

Risk managers can use IoT for data analytics and other risk mitigation needs, but connected devices also offer a multitude of exposures.

Feeling Unprepared to Deal With Risks

Damage to brand and reputation ranked as the top risk concern of risk managers throughout the world.

Reviewing Medical Marijuana Claims

Liberty Mutual appears to be the first carrier to create a workflow process for evaluating medical marijuana expense reimbursement requests.

Cyber Threat Will Get More Difficult

Companies should focus on response, resiliency and recovery when it comes to cyber risks.

RIMS Conference Held in Birthplace of Insurance in US

Carriers continue their vital role of helping insureds mitigate risks and promote safety.

Michelle Kerr is associate editor of Risk & Insurance. She can be reached at [email protected]