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Property Risk Insights Strengthen Resilience After Loss

Risk engineers help customers harden their assets against a variety of perils.
By: | November 2, 2016 • 5 min read

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Commercial property owners need to protect their assets, and a focus on resilience is an important way to mitigate property risks, advises Richard Montminy, head of property for Commercial Insurance, Zurich North America.

In this Perspectives presented by Zurich, he discusses marketplace trends and shares insights on property risk management.

What trends is Zurich seeing in 2016 in the property insurance marketplace?

The market is seeing an abundance of capacity, driven in part by the entry of new and alternative players in commercial insurance. These include non-traditional insurers, start-ups and investors seeking new opportunities. At the same time, we are continuing to see downward pressure on property rates. In the past, we used to describe the market cycles as “soft” or “hard,” but these aren’t really coming into play anymore; it’s just the market. The marked reduction in insured catastrophe losses has also been pressuring both insurance and reinsurance rates downward.

Zurich_SponsoredContent“Our risk engineers are equipped to help customers harden their assets against a variety of perils.”

– Richard Montminy, head of property, Commercial Insurance, Zurich North America

At the same time there has been a continued flow of attritional and large losses hitting the market, including most recently the Fort McMurray wildfires in western Canada. Even though these losses appear to be putting a slight damper on rate declines, the overabundance of capacity continues to drive the market that we have been experiencing in 2015 and into 2016. The challenge that insurers will face as we look forward is that the continued drawn-out downward pressure on rates across the property industry is creating an unhealthy market that is not sustainable over the long run.

How can commercial property insurers deliver value to retain profitable business in an environment of declining rates? How can you truly differentiate?

In a market where rates are declining, it can be tempting to seek the lowest price for coverage. But there are significant differences among insurance providers. At Zurich, we differentiate our value through our ability to give our customers insights to improve the resilience of their organizations. We’re constantly working with customers to build that into the infrastructure of their organizations so that they can regain their footing quickly after a loss. Zurich has more than 100 years of experience in delivering on our promises to customers in North America, and as a leading global insurance group we can help property owners manage their risks in more than 200 countries and territories. Risk insight, claims expertise, global reach, financial strength — these are just a few of the reasons why multinational corporations have chosen Zurich as their risk partner for many years. We provide value not just in the insurance policies we offer but also through the insights we deliver.

How does Zurich help property customers build resilience?

Our risk engineers are equipped to help customers harden their assets against a variety of perils. Zurich risk engineers work closely with customers to build business continuity plans, and to take steps before, during and after a loss. We bring not just a catastrophic perspective or a fire perspective but broad-based experience in mitigating a broad spectrum of risks. Our teams gain insights from working with customers in all industries, and we are able to share insights to help reduce property risks. For example, a company in the plastics industry acquired a peer with manufacturing processes somewhat different from our customer’s operations. Zurich had experience with a loss on similar exposures faced by another customer, and our engineer was able to share these insights. We showed the companies where they could build protection into their processes. In another instance, we engaged with a large hospitality company to show them how to build in protection to prevent water intrusion, which causes most of the damage in hurricanes. From securing rooftop equipment with cables to sloping balconies to encourage drainage to the proper glazing and support structure of windows to resist projectiles and breakage, Zurich helped this customer enhance its resilience. We have shown our customers that it’s possible to retrofit buildings but generally much cheaper to incorporate the proper design up-front. Many of our large customers have used our insights to implement changes in the design phase.

How important is it for insurers to make investments that help customers build resilience?

We want our customers to expect full engagement and attention from us. Zurich continues to invest heavily in our risk engineering group, to deliver insights and to ensure we’re keeping up with changes in building and industry standards. Our teams have been through catastrophe events many times, and we are able to advise customers on what they need to do in the first hour, the first week and month, etc., when a loss occurs. Zurich’s relationships with vendors enable us to help customers plan for generators and fuel, for example. We are making investments to strengthen our ability to help our customers think about and plan for resilience and recovery.

For more information about Zurich property solutions and risk insights, visit zurichna.com and the Zurich Virtual Literature Rack at zurichvlr.com.

This is intended as a general description of certain types of insurance and services available to qualified customers through the companies of Zurich in North America, provided solely for informational purposes. Nothing herein should be construed as a solicitation, offer, advice, recommendation, or any other service with regard to any type of insurance product underwritten by individual member companies of Zurich in North America, including Zurich American Insurance Company, 1299 Zurich Way, Schaumburg, IL 60196.

Your policy is the contract that specifically and fully describes your coverage, terms and conditions. The description of the policy provisions gives a broad overview of coverages and does not revise or amend the policy. Coverages and rates are subject to individual insured meeting our underwriting qualifications and product availability in applicable states. Some coverages may be written on a nonadmitted basis through licensed surplus lines brokers. Zurich does not guarantee any particular outcome and there may be conditions on your premises or within your organization, which may not be apparent to us. You are in the best position to understand your business and your organization and to take steps to minimize risk, and we wish to assist you by providing the information and tools to help you assess your changing risk environment. Risk engineering services are provided by The Zurich Services Corporation.

©2016 Zurich American Insurance Company

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This article was produced by the R&I Brand Studio, a unit of the advertising department of Risk & Insurance, in collaboration with Zurich. The editorial staff of Risk & Insurance had no role in its preparation.




Zurich Insurance Group, Ltd is an insurance-based financial services provider with a global network of subsidiaries and offices in North America and Europe as well as in Asia Pacific, Latin America and other markets.

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]