Claims Trends

Examining Claims Losses

Marine, aviation and energy sector losses accounted for much of the losses. Employee training would help.
By: | September 24, 2014 • 7 min read

Marine-related claims — skewed by the expensive Costa Concordia loss — resulted in the highest insurance claim losses, by dollar amount, according to a recent report by Allianz Global Corporate & Specialty.

The top causes of claims losses between 2009 and 2013 were, in order: ship and boat grounding, fire, aviation crash, earthquake, storm, bodily injury (including fatalities), flood, professional indemnity, product defects and machinery breakdown, according to AGCS’ Global Claims Review 2014.

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The report listed the top causes of loss and emerging trends, based on more than 11,000 major business claims in 148 countries, each costing more than €100,000 ($136,455).

“This report is the first of its kind, and it demonstrated the kind of technical understanding we have and the fact that we continue to invest in our claims departments and technical training,” said Terry Campbell, AGCS vice president, regional claims head, in New York City.

“While the losses analyzed are not representative of the industry as a whole, they give a strong indication of the major risks which dominate industrial insurance,” according to the report, which noted that the claims involve other carriers as well.

Within the marine industry, rising claims inflation along with the growing problem of crew negligence and the high cost of wreck removal have all contributed to a worrying rise in the cost of claims, according to the report.

However, frequency of claims, especially from cargo losses, appears to be declining.

Repair costs resulting from a grounding have increased in recent years due to improved technology of underwater machinery, said Rob Winn, area vice president, marine claims, Arthur J. Gallagher & Co. (AJG)

Items such as drop-down thrusters and multi-pitch props are often damaged in a grounding and are very expensive to repair, he said.

Video: This CNN segment shows some of the salvage operation involving the Costa Concordia.

While the grounding numbers in 2012 were skewed by the Costa Concordia loss in 2012, groundings were relatively infrequent (8 percent) in the insurer’s report. Crew negligence was more often a main driver of claims, with it being listed as a potential contributing factor in more than six in 10 claims over $1.4 million.

“Those companies that invest in training and education can see a significant reduction in the number of ship groundings and related incidents,” Campbell said.

Bumpy Triche, regional executive vice president at Arthur J. Gallagher Risk Management Services Inc. in New Orleans, said shipping companies involved in global trade rely heavily upon foreign crews, and so it’s “imperative” that training and operational manuals are done in the preferred languages of their multinational crews.

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Crew training also should be done on the particular navigational electronic system used on the vessel where the crew will be assigned, he said.

“Boats working in our local waters here in Louisiana need to be aware of the impacts of diminishing wetlands and coastal erosion and the effect on bayous and other inland waterways,” Triche said. “They may not realize they are now in much shallower water than what the navigational charts might depict, and can get stuck.”

Not only are the vessels operating in shallower water as a result of coastal erosion, but they are also encountering pipelines that were originally on land, Winn said. Those pipelines are not properly buried and are hazards to navigation.

As “blue water” vessels age and offshore vessels become larger and more sophisticated, companies should proactively address maintenance problems and “not use their hull policy as a maintenance program,” Triche said.

Aviation Claims Rising

Improvements in airline safety have led to far fewer catastrophic losses overall, despite 2014’s extraordinary loss activity, according to the AGCS report.

However, the cost of aviation claims is rising, driven by the widespread use of new materials and rising aircraft complexity, as well as more demanding regulation and the continuing growth of liability-based litigation.

Video: The Canadian Broadcasting Corp. reports on the shooting down of MH 17 over Ukraine, which may result in insurers’ insisting that airlines avoid “hot spots.”

While aviation crashes were the top causes of loss in terms of number of claims (23 percent) and value (37 percent), on-the-ground incidents accounted for 18 percent claims in number, and 15 percent in value, according to the report.

Bird strikes were a notable cause of loss, averaging $22.8 million every year from 2009 to 2013, with a total of 34 incidents.

Bradley Meinhardt, AJG area president and managing director, aviation, in Las Vegas, said that aviation safety innovations over the past several decades include enhanced ground proximity warning systems, terrain awareness and warning systems,and traffic collision avoidance systems.

Such systems offer pilots increased situational awareness in a semi-autonomous environment, reacting to synthetic voice instructions, he said.

“Even in a potentially disastrous situation contemplating an airspace controller’s error, the aircraft may be saved by these on-board systems,” Meinhardt said. “These innovations have literally changed the landscape of aviation safety.”

While all of these systems reduce workload, pilots still need to be prepared to fly the aircraft themselves if the systems go awry, he said.

“Pilots should manually fly their aircraft every so often – one airline pilot tells me he routinely flies one of the five flights he has on a given day,” Meinhardt said.

Aircraft manufacturers are using alternative, lightweight materials to make aircraft lighter and more capable to fly longer distances, said Peter Schmitz, chief executive officer of Aon Risk Solutions’ national aviation practice in New York City.

However, manufacturers need to continue to improve newer generation aircraft and perhaps consider making them more capable to withstand issues like severe turbulence and outside interferences, he said.

“Airlines also have to seriously consider whether they should fly over hot spots where there is conflict, after what happened to Malaysian Airlines over Ukraine this summer,” Schmitz said.

“But the commercial issue becomes, how far does the plane have to go around such hot spots. Is the public willing to spend longer periods onboard the plane and potentially pay more to satisfy those safety requirements?”

Energy Sector

For the energy sector, the cost of claims is increasing due to higher asset values combined with increasingly complex and interrelated risks, according to AGCS. The rising cost of business interruption and emerging risks such as cyber threats and new technologies will also make for a more challenging future environment.

Fire is the No. 1 cause of energy losses, according to the report, both by number (45 percent) and value (65 percent), followed by blow-out (18 percent and19 percent, respectively).

Machinery breakdown, explosion, natural hazards such as storms and contingent business interruption, were the other main causes of loss, according to the report.

Bruce Jefferis, chief executive officer of Aon’s energy practice in Houston, said that because the energy sector has very high-valued assets, losses are typical more costly than losses in many other industries.

“Even if it’s a relatively minor incident at a refinery or a petrochemical plant, it doesn’t take much to lose a lot of dollars,” Jefferis said.

“Even with the best safety and loss control procedures, natural disasters and other incidents can still cause damage which results in significant loss of property and business interruption.”

Stuart Wallace, AJG area executive vice president, energy practice, in Houston, said the energy sector is growing “incredibly,” both in traditional markets like Texas, Oklahoma and Louisiana, and new areas of the country like the Bakken Formation in Montana, North Dakota, South Dakota and parts of Canada.

“But with the growth comes a higher demand for people, and at times, the hiring pool becomes a big challenge, and energy companies are likely not hiring the most experienced, trained, people to work on crews or drive vehicles — and that tends to lead to accidents,” Wallace said.

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Moreover, energy companies are now in areas that historically haven’t had infrastructure such as pipelines and roads, he said.

With the lack of infrastructure, trucking accidents have seen an increase due to road conditions, less qualified drivers and start-up transportation companies with less experience in transporting oil or gas.

“To lessen accidents, it starts at the beginning with better hiring practices, then ongoing training, continuing education, and monitoring of employees’ performance and accident rates, particularly for workers’ compensation and automobile liability,” Wallace said.

Katie Kuehner-Hebert is a freelance writer based in California. She has more than two decades of journalism experience and expertise in financial writing. She can be reached at [email protected]

More from Risk & Insurance

More from Risk & Insurance

4 Companies That Rocked It by Treating Injured Workers as Equals; Not Adversaries

The 2018 Teddy Award winners built their programs around people, not claims, and offer proof that a worker-centric approach is a smarter way to operate.
By: | October 30, 2018 • 3 min read

Across the workers’ compensation industry, the concept of a worker advocacy model has been around for a while, but has only seen notable adoption in recent years.

Even among those not adopting a formal advocacy approach, mindsets are shifting. Formerly claims-centric programs are becoming worker-centric and it’s a win all around: better outcomes; greater productivity; safer, healthier employees and a stronger bottom line.

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That’s what you’ll see in this month’s issue of Risk & Insurance® when you read the profiles of the four recipients of the 2018 Theodore Roosevelt Workers’ Compensation and Disability Management Award, sponsored by PMA Companies. These four programs put workers front and center in everything they do.

“We were focused on building up a program with an eye on our partner experience. Cost was at the bottom of the list. Doing a better job by our partners was at the top,” said Steve Legg, director of risk management for Starbucks.

Starbucks put claims reporting in the hands of its partners, an exemplary act of trust. The coffee company also put itself in workers’ shoes to identify and remove points of friction.

That led to a call center run by Starbucks’ TPA and a dedicated telephonic case management team so that partners can speak to a live person without the frustration of ‘phone tag’ and unanswered questions.

“We were focused on building up a program with an eye on our partner experience. Cost was at the bottom of the list. Doing a better job by our partners was at the top.” — Steve Legg, director of risk management, Starbucks

Starbucks also implemented direct deposit for lost-time pay, eliminating stressful wait times for injured partners, and allowing them to focus on healing.

For Starbucks, as for all of the 2018 Teddy Award winners, the approach is netting measurable results. With higher partner satisfaction, it has seen a 50 percent decrease in litigation.

Teddy winner Main Line Health (MLH) adopted worker advocacy in a way that goes far beyond claims.

Employees who identify and report safety hazards can take credit for their actions by sending out a formal “Employee Safety Message” to nearly 11,000 mailboxes across the organization.

“The recognition is pretty cool,” said Steve Besack, system director, claims management and workers’ compensation for the health system.

MLH also takes a non-adversarial approach to workers with repeat injuries, seeing them as a resource for identifying areas of improvement.

“When you look at ‘repeat offenders’ in an unconventional way, they’re a great asset to the program, not a liability,” said Mike Miller, manager, workers’ compensation and employee safety for MLH.

Teddy winner Monmouth County, N.J. utilizes high-tech motion capture technology to reduce the chance of placing new hires in jobs that are likely to hurt them.

Monmouth County also adopted numerous wellness initiatives that help workers manage their weight and improve their wellbeing overall.

“You should see the looks on their faces when their cholesterol is down, they’ve lost weight and their blood sugar is better. We’ve had people lose 30 and 40 pounds,” said William McGuane, the county’s manager of benefits and workers’ compensation.

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Do these sound like minor program elements? The math says otherwise: Claims severity has plunged from $5.5 million in 2009 to $1.3 million in 2017.

At the University of Pennsylvania, putting workers first means getting out from behind the desk and finding out what each one of them is tasked with, day in, day out — and looking for ways to make each of those tasks safer.

Regular observations across the sprawling campus have resulted in a phenomenal number of process and equipment changes that seem simple on their own, but in combination have created a substantially safer, healthier campus and improved employee morale.

UPenn’s workers’ comp costs, in the seven-digit figures in 2009, have been virtually cut in half.

Risk & Insurance® is proud to honor the work of these four organizations. We hope their stories inspire other organizations to be true partners with the employees they depend on. &

Michelle Kerr is associate editor of Risk & Insurance. She can be reached at [email protected]