Mitigating the Difficulties
In few sectors does true proportional risk management come into sharper focus than in midstream and downstream energy and process industries.
“We have always had a very difficult placement from an umbrella standpoint,” said one risk manager. “We have always had serious carrier issues because they don’t like the things we make and sell.”
Never mind that the client is a major global company with a significant volume of business; some carriers have treated that worldwide scope as just a greater exposure. For that client, Monica Brecka, Aon’s umbrella and excess casualty practice leader for the southern region, “came in and shook things up. She rearranged things in our large global placement. She coordinated all the various pieces into one cohesive program that was very different from what we had before. That drove significant savings,” the client said.
Another client was facing a renewal in which its carriers insisted upon an exclusion for one of its product lines, noting accurately that such an exclusion was widespread in the industry.
“Monica was able to secure our renewal without the exclusion,” said the insurance buyer.
“We did have to accept a higher integrated occurrence, but at a lower attachment level, which in the end, reduced our premium.”
Brecka also handled a spin-off for the same client. The outgoing operations were sold to another company, so there was no need to create interim structures, but “Monica effectively got an upfront return of premium for us on an anticipated but not assured basis.”
Informed insight is necessary to win the Power Broker® designation, and it is indicative of Tandis Nili’s work this past year.
“We had an umbrella carrier who was wanting to move up and we needed to understand what our options were,” said one risk manager.
“I wanted to know whether it would be best to take our current primary carrier up, replace the umbrella carrier, replace the primary carrier. Tandis provided this guidance, and with her law degree, I always feel comfortable with the contract review provided.”
The risk manager continued, “Tandis also kept us to zero collateral increase for our [workers’ comp policy] for five years straight. Exposures have certainly increased and the insurer has requested an increase most years.”
In another situation, Nili saw changes at a carrier obviate what had been a relationship so close that the carrier had accepted a personal letter of guarantee from the CEO of the insured in lieu of some standard requirements.
In the middle of renewal, new leadership took over and the underwriter balked at such a handshake agreement. Nili had to present the client as a new prospect, running actuarial analyses and modifying retentions and credit risk for the client. After long negotiations, the new management accepted the existing personal guarantee.
In a successful end to that tense and complex negotiation, Nili’s double challenge was not just to win for the client, but to win over the client.
Almost any broker can handle trouble, but it takes a Power Broker® to head it off at the pass.
“Mike was able to show us a problem with our property policy,” said one risk manager of Mike Perron, an energy and engineered risks team leader at Willis.
“The policy had a limit of $25 million per occurrence, which looked sufficient. However, the coverage was limited to the values reported at a given location.” Perron pointed out that the previous broker should have requested the carrier remove the limitation. Then he engaged colleagues to review the values reported on the insurance schedule at a handful of locations, to see if the values adequately represented true replacement cost values.
“This analysis suggested that the replacement cost values of several properties was larger than what was reported on our schedule,” the risk manager said. “Consequently, these properties were underinsured. This finding and analysis was instrumental in choosing to appoint Willis as our new broker.”
Another client noted, “Our situation is a little different as a lot of our policies are reverse flow. We have some local placements and some legacy issues. Mike has done well in trying to hunt down people to resolve really old items like remnants of failed insurers or the last collateral issue related to long-closed projects.
“Sometimes the ability to find the person that has the right connection from a previous life is a very valuable skill from the client perspective,” the client said.
A Key Team Member
Risk managers often say that Power Brokers are key members of their teams. One director of insurance said that David Robinson is “an essential part of our risk management department” who has helped minimize costs with fronting policies and the use of a captive.
The client cited a project that called for construction affecting public-works infrastructure.
“The governmental body was adamant about requiring a separate GL policy with dedicated limits and a very low deductible. The limits were high and the premium was also high.
“After weeks of discussions, the governmental body accepted a fronting policy, which was much cheaper and fell within our corporate philosophy of taking high retentions. David was instrumental in helping us persuade the governmental agency to accept the front and also working with our insurance company to provide the fronting policy,” the client said.
Despite the best efforts of Power Brokers and their clients, however, losses will occur.
One risk manager credited the smooth resolution of a significant claim to his broker.
“It was a large loss, and came just before our renewal,” said the risk manager. “David set up the whole recovery process, from cost center to work orders to handling key adjusters. And then he had to turn around and face a very tough renewal.”
The client was particularly impressed with “how David was able to go from the very granular claims process to the theoretical consulting work needed to help me do the market recon I needed to do.”
Crafting Custom Solutions
Creativity is a hallmark of Power Brokers, and Aon’s Stephen Stoicovy is a prime example. That came into play recently when navigating the endorsement language on one client’s commercial general liability policy.
“As a global company, these endorsements are not only used in the U.S. but worldwide,” the client said. “Stephen was able to broaden the additional insured endorsement on our commercial general liability policy.
“[That means] our carrier can now insure an entity who has an agency agreement with it under our liability program. In the past, those entities had to procure separate insurance even though our carrier indemnified the entity,” the client said.
One recent trend for energy companies is the growth of master limited partnerships (MLPs). The model works, but is a challenge for brokers in that ownership of assets, and their associated exposures, is often in flux among affiliated MLPs and the parent company.
“We had an original C-corp, and created multiple MLPs with different formats. It was a very significant reorganization,” said one client, explaining the changes Stoicovy helped to orchestrate.
“We wanted to approach the market as one organization, but each operating entity now had its own, very different risk profile. We wanted to gain as much economy of scale as we could, but still keep discrete risks separate,” the client said. “Also, the disposition of assets among the affiliated operating companies was frequently in flux.”
Integrated into Daily Processes
This past year was a tumultuous one in the energy sector. Outright takeovers gave way to frequent asset-based transactions. That put pressure on brokers to keep pace.
“From day one, René made it a point to understand all o2015f our operations and intimate business trading partners to ensure he was able to negotiate the best terms and conditions for us,” said one insurance manager of Aon’s René van Winden.
“He literally left no option off of the table when we challenged him for unique underwriting and coverage placements during recent acquisitions and divestitures for some of our sensitive risks. René has earned the complete support of our executive management who are very well versed in many different insurance levels,” the insurance manager said.
“That is important because we have a lean staff internally. René is able to anticipate our questions prior to being asked. He is integrated into our operations on our day-to-day processes and procedures.”
Other clients are a challenge because of their size. The oil and gas industry requires huge investments, and the capital spend for any major player pressures limits and placements. One client asked Van Winden to cut insurance costs by 30 percent, though the program was already competitive. Van Winden went to Bermuda and London for capacity but ultimately had to restructure retentions. He placed more burden on business interruption than on property damage. That change in structure ultimately yielded a cost reduction of 45 percent.