2017 Power Broker

Workers’ Compensation

An Indispensable Partner

Christopher Bailey
Vice President
Willis Towers Watson, Greenville, S.C.

After decades coaching college football, Dave Roberts launched a new venture — Vital Care EMS, a South Carolina medical transportation company. There was a steep learning curve at first, and the company’s experience mod went “through the roof.”

Willis Towers Watson’s Christopher Bailey stepped in and analyzed Vital Care’s program top to bottom, identifying everything from quick-fix issues to long-term improvements. Roberts, the company’s president, credited Bailey with helping him turn things around.

“[He] helped us grow from five trucks and 20 people to 100 trucks and 400 people,” said Roberts. “He’s always given me great advice — even when I don’t want to listen to him.”

Roberts said the company could never have grown so fast without Bailey.

“We’ve been approached by every person in the state to [change brokers] and I won’t even go there,” he said. “I have the highest regard for him.”

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“He is the bomb,” said Dustin Pelletier, franchise owner and operator of the Big Air Trampoline Park in Spartanburg, S.C. Pelletier said Bailey had never worked with a trampoline park before. But he learned the industry so fast and so thoroughly that he soon found better insurance solutions than even Big Air corporate could offer.

“He got me better cover with less expensive premiums — better than corporate,” he said.

In fact it’s so good, said Pelletier, that corporate is asking, “Hey, can we get that guy’s number?”

A Champion for Small Employers

Riley Holman
Insurance Consultant
Dixie Leavitt, Cedar City, Utah

Dixie Leavitt’s Riley Holman understands that often the person managing workers’ comp for a small entity wears several other hats as well. That’s why he makes it a priority to streamline and simplify coverage as much as possible, while offering expert advice on safety improvements that won’t break the bank.

He also understands that even one workplace tragedy can turn a small business upside down in a moment.

Holman saw that playing out with a sand and gravel company in a tough position. A workplace accident had led to a double fatality and a large claim payout.

Carriers were not inclined to take the company on, and they were only able to find coverage with a nonstandard carrier, paying more for less coverage than they needed.

“We were practically uninsurable,” said the company president. “Other brokers said, ‘There’s almost nothing we can do.’ “

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Holman disagreed. He knew of a standard carrier with an appetite for their business. He arranged for underwriters to do a loss control visit to better understand the actual exposures, as well as the measures the company was taking to prevent future incidents.

“Riley leveraged his relationships and brought the carriers out to see the operations and to show that the fatality didn’t tell the whole story,” said the company president.

The new program saved more than $100,000, rescuing the company from being slowly strangled by excessive premiums.

Crisis Averted

Linda Joski, CRM
Area Senior Vice President
Arthur J. Gallagher, Brookfield, Wis.

The Milwaukee Center for Independence was thrown for a loop with a substantial legislative change impacting the state’s workers’ comp law. The law specified that the entity providing financial management services would become the employer of record for workers’ comp purposes for workers providing long-term care benefits under programs administered by the state.

That put MCFI, a nonprofit, in the crosshairs, as the fiscal agent responsible for withholding income taxes for employees of one such program.

The law “would have meant we had to put 18,000 workers’ comp policies in place,” at an expense of about $2.9 million, said Rob Wedel, CFO and vice president of finance for MCFI. It’s a burden that could have buried MCFI. But Gallagher’s Linda Joski came to the rescue.

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“Linda settled everybody down and got the right people in place, connected [the carrier] United Heartland and the state and got everyone on the same page with a viable solution,” Wedel said.

Joski helped arrange one master program for all participants involved, eliminating the administrative burden of single policies. Joski also negotiated using MCFI’s experience mod of .72 rather than the typical 1.00 used for new entities — resulting in additional savings of 28 percent (about $2.3 million).

Joski’s dedication and creativity “saved the state of Wisconsin about $5 million … it was just phenomenal,” said Wedel.

Bringing the ‘Wow’ Factor

Machelle McKenzie, CRM, CIC
Managing Director
Crystal & Company, Houston

Machelle McKenzie’s clients tend to talk about her in extremes — but in a good way.

“If she ever leaves, my business goes with her,” said Cheryl Wyatt, director of human resources for Stronghold Ltd. in La Porte, Texas. “There’s nothing she can’t answer, and I never have to wait for a response. I literally send emails at 2 in the morning … and I actually get her at 2 in the morning.”

Wyatt’s company split into two entities in early 2016, a complex undertaking with a high volume of moving parts.

“We wanted all of our billing to be separate,” said Wyatt. “Machelle had to split out the cost by entity. In particular for workers’ comp, that’s not easy … we work in almost every state.”

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Wyatt was impressed with how quickly McKenzie was able to find a workable solution, not to mention how quickly she completed the project.

“She did it in a couple of weeks,” said Wyatt. “It would have taken me six months.”

Clients value McKenzie’s ability to assess every angle and identify substantive ways to help the business succeed.

For one client, McKenzie recently discovered and corrected a carrier reporting error, bringing the company’s experience mod down from .98 to a more manageable .80. For another, she got a letter of credit reduced from $990,000 to $200,000.

The Next Frontier in Claims Audits

Joe Picone, CPCU, AIC
Claim Consulting Practice Leader
Willis Towers Watson, Glen Allen, Va.

Jenny Novoa, director of risk management for The Gap, threw down the gauntlet for her broker, Willis Towers Watson’s Joe Picone: Help us find a better way to evaluate third-party administrators (TPAs). More specifically, Novoa wanted to measure TPA performance based on outcomes rather than using standard “best practice” audits.

“We had to figure out how to build a tool to do that,” said Novoa.

Picone rolled up his sleeves and dug in, recruiting additional stakeholders from Foot Locker, Saks Fifth Avenue and Corvel.

To build the new audit tool, Picone, Novoa and the team incorporated numerous factors into the claim process such as employee co-morbidities, failures in the return-to-work process and life events as well as the hiring process and performance management.

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They completed audits using both the new tool and the old tool, and compared the results, which turned out to be a revelation. Using the traditional audit tool, some claims scored high even though they had poor outcomes, while some with good outcomes had lower scores.

For example, a file that received a perfect “100” score on a best practice audit may have exceeded expected medical disability guidelines by 400 percent.

Using the outcomes-based audit tool, there was a far higher correlation between high scores and good outcomes. It’s a “very cool tool,” said Novoa — the first of its kind in the industry.

Rolling Into Claims Success

Dennis Tierney
Director of Workers’ Compensation Claims
Marsh, New York

Power Brokers love a challenge. Marsh’s Dennis Tierney got that and more when he took on Motivate International as a client. A global bike share leader, Motivate International partners with governments and brands in major cities around the world.

The company was at a crossroads after the acquisition of a troubled bike share operator. The acquired company, which didn’t have a risk management department, had amassed $10 million in claims in only three years.

“Our broker at the time was on cruise control,” said Grant Barkey, Motivate’s risk manager. “We needed somebody who was strong on claims, someone who understood our business.”

Barkey partnered with Tierney and his team at Marsh, and he is effusive when explaining how far things have come since then.

“My entire team is pretty rock star,” said Barkey. “[They] really turned around our claims and claims management.”

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One key hurdle, said Barkey, was that carriers didn’t really understand the bike share business, which is a fairly young industry, or its sometimes nuanced exposure. But Tierney got it, Barkey said, and strove to make sure that carriers could wrap their heads around it.

The company ultimately ended up with a new carrier, said Barkey, and Tierney has been instrumental in ensuring that the carrier has a solid handle on Motivate International’s exposures. The company has made incredible strides in closing out open claims and setting up special handling agreements with the carrier.

 Finalists:

Jeffrey Breskin
Director
Crystal & Company, Los Angeles

Carol Murphy
Managing Director and Casualty Growth Leader
Aon, Chicago

Thomas Ryan
Managing Director
Marsh, New York City

Teri Weber
Partner
Spring Consulting Group, Boston

More from Risk & Insurance

More from Risk & Insurance

Black Swan: Cloud Attack

Breaking Clouds

A combination of physical and cyber attacks on multiple data centers for cloud service providers causes economic havoc. Even the most well-prepared companies are thrown into paralyzing coverage confusion.
By: | July 27, 2017 • 10 min read

Scenario

By month 16 of the new presidential administration, the Sunshine Brigade is more than ready to act.

Stoked by their anger over rampant economic inequality, the mostly college-educated group of what might best be called upper-middle-class anarchists — many of them from California, Oregon and Washington State — put in motion the gears of a plan more than two years in the making.

Their logic, to them at least, is unimpeachable. Continued consolidation of economic power into the hands of fewer and fewer corporations is creating a world where the rich increasingly exploit and shut out the poor.

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The rise of the techno giants is accelerating this trend, according to the Sunshine Brigade’s de facto leader Emily Brookes, an All-American rugby player and a graduate of Reed College in Oregon.

With a new presidential administration seemingly bent on increasing the economic advantages of the rich with no end in sight, nothing to do then but break things up; and in so doing break the hold of this technology oligarchy.

As Emily Brookes so forcefully put in her instant messages to the other members of the brigade: Break the Cloud.

With more than 500 members, many of them with ample financial and technical resources, the Sunshine Brigade is very capable of delivering on its plan for a two-pronged attack.

It is also radicalized enough to justify the loss of some human life, even its own countrymen, to “save” — in its collective logic — the tens of millions of global citizens that are living as virtual slaves in this callous, exploitative global economy.

With websites and digitally connected services large and small down for days, irritation turns to fear.

The first wave in the attack is an attempt to infect and shut down the data centers for the top three cloud service providers. It takes months to set up this offensive.

Rather than rely on a phishing scam from outside the firewalls of the service providers, The Sunshine Brigade uses its social and business connections to place three members on each of the cloud provider’s payrolls. An infected link from someone you know, someone in the cubicle right next to you, seems like an unstoppable play.

It only partially works. Only one of the cloud service providers is harmed when an unsuspecting employee clicks on a link from their traitorous co-worker. The released malware manages to cripple a major cloud service provider for 12 hours.

With millions of users affected, the act creates substantial disruption and garners global headlines. Insured losses are around $1.5 billion. But this is just the beginning.

The morning after, the Sunshine Brigade unleashes a far more devastating and far more ruthless Round Two.

Using self-driving trucks, the Sunshine Brigade smashes into five data centers; three on the West Coast, and two in the Midwest. Fourteen employees of those cloud servers are killed and another 23 injured; some of them critically.

This time the Brigade gets what it wanted. The physical damage to the data centers is substantial enough that it significantly affects three of the top four cloud service providers for five days.

With websites and digitally connected services large and small down for days, irritation turns to fear.

Small and mid-sized banks, which host their applications on clouds, are shut down. Small business owners and consumer banking customers immediately feel the brunt. Retailers that depend on clouds to host their inventory and transaction information are also hit hard.

But really, the blow falls everywhere.

In the U.S., transportation, financial, health, government and other crucial services grind to a halt in many cases.

Not everyone is disrupted. Some of the larger corporations are sophisticated enough in their risk management, those that used back-up clouds and had steadfast business resiliency plans suffer minimal disruption.

Many small to mid-size companies, though, cannot operate. Their employees can’t get to work and when they can, they sit idly in front of blank computer screens connected to useless servers.

For the man on the street, this is hell.

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Long lines blossom at the likes of gas stations, banks and grocery stores. A population already on edge from a steady diet of social media provocation becomes even more inflamed.

By nightfall of Day Five, the three major cloud service providers are recovered, and digital “normalcy” begins to creep back. But for many small and medium-sized businesses, the recovery comes way too late.

Economic losses promise to register in the tens of billions. It’s not being too imaginative to think that losses could hit the $100 billion mark.

Two multinational insurers based in the U.S., three Lloyd’s syndicates and a Bermuda insurer signal to regulators that their aggregate cyber-related losses are so great that they will most likely become insolvent.

Emily Brookes and her cohorts were willing to kill more than a dozen people to promote their worldview. In their youthful naiveté, they could not know just how much suffering they would cause.

Observations

For some commercial insurance carriers, the aggregated losses from a prolonged disruption of cloud computing services could be catastrophic, or close to it.

“It’s on a par with any earthquake or hurricane or tornado,” said Scott Stransky, an associate vice president and principal scientist with the modeling firm AIR Worldwide.

AIR modeled the insured losses for the Fortune 1,000 were Amazon’s cloud service to go down for one day. They came up with a figure of $3 billion.

Now consider that most businesses in this country are small businesses, with not nearly the risk management sophistication of the Fortune 1000. Then consider a cloud interruption of five days or more.

Mark Greisiger, president, NetDiligence

“Almost any company you talk about today would rely to some extent on the cloud, either to host their website, to do invoicing, inventory, you name it — the cloud is being used across the board,” Stransky said.

“It’s a significant issue for insurers and one we think about a lot,” said Nick Economidis, an underwriter with specialty carrier Beazley.

“Should a cloud service provider go down, everybody who is working with that cloud service provider is impacted by that,” he said.

“Now, pretty much every software maker is on the cloud,” said Mark Greisiger, president of NetDiligence.

“In the old days, someone would come in and install software on your servers and come in annually for maintenance. That’s all gone bye-bye. Everybody who makes software is forcing you onto their private cloud,” Greisiger said.

The aggregation risk for carriers is complicated by the degree of transparency they have into which insured’s applications are hosted on which cloud provider.

Now here’s the even trickier part. Clouds outsource to other clouds.

“It’s almost becoming a spider’s web of interdependencies on who has access to what in terms of upstream and downstream providers,” Greisiger said.

Determining which of their insureds is hosted on which cloud, and in turn, where that cloud is outsourcing to other clouds can be very difficult for carriers to determine.

Even if a company is careful to diversify the risks they’re taking, they might not realize that a high percentage of insureds are even with the same cloud provider. They could be hit with devastating losses across their entire portfolio of business, said an executive with BDO consulting.

AIR’s Stransky said his company launched a product in April, ARC, which stands for Analytics of Risk from Cyber, which is designed to help carriers gain that much needed transparency.

Among insureds, surviving an event of this magnitude will depend not only on the sophistication of their risk management department, but on the company’s overall ability to negotiate contracts with vendors and suppliers that will indemnify the company in the case of a cloud outage of this duration.

It will also depend on organization’s understanding that there is no off-the-shelf solution that will prevent an event like this or make a company whole after it.

Shiraz Saeed, national practice leader, cyber, Starr Companies

Experts say contracts with cloud service providers, customers and suppliers must be structured so that a company is defended should it lose cloud access for as much as five days or more.

Best practices also include modeling just what your losses would look like in this area, and vetting your full portfolio of insurance policies to understand how each would respond.

One broker said buyers can’t be blamed if the complexities of the coverage issues at stake here are initially hard to grasp.

“It’s becoming a spider’s web of interdependencies on who has access to what.” —Mark Greisiger, president, NetDiligence

“I think it’s the broker’s job to inform the client of this exposure,” said Doug Friel, a vice president with JKJ Commercial Insurance, based in Newtown, Pa.

“You may have business interruption coverage for direct physical damage to your building. But have you ever thought about your business income if your IT structure goes down?” Friel said.

He said many buyers might not realize there is a difference.

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Large businesses should have the resources to demand from their cloud service providers that they be indemnified for the entirety of a cloud failure event. There will be a fee for that, but it will be well worth paying, Friel said.

“You have to push,” Friel said. “They are going to say, ‘Here is our standard contract, sign it.’ ”

Don’t settle for that, he said, although many do in ignorance, he added.

“Where possible, we would look for clients to negotiate their contracts. These business relationships should be mutually beneficial, even if one of these events occur,” said Shiraz Saeed, national practice leader, cyber, for the Starr Companies.

It’s a partnership, he said.

“It shouldn’t be a zero sum game on either side. I think there should be an understanding of what the potential loss might be and then designing a contract around that,” he said.

While cloud service providers are known for having high grade security systems, most average organizations don’t have the means for that. But no matter what a company’s resources, the first step is modeling where your digital assets are, and what you and your customers stand to lose if you lose access to them.

“Most insureds don’t seem to understand the amount of individual loss that you could be subject to,” said Jim Evans, leader of insurance advisory services at BDO Consulting. “Usually this stuff is measured in hours,” he said. “But what if a cloud provider is out for three or four days?” he said.

“Trying to quantify what you did lose in an event is hard enough. Trying to do a modeling exercise about what you could lose? It’s something that just doesn’t get done enough,” he said.

Once you have an understanding of what you own and what you stand to lose, the next step is prioritizing the protection of the assets you have. That means drilling into your contract with your cloud service providers to get the maximum indemnification.

It also means spreading your risk so that if at all possible, not all of your assets or your customers’ assets are housed by one cloud service provider. Cloud platforms can be public, private, or a hybrid of the two.

Understanding where your assets are in that architecture is crucial. Spending the money to insure that they are protected behind a diverse menu of firewalls is highly advisable.

Navigating the different iterations of business interruption coverage in property, cyber and kidnap and ransom policies is also important.

Make sure your broker can provide clarity on the different types of coverages and tailor them to your needs, experts said.

The concept of design thinking is really what’s in play here. Organizations have to work with vendors in every aspect of their operations to design a risk management system that can sustain this kind of hit.

“Build a better mousetrap to protect yourself,” said JKJ’s Friel.

“Depending on your service, you need to have the best and the brightest designing this stuff. Spread the risk.”

“Don’t be afraid to ask for more,” he said.

Postscript

In engineering an attack on the cloud, Emily Brookes and her cohorts accomplished the opposite of what they set out to do.

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Only the largest corporations with the most sophisticated risk management programs were able to survive the attempt to break the cloud with manageable losses.

Small businesses, the true backbone of the U.S. economy, suffered terribly. Entrepreneurs who put their life’s work into their business lost it in many cases.

Those on the lowest part of the economic scale, the working poor, lost their jobs and their ability to cover their rent and grocery bills. They joined the ranks of those subsidized by the government by the millions.  The attempt to break the cloud resulted in an even more polarized society. &

Dan Reynolds is editor-in-chief of Risk & Insurance. He can be reached at [email protected]