2017 Power Broker

Public Sector

A Hard Negotiator

Karen Bartak, CPCU, ARM, ASLI
President
Bedford Falls Insurance, Napa, Calif.

Blazing a trail for an independent brokerage, Karen Bartak impresses with her connections in the excess casualty markets.

“I rely on her to get me access to the big players in the public entity space,” said Greg Kildare, executive director of risk at the LA Metro Transportation Authority. “I regularly sit down with senior executives to whom I can sell our risk as best in class. I didn’t get this with a lot of the bigger brokers.

“And she negotiates hard,” he added. Indeed, Bartak recently secured LA Metro a flat renewal with a higher limit despite adding two new train lines.

Bartak also helped Contract Cities of Los Angeles retain its existing retention this year despite adverse claims, bad public sentiment toward police and delayed implementation of body cameras, saving hundreds of thousands in additional reserve expenses.

And she was instrumental in helping Sonoma Marin Area Rail Transit (SMART) insure its new rail line through various stages of development, including negotiating policy extensions during testing phases and keeping premiums as-is for its first full year of operations.

With SMART soon taking its first passengers, this is a crucial time. “Karen has done an awesome job, particularly on the rail liability,” said CFO Erin McGrath.

“Karen, in partnership with our team at Alliant, has done a lot of hand-holding as we’ve gone from virtually no insurance program to a very robust $200 million liability policy, from 20 employees to 120, and from almost no assets to 44 miles of property.”

A Benchmarking Power Broker®

Marcus Henthorn, CLCS
Area Vice President
Arthur J. Gallagher, Itasca, Ill.

In late 2015, Marcus Henthorn designed a software tool that transformed the working lives of not only his clients but dozens of Gallagher insurance pools and brokers.

Henthorn’s data collection and questionnaire software aggregates schedules and statement of values, and digitizes applications on large complex accounts. By late 2016, more than 60 Gallagher pools in the U.S. and Canada, (insuring over 2,200 individual pool members) and numerous large clients were launched on the system. The data’s underwriting benchmarking offers a distinct advantage in the marketplace. Meanwhile, the platform is an invaluable administrative time-saver, allowing easy aggregation of forms.

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“The renewal process is now much quicker and efficient. It’s saved literally months of work,” said Bob McDermott, president of the Prairie State Insurance Cooperative.

“Time is our biggest asset — saving time allows us to focus on the things we need to,” added Brad Goldstein, executive board member of the Collective Liability Insurance Cooperative. “We are a large pool and need to benchmark against others, and now we can access information to learn from other pools.”

Henthorn gets the basics right too.

“He has far exceeded my expectations of a broker, and I deeply appreciate how much I’ve learned because of Marcus. I didn’t understand what a risk pool was, but I do now,” said Tina Hubert, executive director of the Six Mile Regional Library District.

Creating the Parametric Trigger

David Marcus, ARM, ARM-P
Area Chairman
Arthur J. Gallagher, Boca Raton, Fla.

Changes in Federal Emergency Management Agency rules meant David Marcus had to get creative last year for hurricane-exposed clients in Florida.

Facing reduced protection, but unable to afford higher premiums or larger deductibles, both Miami-Dade and Broward county public school systems needed fast, creative solutions.

Marcus worked with Swiss Re to restructure Miami-Dade’s program, combining a multiyear structured insurance program (MYSIP) and a new parametric trigger insurance product that allowed the system to cover its “obtain and maintain” obligations at a reasonable cost. “We have to find unique solutions to find adequate insurance without breaking the taxpayer’s back. It’s a tightrope,” said Michael Fox, Miami-Dade’s executive director of risk and benefits. “It would have been very expensive buying first dollar coverage, so this solution was a win-win. David’s knowledge is top of the line.”

Broward was less keen on parametrics, so Marcus instead created a new MYSIP with Lexington to house part of the system’s primary layer, and through negotiations with carriers, lowered Broward’s hurricane deductible by 25 percent for no change in premium.

Marcus also helped the district implement a six-year master rolling builder’s risk program to cover all property risk on major renovations taking place across the system.

“We needed that badly,” said risk management director Aston Henry. “David saves us money every year. He knows the public sector really well — especially the school systems.”

Increasing the Cover, Cutting the Rate

Duncan Milne, LLB, ACII
Senior Broker
Aon, New York

By the spring of 2016, the Commonwealth of Virginia, with total insured values exceeding $30 billion, outgrew its single domestic carrier and wanted to take its program global.

Duncan Milne  knew price was a key motivator. Leveraging his experience in the London market, he introduced Virginia to world-leading carriers. He improved terms, conditions and catastrophe limits, including critical wind and flood enhancements, and also updated its cyber policy — all while reducing premiums— in the space of just one month.

“Aon’s Duncan Milne did a terrific job putting together a package with some outstanding companies. It was an excellent deal for us — we saved a lot of money and have a solid program in place,” said risk management director Don LeMond.

“We put a lot of pressure on brokers. We see how far we can push them and ask them questions they don’t necessarily want us to ask, but Duncan and his team have raised our expectations,” said LeMond.

Milne is widely regarded as an expert in his field. When a real estate client added 40 percent to its property portfolio with a single acquisition in March 2016, Milne renegotiated the firm’s rate structure and terms to meet lending requirements, while also securing a 15 percent rate reduction off the back of a 20 percent saving the previous year.

“Duncan has a great temperament,” said the firm’s risk manager. “We are in and out of deals all the time. It’s great to work with someone who is so responsive and level-headed.”

Michigan’s Finest

Joseph Perry, CIC, ARM, LIC, CWCP, CWCA, CRM, CPCU
Vice President
Aon, Southfield, Mich.

“Joe Perry is one of the most knowledgeable people in the State of Michigan as far as public entity risks and insurance is concerned,” according to Detroit Public Community School District risk manager Doug Gniewek.

When the district was instructed by the state to purchase excess workers’ compensation cover, having self-administered for 20 years, the placement proved difficult. Perry secured coverage in less than 30 days.

He also helped veteran risk manager Michael Tilley transform the risk profile of Great Lakes Water Authority (GLWA), which recently spun out of Detroit’s bankruptcy. With no underwriting information and no WC license to self-insure, Perry first secured a temporary multiple lines program that included a workers’ comp deductible program. GLWA later obtained a license to self-insure and Perry converted the workers’ comp coverage to an excess workers’ compensation policy as part of a new permanent multiple lines program.

Detroit’s $100 million self-administered scheme was undisciplined and overpaid on coverage for 20 years. But Perry helped construct GLWA’s first ever commercial insurance program across multiple property and casualty lines, securing $750 million of coverage at a 40 percent premium discount.

“It was phenomenal, and couldn’t have been done without someone like Joe who knows the market and the public sector. I rely on Joe almost as if he is an extension of the department.” said Tilley.

Getting Culver City Out of the Pool

Julie Theirl, CSP
Senior Vice President
Aon, San Francisco

Culver City, Calif.’s 25-year membership in an insurance pool was no longer beneficial. Premiums were spiraling and the city’s concerted risk management efforts were being overlooked. Fortunately, the city found an ally in Aon’s Julie Theirl.

Formerly a local government risk manager and a consultant to pools herself, Theirl was uniquely positioned to help.

Despite an excellent loss history, Culver City’s excess GL premiums had risen 17 percent and 35 percent at its last two renewals, and were slated to rise 29 percent in 2016-2017. With the GL placement the top priority, Theirl went to market with the city’s superior loss experience and found massive savings. After much soul searching, the city entrusted Theirl with withdrawing it from the pool entirely.

Under pressure to place the city’s whole program commercially, Theirl aggressively marketed with outstanding results. The city saved close to $1 million in insurance costs — a near 50 percent reduction — with many lines enjoying broader coverage and higher limits.

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“Costs were becoming astronomical. It seemed our city was subsidizing other cities, because we were considered a good risk,” said Culver City’s HR Director Serena Wright.

“Julie exceeded our expectations of a broker, not just in cost saving but also the exceptional service and level of care she has shown us.

“Under the risk pool everything was taken care of. We entered into a new relationship with trepidation, but I am happy to say Julie and Aon still hold our hands.”

Finalists:

John Chino
Area Senior Vice President
Arthur J. Gallagher, Costa Mesa, Calif.

Jean Cofield
Broker/Account Executive
Aon, Washington, DC

George Gionis
Director
Aon, Philadelphia

Michael McHugh
Area Senior Executive Vice President
Arthur J. Gallagher, Itasca, IL

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]