Risk Insider: Phil Norton

Twenty Four Towers Burning

By: | January 4, 2016 • 2 min read

Phil Norton is the Senior Managing Director of the Management Liability Practice at Arthur J. Gallagher & Co., and is regarded as one of the world’s leading authorities in his field. He has been named a Risk and Insurance® Power Broker® seven times. He can be reached at [email protected]

In the early 1990s, I had access to good D&O data for a while as the head of the D&O practice for a global consulting firm.


We developed benchmarking techniques for D&O based on a firm’s ownership structure, industry and size.  But problems quickly emerged.

Specifically, all the companies in certain market segments were under-insured. The reason was they were benchmarking against each other and buying inadequate limits.

I went to work on modeling D&O risk as an alternative to benchmarking.  Fast forward and D&O modeling is the rage.  But what is now equally important is the modeling of cyber risk.

When I visited the top cyber insurance carriers earlier in 2015, we discussed the marketplace as one of “24 Towers Burning.”   We were not referring to a sequel to the Lord of the Rings.

We were describing the number of cyber breaches where the company suffering the breach purchased a layered tower of cyber insurance and the claim was burning through every layer.

This led to higher prices in 2015, especially in the excess layers.   Modeling cyber has thus become exceptionally important in evaluating both limits and viable excess pricing.

One big contrast between modeling D&O and cyber is the consideration of industry.   For D&O modeling, industry is fairly insignificant. It does not correlate with severity.

For cyber modeling, industry is hugely important.  Studies show certain industries to be higher risk than others.  Carriers apparently agree, as they very carefully underwrite health care, retail, financial institutions and higher education.

Once we combine industry with the number of employees and revenues, we can model cyber risk quite accurately. Regardless of industry, cyber risk needs to be diligently reviewed.

One big contrast between modeling D&O and cyber is the consideration of industry.   For D&O modeling, industry is fairly insignificant. It does not correlate with severity.

The goals are simple:  get the right amount of cyber protection via risk management practices and procedures, buy appropriate limits of insurance (for the right price) and take all other steps to ensure against the possibility of a D&O derivative action.

Modeling can help you determine what cyber limits to buy, but for a successful renewal, your IT department must operate with tough security measures, end-to-end encryption of sensitive data, incident response preparedness and Payment Card Industry (PCI) compliance as applicable.

The D&O policy is a proven tool for reducing risk, and is designed to cover many types of claims, including derivative actions.  Derivative actions are considered especially dangerous.

Settlements of derivative actions are generally covered only by the Side-A insuring clause of a D&O policy, as indemnification for such settlements is not permitted.


A typical derivative action is brought by shareholders on behalf of the corporation against the individual directors and officers.   It would be against public policy to indemnify individuals with corporate monies when the settlement is for individuals to pay back the corporation.

Thus, derivative actions have dramatic significance because they threaten personal assets. Insurance becomes the first line of defense.

There have been two recent trends pertaining to this subject:  1) the increase in the cost or severity of derivative actions; and 2) the increase in frequency of derivative actions that allege the mismanagement of corporate cyber protections.

The best defense against this dangerous subset of D&O claims is to employ effective cyber security practices and to purchase adequate cyber insurance limits.

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.


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.


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]