E&S

On the Funky Side

Niche risks like tattoo parlors and marijuana shops attract a special kind of broker. 
By: | November 3, 2014

Funky, that is unusual, risks usually require specialty excess and surplus, nonadmitted insurance coverage.

These narrow, often emerging niche markets also depend upon brokers with a thorough understanding of their client’s industry, the insurance markets, the complexities of the risks they face and the ability to adjust and develop new coverage as the risks mature and grow.

Susan Preston, president, Professional Program Insurance Brokers

Susan Preston, president, Professional Program Insurance Brokers

Many, if not most, of the brokers that specialize in this kind of coverage are wholesalers and program administrators.

Susan Preston, president of Professional Program Insurance Brokers in Novato, Calif., sometimes called the queen of the funky insurance business, got her start when her first boss told her, “You need to think of something different to do” and he didn’t mean another line of work. “Anyone can insure the usual like an apartment building, or a retail store or a Main Street business,” he told her. “But not anybody can insure the unusual.”

Body Art

Preston took that advice to heart and began by investigating the market and discovering that the massage business could be broken into two segments: “There is one massage business that commonly gets sued and then there is the other kind that never ends up in court.”

Preston jump-started her new firm by developing her own expertise in the massage business.

Realizing the value of unusual risks, she expanded to cosmetic tattooing — an attractive medically based business that’s less risky than the litigation-prone segment of the massage and tattoo business.

Cosmetic tattooing then led to insuring body piercing and she later expanded into the more traditional tattoo market.

Each business, typical of an unusual risk, has segments that are uninsurable usually because of increased frequency and severity of losses. For example, Preston said, certain body parts — for both piercing and tattooing — are not easily insured.

Advertisement




Today Preston’s Professional Program Insurance Brokers operates 34 programs. Most of them are unusual, and require excellent underwriting, carefully worded policy language and endorsements, aggressive risk management and strong safety and loss control programs focused on employee training.

Almost all of these markets for Preston are placed through London using more than a dozen Lloyd’s syndicates.

“We are constantly looking for new opportunities,” Preston said.

Her focus is on general liability, professional liability and product liability, but she also offers other complementary coverage for the businesses where needed, such as property.

Underwriting: Broker Expertise

It’s not coincidental that when former President Bill Clinton spoke at last fall’s meeting of the Target Markets Program Administrators Association, he began his remarks by noting that the TMPAA website boasted an impressive array of hard to place risks from “crane riggers to roofers to tattoo shops.”

The former president specifically cited the tattoo program wondering aloud “how you price coverage for a tattoo shop.”

And that’s among the key issues that program administrators — brokers that specialize in narrowly defined niche risks — need to consider. Unlike the more traditional independent brokers, program administrators must have extensive underwriting skills because they typically “hold the pen” or the ability to bind a carrier to coverage.

It’s also a program administrators’ knowledge of a relatively small industry that enables them to underwrite the risk and also market it to the entrepreneurs and small businesses that often make up the client base. For many carriers, these smaller industries can be overlooked markets.

Wholesalers and program administrators that are skilled in underwriting for these risks can bring a profitable book of business to the carrier.

Although wholesalers and program administrators generally don’t hold risk, they can effectively become the outsourcing arm for underwriting, policy development and administration, risk management and claims for their insurance carrier partners.

Pyrotechnics

Take the fireworks market, or as Jeremy Bryant calls it, the pyrotechnics market. Bryant is executive vice president of Britton Gallagher, a program administrator based in Cleveland.

He worked with his team of specialists to arrange the coverage of the New Year’s Eve extravaganza in Dubai this year, obtaining coverage for the 163-floor Burj Khalifa, currently the world’s tallest skyscraper.

During the show, fireworks were periodically ignited, floor by floor, throughout the celebration.

To date, the half-hour show is the largest fireworks display ever presented.

This 2014 New Year’s fireworks display in Dubai was of such magnitude that it earned Guinness World Record status.

Bryant’s firm also brokered the pyrotechnics displays based at two of the chains of islands just offshore.

His clients generally are the firms that design, produce, promote and operate these huge displays. Typically, most of these displays are presented by municipalities ranging from small towns to the largest cities. Almost always, the displays are regulated by local government.

The risk today isn’t that a worker will get hurt igniting the display because almost all of the events are high tech and controlled by computers. In the Dubai fireworks at the Burj Khalifa, the fireworks were ignited using a sophisticated program.

Advertisement




“You have to watch out for all the safety issues, especially from the spectator standpoint,” he said.

Coverage included marine and hull insurance for barges where many of the displays were based. (There was one claim for a damaged barge where a portion of the fireworks were ignited.)

Bryant’s group placed all nonadmitted surplus lines coverage and “worked with a local Dubai broker to help them arrange admitted coverage from some local Dubai carriers.”

Pyrotechnic risks can be significant and potentially severe, Bryant said.

“But the business is really safe and getting safer. Remember, you’re dealing with gun powder at these displays. It’s very technical. The operators must look at all kinds of factors from wind speeds to related weather issues. We work with people we trust — trust is key to success in this market.”

Bryant estimated that he and his team (Eric Treend, Tami Bridgeman, and Hal Rindels) write as much as two-thirds of the professional pyrotechnics market in the United States — with the coverage focused on the two big fireworks events of the year — July 4th and New Year’s Eve.

“We work with people we trust — trust is key to success in this market.” — Jeremy Bryant executive vice president, Britton Gallagher

With their carrier partners they can insure all lines of coverage including property, general and professional liability, inland marine and commercial auto.

Cannabis Heats Up

No discussion of the funky risk management business could be complete without citing the fast-growing cannabis business — a risk that is more complex than might be expected.

The business began with the medical marijuana business but now has quickly expanded to Colorado and Washington State, which now allow recreational use and retail sales.

11012014_13_e&s_mark_aberle230x300

Michael Aberle, senior vice president, Next Wave Insurance and MMD Insurance

Michael Aberle, senior vice president of Next Wave Insurance and MMD Insurance in San Diego, said the range of risks in the business is varied.

Because many of the businesses are entrepreneurial in nature, trust between the client and broker is essential.

“We work with two cannabis trade associations to develop and market policies and we are active in those associations. That helps us market and build the trust needed to succeed.”

There are the storefront, retail outlets for both recreational and medial dispensing of cannabis (and something called dispensing insurance). But Next Wave Insurance Services’ market also includes the cannabis growers (including a version of crop insurance), the distributors and the manufacturers, security firms and a group of emerging business.

For example, there are firms that specialize in the design and manufacturing of marijuana paraphernalia and there is a newly forming chain of bed and breakfasts that offer cannabis to their guests.

To many of the businesses, property insurance is especially important. If there is a fire, the potential loss in terms of the value of the inventory can be significant.

Also, it’s mostly a cash business so protection against theft is very important.

One common risk that is usually uninsurable is protection against prosecution by a government entity for an illegal act — an issue at the heart of many cannabis-related businesses and usually excluded from standard general liability policies.

New Wave has developed coverage for this risk. The coverage is for legal defense against government actions against the business. If the insured is found innocent or not guilty of a state or local law, the policy will reimburse up to $5,000 in legal costs.

“Our coverage, however, doesn’t include actions by the federal government,” Aberle said.

It’s this kind of ability to create new kinds of coverage that is at the heart of insuring many unusual businesses.

He offers a version of a BOP policy for the smaller retail operation and also offers product liability coverage to the developers of new products (such as “edibles”).

One emerging risk, he pointed out, is that as more and more states relax the local laws, “we are insuring a lot of tenants that will need liability coverage in anticipation of legalization.”

Like other unusual risks, the “industry is not your standard market. We’re in the surplus lines market with no admitted carriers. That market offers flexibility and the ability to expand quickly because the surplus lines carriers don’t need to get state by state approval of every new policy change.”

Are We Having Fun?

If Susan Preston is the queen of funky insurance, then Larry Cossio, president of Cossio Insurance Agency in Simpsonville, S.C., is probably the king.

Cossio has been in the business of insuring the amusement industry for more than 30 years. He’s insured almost every kind of amusement risk there is — from inflatables (those bounce houses for kids and family events) to mechanical bulls at bars, to paintball parks.

Recently he began coverage of “Mudders,” the incredibly challenging and often dangerous obstacle-course races in the mud that can attract thousands of entrants to a single event.

Insurance coverage is essential, he said, because the risks can be huge. Take inflatables. Stories about accidents appear regularly and dramatically in the news. Cossio noted that one outdoor inflatable was caught by the wind and went 40 feet aloft over four lanes of traffic.

Advertisement




Not only is there the chance of catastrophic injuries to young children — children have died from falls and been permanently disabled — but a floating moon bounce can cause severe auto accidents.

The dangers are only limited by your imagination. Worse, this risk can be both frequent and severe — a formula for failure of both the operator owner and potentially an insurer.

Much of the largest risk comes from lawsuits filed by the injured parties or their parents.

Risk management, and safety and loss prevention then are at the heart of any insurance program, he said. Outdoor inflatables, subject to the weather and thus the wind, require that the bounce house be secured at all four corners with stakes and be able to withstand high winds. Training and supervision, properly documented, remains the essential cornerstone of an effective risk management program.

As far as insurance coverage, the requirements are wide ranging, including general liability, professional liability, commercial auto and, for employees of amusement/inflatable businesses there is EPLI, workers’ comp, health and life insurance.

Some of the risks are unexpected. For example, since many of these businesses serve a market of children, abuse and molestation coverage is clearly needed.

As far as those mechanical bulls, beyond the obvious injuries that can occur (and the need for a proper, signed release form), most of them are in bars. And that’s where the risks from alcohol can make a bad situation worse. Talk about funky.

Jack Roberts is Managing Principal of New Street Group. He is a former editor of Risk & Insurance® and can be reached at [email protected]

More from Risk & Insurance

More from Risk & Insurance

Risk Scenario

The Betrayal of Elizabeth

In this Risk Scenario, Risk & Insurance explores what might happen in the event a telemedicine or similar home health visit violates a patient's privacy. What consequences await when a young girl's tele visit goes viral?
By: | October 12, 2020
Risk Scenarios are created by Risk & Insurance editors along with leading industry partners. The hypothetical, yet realistic stories, showcase emerging risks that can result in significant losses if not properly addressed.

Disclaimer: The events depicted in this scenario are fictitious. Any similarity to any corporation or person, living or dead, is merely coincidental.

PART ONE: CRACKS IN THE FOUNDATION

Elizabeth Cunningham seemingly had it all. The daughter of two well-established professionals — her father was a personal injury attorney, her mother, also an attorney, had her own estate planning practice — she grew up in a house in Maryland horse country with lots of love and the financial security that can iron out at least some of life’s problems.

Tall, good-looking and talented, Elizabeth was moving through her junior year at the University of Pennsylvania in seemingly good order; check that, very good order, by all appearances.

Her pre-med grades were outstanding. Despite the heavy load of her course work, she’d even managed to place in the Penn Relays in the mile, in the spring of her sophomore season, in May of 2019.

But the winter of 2019/2020 brought challenges, challenges that festered below the surface, known only to her and a couple of close friends.

First came betrayal at the hands of her boyfriend, Tom, right around Thanksgiving. She saw a message pop up on his phone from Rebecca, a young woman she thought was their friend. As it turned out, Rebecca and Tom had been intimate together, and both seemed game to do it again.

Reeling, her holiday mood shattered and her relationship with Tom fractured, Elizabeth was beset by deep feelings of anxiety. As the winter gray became more dense and forbidding, the anxiety grew.

Fed up, she broke up with Tom just after Christmas. What looked like a promising start to 2020 now didn’t feel as joyous.

Right around the end of the year, she plucked a copy of her father’s New York Times from the table in his study. A budding physician, her eyes were drawn to a piece about an outbreak of a highly contagious virus in Wuhan, China.

“Sounds dreadful,” she said to herself.

Within three months, anxiety gnawed at Elizabeth daily as she sat cloistered in her family’s house in Bel Air, Maryland.

It didn’t help matters that her brother, Billy, a high school senior and a constant thorn in her side, was cloistered with her.

She felt like she was suffocating.

One night in early May, feeling shutdown and unable to bring herself to tell her parents about her true condition, Elizabeth reached out to her family physician for help.

Dr. Johnson had been Elizabeth’s doctor for a number of years and, being from a small town, Elizabeth had grown up and gone to school with Dr. Johnson’s son Evan. In fact, back in high school, Evan had asked Elizabeth out once. Not interested, Elizabeth had declined Evan’s advances and did not give this a second thought.

Dr. Johnson’s practice had recently been acquired by a Virginia-based hospital system, Medwell, so when Elizabeth called the office, she was first patched through to Medwell’s receptionist/scheduling service. Within 30 minutes, an online Telehealth consult had been arranged for her to speak directly with Dr. Johnson.

Due to the pandemic, Dr. Johnson called from the office in her home. The doctor was kind. She was practiced.

“So can you tell me what’s going on?” she said.

Elizabeth took a deep breath. She tried to fight what was happening. But she could not. Tears started streaming down her face.

“It’s just… It’s just…” she managed to stammer.

The doctor waited patiently. “It’s okay,” she said. “Just take your time.”

Elizabeth took a deep breath. “It’s like I can’t manage my own mind anymore. It’s nonstop. It won’t turn off…”

More tears streamed down her face.

Patiently, with compassion, the doctor walked Elizabeth through what she might be experiencing. The doctor recommended a follow-up with Medwell’s psychology department.

“Okay,” Elizabeth said, some semblance of relief passing through her.

Unbeknownst to Dr. Johnson, her office door had not been completely closed. During the telehealth call, Evan stopped by his mother’s office to ask her a question. Before knocking he overheard Elizabeth talking and decided to listen in.

PART TWO: BETRAYAL

As Elizabeth was finding the courage to open up to Dr. Johnson about her psychological condition, Evan was recording her with his smartphone through a crack in the doorway.

Spurred by who knows what — his attraction to her, his irritation at being rejected, the idleness of the COVID quarantine — it really didn’t matter. Evan posted his recording of Elizabeth to his Instagram feed.

#CantManageMyMind, #CrazyGirl, #HelpMeDoctorImBeautiful is just some of what followed.

Elizabeth and Evan were both well-liked and very well connected on social media. The posts, shares and reactions that followed Evan’s digital betrayal numbered in the hundreds. Each one of them a knife into the already troubled soul of Elizabeth Cunningham.

By noon of the following day, her well-connected father unleashed the dogs of war.

Rand Davis, the risk manager for the Medwell Health System, a 15-hospital health care company based in Alexandria, Virginia was just finishing lunch when he got a call from the company’s general counsel, Emily Vittorio.

“Yes?” Rand said. He and Emily were accustomed to being quick and blunt with each other. They didn’t have time for much else.

“I just picked up a notice of intent to sue from a personal injury attorney in Bel Air, Maryland. It seems his daughter was in a teleconference with one of our docs. She was experiencing anxiety, the daughter that is. The doctor’s son recorded the call and posted it to social media.”

“Great. Thanks, kid,” Rand said.

“His attorneys want to initiate a discovery dialogue on Monday,” Emily said.

It was Thursday. Rand’s dreams of slipping onto his fishing boat over the weekend evaporated, just like that. He closed his eyes and tilted his face up to the heavens.

Wasn’t it enough that he and the other members of the C-suite fought tooth and nail to keep thousands of people safe and treat them during the COVID-crisis?

He’d watched the explosion in the use of telemedicine with a mixture of awe and alarm. On the one hand, they were saving lives. On the other hand, they were opening themselves to exposures under the Health Insurance Portability and Accountability Act. He just knew it.

He and his colleagues tried to do the right thing. But what they were doing, overwhelmed as they were, was simply not enough.

PART THREE: FALLING DOMINOES

Within the space of two weeks, the torture suffered by Elizabeth Cunningham grew into a class action against Medwell.

In addition to the violation of her privacy, the investigation by Mr. Cunningham’s attorneys revealed the following:

Medwell’s telemedicine component, as needed and well-intended as it was, lacked a viable informed consent protocol.

The consultation with Elizabeth, and as it turned out, hundreds of additional patients in Maryland, Pennsylvania and West Virginia, violated telemedicine regulations in all three states.

Numerous practitioners in the system took part in teleconferences with patients in states in which they were not credentialed to provide that service.

Even if Evan hadn’t cracked open Dr. Johnson’s door and surreptitiously recorded her conversation with Elizabeth, the Medwell telehealth system was found to be insecure — yet another violation of HIPAA.

The amount sought in the class action was $100 million. In an era of social inflation, with jury awards that were once unthinkable becoming commonplace, Medwell was standing squarely in the crosshairs of a liability jury decision that was going to devour entire towers of its insurance program.

Adding another layer of certain pain to the equation was that the case would be heard in Baltimore, a jurisdiction where plaintiffs’ attorneys tended to dance out of courtrooms with millions in their pockets.

That fall, Rand sat with his broker on a call with a specialty insurer, talking about renewals of the group’s general liability, cyber and professional liability programs.

“Yeah, we were kind of hoping to keep the increases on all three at less than 25%,” the broker said breezily.

There was a long silence from the underwriters at the other end of the phone.

“To be honest, we’re borderline about being able to offer you any cover at all,” one of the lead underwriters said.

Rand just sat silently and waited for another shoe to drop.

“Well, what can you do?” the broker said, with hope draining from his voice.

The conversation that followed would propel Rand and his broker on the difficult, next to impossible path of trying to find coverage, with general liability underwriters in full retreat, professional liability underwriters looking for double digit increases and cyber underwriters asking very pointed questions about the health system’s risk management.

Elizabeth, a strong young woman with a good support network, would eventually recover from the damage done to her.

Medwell’s relationships with the insurance markets looked like it almost never would. &

Bar-Lessons-Learned---Partner's-Content-V1b

Risk & Insurance® partnered with Allied World to produce this scenario. Below are Allied World’s recommendations on how to prevent the losses presented in the scenario. This perspective is not an editorial opinion of Risk & Insurance.®.

The use of telehealth has exponentially accelerated with the advent of COVID-19. Few health care providers were prepared for this shift. Health care organizations should confirm that Telehealth coverage is included in their Medical Professional, General Liability and Cyber policies, and to what extent. Concerns around Telehealth focus on HIPAA compliance and the internal policies in place to meet the federal and state standards and best practices for privacy and quality care. As states open businesses and the crisis abates, will pre-COVID-19 telehealth policies and regulations once again be enforced?

Risk Management Considerations:

The same ethical and standard of care issues around caring for patients face-to-face in an office apply in telehealth settings:

  • maintain a strong patient-physician relationship;
  • protect patient privacy; and
  • seek the best possible outcome.

Telehealth can create challenges around “informed consent.” It is critical to inform patients of the potential benefits and risks of telehealth (including privacy and security), ensure the use of HIPAA compliant platforms and make sure there is a good level of understanding of the scope of telehealth. Providers must be aware of the regulatory and licensure requirements in the state where the patient is located, as well as those of the state in which they are licensed.

A professional and private environment should be maintained for patient privacy and confidentiality. Best practices must be in place and followed. Medical professionals who engage in telehealth should be fully trained in operating the technology. Patients must also be instructed in its use and provided instructions on what to do if there are technical difficulties.

This case study is for illustrative purposes only and is not intended to be a summary of, and does not in any way vary, the actual coverage available to a policyholder under any insurance policy. Actual coverage for specific claims will be determined by the actual policy language and will be based on the specific facts and circumstances of the claim. Consult your insurance advisors or legal counsel for guidance on your organization’s policies and coverage matters and other issues specific to your organization.

This information is provided as a general overview for agents and brokers. Coverage will be underwritten by an insurance subsidiary of Allied World Assurance Company Holdings, Ltd, a Fairfax company (“Allied World”). Such subsidiaries currently carry an A.M. Best rating of “A” (Excellent), a Moody’s rating of “A3” (Good) and a Standard & Poor’s rating of “A-” (Strong), as applicable. Coverage is offered only through licensed agents and brokers. Actual coverage may vary and is subject to policy language as issued. Coverage may not be available in all jurisdictions. Risk management services are provided or arranged through AWAC Services Company, a member company of Allied World. © 2020 Allied World Assurance Company Holdings, Ltd. All rights reserved.




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