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2018 Power Broker

Traditional Energy

Negotiating in the Nick of Time

Robert Battenfield
Senior Vice President
JLT Specialty USA, Houston

“We recently switched our broker of record to JLT primarily due to Rob,” said a treasury official at one client.

“He had some great ideas on how to improve our insurance program. One specific item he proposed and we implemented was adding our terrorism coverage back into our property policy and ensuring the CL380 exclusion was removed. That enabled us to increase our coverage while decreasing our exposure to cyber terrorism.”

The company is in a high-profile industry sector, and the client had a separate terrorism and property program. This created a potential gap in coverage for a multi-billion dollar facility because of a complete cyber exclusion on the stand-alone terrorism option.

Battenfield, JLT’s downstream energy leader, went to the commercial market and secured a limit three times as high as the previous one. He also achieved full terrorism coverage for resultant damage from cyber for less than the cost of stand-alone coverage.

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Negotiations for the revised and expanded coverage took place even though the client was still within the timeframe of a two-year contract.

Separately, a large developer was remediating a brownfield site for a specific environmental condition before construction and redevelopment could begin.

Battenfield was able to place a comprehensive pollution program for the project, crucial because once the remediation work began, the contamination was found to be more extensive than originally estimated.

Diving Deep to Find Savings

Andy Bullock
Senior Vice President
Marsh, Boston

Andy Bullock’s specialty is large-scale, high-capital projects in heavy industry. “Andy coordinates our project-specific insurance placements across all of our business lines, including oil, gas, chemicals, industrial, infrastructure and power,” said one client.

“These projects typically range in value from the hundreds of millions to the billions and are very complex, with many involving several joint-venture partners. Andy is able to navigate through a voluminous amount of material on these proposals and provide a more concise picture for the insurance markets.”

“Most recently Andy was able to provide valuable insight on ways to reduce premium costs on a coverage extension for a large project. His attention to detail when accumulating our project information led to a substantial premium savings of roughly a million dollars.”

In another big-ticket effort, the senior vice president of finance at a large client said, “Earlier this year, Andy worked extensively and tirelessly in helping us set up an owner-controlled insurance program for a $1 billion project.

“He provided expert guidance on structuring and implementing this plan and was able to squeeze substantial premium savings from several carriers.”

The SVP added, “We continue to rely heavily on Andy for a broad range of advice and guidance on the various complex insurance issues regarding the development project and also on a number of corporate risk management issues.

“I have been impressed with Andy’s willingness to take the deep dive on complicated issues … and his friendly demeanor.”

Showing Regulatory Savvy

Logan Couch, ARM
Vice President
Aon, Houston

“I am the only insurance and risk manager for a company outside our home country, and I have no local staff,” said one of Logan Couch’s energy clients.

“Logan helped us achieve double-digit rate savings on the energy package program for the third straight year. He placed our program for less than a third of the premium we paid three years ago, and we added more coverage, more limits and more assets.”

The client has on-shore and off-shore operations across North America, so the program includes different national jurisdictions. The company also added some assets as the result of the financial distress of a previous owner, further complicating the placement.

“Logan was also instrumental in helping us provide satisfactory forms of evidence of financial assurance in several instances,” said the client.

“One was an off-shore regulatory requirement. That saved us from placing letters of credit or bonds, which creates substantial savings to our enterprise.

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“The other was instrumental to our providing assurances to trustees and regulators involved in an acquisition of assets from a distressed company. That made the transaction a reality.”

The risk manager also credits Couch with reducing the client company’s bond premiums with one surety, “which will create substantial savings over time.”

The risk manager also gave Couch the nod for providing insight and guidance on “dozens of requests for vendor contract reviews.”

Meticulous Attention to Detail

Lisa Harris, ARM
Senior Vice President
JLT Specialty USA, Houston

“We brought JLT on mid-term, and Lisa was still able to achieve significant rate reductions with existing underwriters by negotiating substantial credits for idle assets,” said the general counsel at one client. Lisa Harris added real value with her dedicated representation of her client’s interests, while maintaining a constructive relationship with underwriters.

The counsel added, “Lisa displayed a meticulous attention to detail and forward thinking and planning along with an impressive work ethic. She was able to reposition our premium structure to better protect the company against an anticipated tightening market while still achieving impressive rate reductions.

“She was able to help our company from both a cost and administrative standpoint. Lisa also showed a detailed knowledge of coverage and policy wording and applied her knowledge of our business to better position the company’s scope of coverage.”

Another client lauded Harris for her tactical skills in helping to close an asymmetrical acquisition for his firm.

“We completed an acquisition of a much smaller firm, and we saw that their pricing and terms were significantly different from ours. There has been a dramatic downturn in the offshore market, but Lisa’s ability to differentiate us in what has become a small industry is very important.

“The sector has become not the most palatable to underwriters, but she has gotten us in front of the markets and gotten them to come out to our facilities.”

Enabling Global Growth

Mary Russell
U.S. Chemical Practice Leader
Marsh, Morristown, N.J.

“Our company made an acquisition that tripled our size and transformed the company from a domestic company to a global one,” said the director of insurance for one of Mary Russell’s clients.

“Mary worked with us to understand the scope of the new company and redesigned each of our insurance programs to be global.

It has been a huge effort in 2016 and 2017. With her help, we have a smoothly running insurance program supporting our growing company.”

The director detailed several specific wins. “We started producing 16 new materials. Mary analyzed the risks associated with those and summarized the programs that we had to mitigate those risks. That information was shared with underwriters.”

With the new loss portfolio, and the financial strength of the new company, Russell supported a decision for substantially higher retentions appropriate for a larger company.

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“We increased our retentions by a factor of five based on financial and actuarial analysis provided,” said the client. “We were also able to increase limits. Given the analysis of risks and financial strength, Mary assisted us in increasing our limits consistent with a substantially larger corporation.”

Russell also implemented foreign coverage for general liability, cargo, D&O and employers’ liability, as well as miscellaneous exposures.

“Mary assisted us in evaluating the regulatory insurance requirements in 25 countries. She helped us set up our internal system to administer the program.”

Persevering in the Face of Catastrophe

Christopher Shorter
Senior Vice President
Aon, Houston

The severe hurricanes late in the 2017 season figured large in several brokers winning their laurels for the year. In this case, Shorter had already been asked by a new client to seek a premium reduction of 15 to 20 percent.

The renewal date was just a few weeks after one of the big storms hit, leaving the region flooded. Both Aon’s and the client’s offices were closed for a protracted period. The client credits Shorter and the firm with persevering despite the loss of mobility and, in some cases, power.

The third leg of the stool was the market, and the client also credits Shorter for his close relations with underwriters to keep them on task for the renewal, meeting with insurers wherever and whenever they were available. That simpatico drew from his prior experience as an underwriter.

Under these circumstances it would have been an accomplishment to close the deal and bind the renewal in time regardless of the costs and terms. But Shorter was able to do those things and still achieve the premium savings that the client sought.

The risk manager at another client testified, “Chris has been working in our account for a few years, and this year in particular, he was able to negotiate a good price and better market alternatives for our program renewal.

“Chris is a great resource, and we utilize him for special projects all the time. Also in 2017, we worked together on a new construction project in Texas, and Chris was instrumental in the placement of the insurance program.”

More from Risk & Insurance

More from Risk & Insurance

Risk Report: Manufacturing

More Robots Enter Into Manufacturing Industry

With more jobs utilizing technology advancements, manufacturing turns to cobots to help ease talent gaps.
By: | May 1, 2018 • 6 min read

The U.S. manufacturing industry is at a crossroads.

Faced with a shortfall of as many as two million workers between now and 2025, the sector needs to either reinvent itself by making it a more attractive career choice for college and high school graduates or face extinction. It also needs to shed its image as a dull, unfashionable place to work, where employees are stuck in dead-end repetitive jobs.

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Added to that are the multiple risks caused by the increasing use of automation, sensors and collaborative robots (cobots) in the manufacturing process, including product defects and worker injuries. That’s not to mention the increased exposure to cyber attacks as manufacturers and their facilities become more globally interconnected through the use of smart technology.

If the industry wishes to continue to move forward at its current rapid pace, then manufacturers need to work with schools, governments and the community to provide educational outreach and apprenticeship programs. They must change the perception of the industry and attract new talent. They also need to understand and to mitigate the risks presented by the increased use of technology in the manufacturing process.

“Loss of knowledge due to movement of experienced workers, negative perception of the manufacturing industry and shortages of STEM (science, technology, engineering and math) and skilled production workers are driving the talent gap,” said Ben Dollar, principal, Deloitte Consulting.

“The risks associated with this are broad and span the entire value chain — [including]  limitations to innovation, product development, meeting production goals, developing suppliers, meeting customer demand and quality.”

The Talent Gap

Manufacturing companies are rapidly expanding. With too few skilled workers coming in to fill newly created positions, the talent gap is widening. That has been exacerbated by the gradual drain of knowledge and expertise as baby boomers retire and a decline in technical education programs in public high schools.

Ben Dollar, principal, Deloitte Consulting

“Most of the millennials want to work for an Amazon, Google or Yahoo, because they seem like fun places to work and there’s a real sense of community involvement,” said Dan Holden, manager of corporate risk and insurance, Daimler Trucks North America. “In contrast, the manufacturing industry represents the ‘old school’ where your father and grandfather used to work.

“But nothing could be further from the truth: We offer almost limitless opportunities in engineering and IT, working in fields such as electric cars and autonomous driving.”

To dispel this myth, Holden said Daimler’s Educational Outreach Program assists qualified organizations that support public high school educational programs in STEM, CTE (career technical education) and skilled trades’ career development.

It also runs weeklong technology schools in its manufacturing facilities to encourage students to consider manufacturing as a vocation, he said.

“It’s all essentially a way of introducing ourselves to the younger generation and to present them with an alternative and rewarding career choice,” he said. “It also gives us the opportunity to get across the message that just because we make heavy duty equipment doesn’t mean we can’t be a fun and educational place to work.”

Rise of the Cobot

Automation undoubtedly helps manufacturers increase output and improve efficiency by streamlining production lines. But it’s fraught with its own set of risks, including technical failure, a compromised manufacturing process or worse — shutting down entire assembly lines.

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More technologically advanced machines also require more skilled workers to operate and maintain them. Their absence can in turn hinder the development of new manufacturing products and processes.

Christina Villena, vice president of risk solutions, The Hanover Insurance Group, said the main risk of using cobots is bodily injury to their human coworkers. These cobots are robots that share a physical workspace and interact with humans. To overcome the problem of potential injury, Villena said, cobots are placed in safety cages or use force-limited technology to prevent hazardous contact.

“With advancements in technology, such as the Cloud, there are going to be a host of cyber and other risks associated with them.” — David Carlson, U.S. manufacturing and automobile practice leader, Marsh

“Technology must be in place to prevent cobots from exerting excessive force against a human or exposing them to hazardous tools or chemicals,” she said. “Traditional robots operate within a safety cage to prevent dangerous contact. Failure or absence of these guards has led to injuries and even fatalities.”

The increasing use of interconnected devices and the Cloud to control and collect data from industrial control systems can also leave manufacturers exposed to hacking, said David Carlson, Marsh’s U.S. manufacturing and automobile practice leader. Given the relatively new nature of cyber as a risk, however, he said coverage is still a gray area that must be assessed further.

“With advancements in technology, such as the Cloud, there are going to be a host of cyber and other risks associated with them,” he said. “Therefore, companies need to think beyond the traditional risks, such as workers’ compensation and product liability.”

Another threat, said Bill Spiers, vice president, risk control consulting practice leader, Lockton Companies, is any malfunction of the software used to operate cobots. Then there is the machine not being able to cope with the increased workload when production is ramped up, he said.

“If your software goes wrong, it can stop the machine working or indeed the whole manufacturing process,” he said. “[Or] you might have a worker who is paid by how much they can produce in an hour who decides to turn up the dial, causing the machine to go into overdrive and malfunction.”

Potential Solutions

Spiers said risk managers need to produce a heatmap of their potential exposures in the workplace attached to the use of cobots in the manufacturing process, including safety and business interruption. This can also extend to cyber liability, he said.

“You need to understand the risk, if it’s controllable and, indeed, if it’s insurable,” he said. “By carrying out a full risk assessment, you can determine all of the relevant issues and prioritize them accordingly.”

By using collective learning to understand these issues, Joseph Mayo, president, JW Mayo Consulting, said companies can improve their safety and manufacturing processes.

“Companies need to work collaboratively as an industry to understand this new technology and the problems associated with it.” — Joseph Mayo, president, JW Mayo Consulting

“Companies need to work collaboratively as an industry to understand this new technology and the problems associated with it,” Mayo said. “They can also use detective controls to anticipate these issues and react accordingly by ensuring they have the appropriate controls and coverage in place to deal with them.”

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Manufacturing risks today extend beyond traditional coverage, like workers’ compensation, property, equipment breakdown, automobile, general liability and business interruption, to new risks, such as cyber liability.

It’s key to use a specialized broker and carrier with extensive knowledge and experience of the industry’s unique risks.

Stacie Graham, senior vice president and general manager, Liberty Mutual’s national insurance central division, said there are five key steps companies need to take to protect themselves and their employees against these risks. They include teaching them how to use the equipment properly, maintaining the same high quality of product and having a back-up location, as well as having the right contractual insurance policy language in place and plugging any potential coverage gaps.

“Risk managers need to work closely with their broker and carrier to make sure that they have the right contractual controls in place,” she said. “Secondly, they need to carry out on-site visits to make sure that they have the right safety practices and to identify the potential claims that they need to mitigate against.” &

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]