Published June 20th, 2023 by Kyle Langan

Running a business involves speculative risk. A successful strategy brings an expectation of positive returns, while carrying a small but significant risk of catastrophic losses.

On April 20, 2010, “the inherent risks of decades of inadequate regulation, insufficient investment, and incomplete planning were realized in tragic fashion.” [1] This shows how errors develop into catastrophic loss. “The Deepwater Horizon rig sank on April 22, two days after the well blowout and explosion that tragically killed 11 workers in the Macondo Prospect.” [2] Roughly 4.9 million barrels spilled into the Gulf of Mexico, “based on flow-rate estimate, which ranged from 62,200 barrels per day on April 22 to 52,700 barrels per day on July 14, just before the capping stack stopped the flow.” [3]

The loss stemmed from roots of leadership’s culture of urgency and frugality. “Decision-making processes “did not adequately ensure that personnel fully considered the risks created by time- and money-saving decisions.” [4]

Source: (National Commission on the BP Deepwater Horizon Oil Spill and Offshore Drilling, 2011).

As seen in the chart above, an overriding sense of urgency to bring new wells on line without delay or marginal cost contributed to a risk-taking culture among the Macondo well-site workers and their managers. More time-consuming but safer alternatives were presently available in all the root causes of loss. Instead, “snap decision-making without supporting evidence, abandonment of procedural safeguards, ignoring of obvious safety-check warnings, and other dangerous behaviors took precedent.” [5]

Solution: A Culture of Risk Management

The findings of the Commission “highlight the importance of organizational culture and a consistent commitment to safety by industry, from the highest management levels on down.” Improved regulatory oversight aims to solve a culture of revenue maximization and complacency. The GPO recommends a “pervasive top-down safety culture.” [6] “The critical element is an unwavering commitment to safety at the top of an organization: the CEO and board of directors must create the culture and establish the conditions under which everyone in a company shares responsibility for maintaining a relentless focus on preventing accidents.” [7] For example, a company “rewards employees and contractors who take action when there is a safety concern even though such action costs the company time and money.” [8]

If a company “rigorously adheres to the best practices of a functioning safety culture”, it can prevent catastrophic losses. [9]

References

[1]-[5];[7-9]

National Commission on the BP Deepwater Horizon Oil Spill and Offshore Drilling. “Deep Water: The Gulf Oil Disaster and the Future of Offshore Drilling.” U.S. Government Publishing Office’s (GPO). (2011, January). https://www.govinfo.gov/content/pkg/GPO-OILCOMMISSION/pdf/GPO-OILCOMMISSION.pdf

Fire Season Expectations

AccuWeather’s recently released a 2023 US Wildfire Forecast, which included data and analysis on 2023’s season. Forecasts expect this fire season to fall in line with average, with increased exposure in a few hot spots. [1]

California

Peak wildfire season should occur from August into September in Northern California; for those in Central and Southern California, they should expect a peak season of September to November. [2] During these time frames, “lightning from the North American monsoon can be a natural ignition source for fires, while the Santa Ana winds can fan the flames of ongoing blazes and cause them to evolve rapidly into massive wildfires.” [4] Something insurers will monitor is this wildfire season peak’s alignment with the peak of the Atlantic hurricane season. [5]

“California saw one of the deepest snowpacks in state history, which will delay the onset of wildfire season, but AccuWeather warns that it will not prevent fires from starting.” [6]  One of the concerns this season is the total amount of combustible material, also known as fuel load. [7] “The recent precipitation will lead to ‘intense growth’ during the spring and first part of the summer, resulting in more fuel for fires that ignite later in the summer and into autumn.” [8] “The winter storms also blew down an abundance of branches, limbs and entire trees.” [9] As a result, California now experiences elevated fuel load levels.

Danger Zone: Pacific Northwest, Rocky Mountains

“The interior Northwest and the northern Rockies face a high risk of wildfires this year.” [10] This is a result of a winter “that was drier than the historical average.” [11] Washington, Oregon, Idaho, Montana, Northern California and northern Nevada will confront elevated exposure because “significant fires could break out as early as June or the first half of July.” [12] However, the “region’s peak of wildfire activity is not anticipated until late July into early September.” [13] Property owners and managers should practice an abundance of caution and ensure their insurance or risk transfer treatment is proper. For a review of your program, email kylel@conreyins.com.

Danger Zone: Florida

“The Florida Peninsula is running drier-than-historical averages in 2023. These conditions can lead to brush fires this spring.” [14]

The Leader

“Alaska leads the country in wildfire activity, with 3.08 million acres burned in 2022, nearly twice the amount of land in Delaware.” [15]

References

Lada, B. (2023, April 12). AccuWeather’s 2023 US wildfire forecast. Retrieved from https://www.accuweather.com/en/weather-forecasts/accuweathers-2023-us-wildfire-forecast/1510132

Term of the week: Fuel load. interfire.org. (n.d.). Retrieved from https://www.interfire.org/termoftheweek.aspterm=1156#:~:text=Fuel%20load%20is%20quantified%20in,materials%20into%20the%20fire%20area).

[1]-[6]; [8]-[15]

Lada, B. (2023)

[7]

Fuel load.

Published on February 14th, 2022, by Kyle Langan

Jury’s award:

A jury in Philadelphia awarded former NFL player Chris Maragos $43.5 million after he sued the medical team in charge of treating a knee injury from his time playing as a Philadelphia Eagle. [1] “Maragos accused orthopedic surgeon James Bradley and Rothman Orthopaedics of neglecting to address a torn meniscus” he suffered in October 2017; this led to the “premature end of his NFL career” and caused “ongoing pain and physical limitations.” [2] Maragos endured a torn posterior cruciate ligament (PCL), which was surgically repaired by Bradley. [3] However, attorneys said the “medical team ignored damage to the meniscus, even after a May 2018 MRI exam showed the injury worsening.” [4]

Proven Negligence:

Members of the Maragos legal team said they “proved at trial that Rothman Orthopaedics created two separate medical charts for Maragos, one of which failed to include key notes about his injury and recovery.” [5] The jury assigned two thirds of the $43.5 million to Bradley, per reports, which made the remaining third the responsibility of Rothman Orthopaedics. [6]

The Medical Team’s Defense:

During the trial, “lawyers for the defendants argued Maragos suffered his meniscus injury in a weight-room incident several months after his surgery.” [7] Additionally, they highlighted age at the time of his surgery, 31, and eight years of experience in the NFL, suggesting that his career did not have much time left. [8] “Doctors who oversaw his rehabilitation knew of the meniscus issue, lawyers said, but deemed it ‘stable’ and unlikely to respond well to a surgical procedure.” [9]

Risk Management and Insurance Implications:

Medical Malpractice Insurance will defend and indemnify insureds with “coverage for the acts, errors, and omissions of physicians and surgeons, encompassing physicians’ professional liability insurance, hospital professional liability (HPL) insurance, and allied healthcare (e.g., nurses) professional liability insurance.” [10] If your company seeks in-depth knowledge of this protection and limit adequacy, contact me at kylel@conreyins.com

References

[1] — [9]

Bieler, D. (2023, February 14). Jury awards ex-eagles player $43.5 million for medical malpractice. The Washington Post. Retrieved February 14, 2023, from https://www.washingtonpost.com/sports/2023/02/13/chris-maragos-verdict-injury-eagles/

[10]

Medical Malpractice Insurance. Medical Malpractice Insurance | Insurance Glossary Definition | IRMI.com. (n.d.). Retrieved February 14, 2023, from https://www.irmi.com/term/insurance-definitions/medical-malpractice-insurance

1. 1. Conduct diligent inspections of your commercial property and the surrounding area for specific exposures to loss. [1]
   2. Analyze exposures to natural disaster. If property is located in a disaster-prone area, implement mitigation and response measures that will protect it. [2]
   3. Conduct accurate Insurance-To-Value calculations to remain fully protected when loss events occur. [3]

Why?

Natural disasters: The frequency and severity of natural disasters continue to rise. “Natural disasters cost the global economy $227 billion in 2022, with under half of those expenses ($99 billion) covered by insurers. This marks the third consecutive year in which natural disaster losses exceeded $100 billion.” [4] Extreme weather events continue to become increasingly devastating and costly. “Weather experts believe severe storms, extreme temperatures, wildfires and flooding are the new norm” due to climate risk trends. [5] “Wildfires again plagued the West Coast in 2022 and widespread drought and heat waves in the Western and Central United States depleted several reservoirs.” For the Midwest, impacts included hailstorms, a powerful derecho and “historic inland flooding caused issues throughout Kentucky and Missouri.” [6] Of course, “one of the most devastating weather events from 2022 was Hurricane Ian. Altogether, the hurricane resulted in 131 fatalities and an estimated $100 billion in total damages.” [7] The insurance industry is attempting to adopt innovative solutions to keep up with weather-related losses; weather readiness is a key area of focus.

Inflation issues: “Fluctuating demand for various building materials, and wage increases across the construction sector” were some of the root causes of inflation issues. [8] “If a loss occurs, property owners could face higher claims costs and encounter underinsurance concerns.” [9] This is why it is so important to consider Insurance-to-value calculations (ITV). Contact me at kylel@conreyins.com for a free consultation from my team. As building expenses and valuations are impacted, insureds must demonstrate increased diligence in “performing correct ITV calculations and maintaining ample commercial property coverage.” [10] “An accurate ITV calculation represents as close to an equal ratio as possible between the amount of insurance a business obtains and the estimated value of its commercial building or structure, thus ensuring adequate protection following property losses.” [11]

Reinsurance capacity concerns: “Current natural disaster and inflation trends have proven particularly difficult for the commercial property reinsurance space to navigate.” [12] As a result, “capacity will likely become further constrained in 2023, therefore impacting overall commercial property insurance rates—especially for policyholders with CAT exposures.” [13] CAT = catastrophic loss.

Supply chain struggles: “Production and delivery bottlenecks, widespread labor deficits, extreme weather events and geopolitical conflicts have contributed to a range of supply chain struggle —prompting project delays and increased recovery expenses amid property losses.”  Supply chain risk is rooted both in the economic climate and the physical climate. “Businesses may face increased claims severity if losses require them to rebuild structures or replace property on slower schedules and at higher prices.” [14]

[1] – [14]

2023 P+C Market Outlook Executive Summary – go.zywave.com. Retrieved  from https://go.zywave.com/rs/766-KGR-091/images/2023%20P_C%20Market%20Outlook.pdf

Around this time last year, our team predicted Directors and Officers Liability Insurance (D&O) price increases trending downwards towards flat renewals. Read it here

As 2022 winds to a close, the decreases are coming to fruition. According to Aon’s latest D&O Pricing Index, the average price per million in limits for D&O insurance fell for the second consecutive quarter. [1] “On average, primary policies renewing with the same limit, deductible and carrier saw a 4.0% premium price drop in Q3 compared to Q3 2021.” [2]

“Q3 marks the second quarter of year-over-year price decreases for the public company D&O market, following 17 quarters of increases. At the height of the hard market in D&O, the average price increase reached 26.2% in the first quarter of 2020” [3]. Q3 saw the number of securities class action filings dropped 8.5%, Aon reported, citing Stanford Law School’s Securities Class Action Clearinghouse. [4] This likely acted as one of the root causes of the premium cool-downs.

D&O should not be viewed as an expense, but as an asset to any company; policies cover managerial decisions that result in adverse consequences for both large and small companies alike. [5] It remains an excellent time to evaluate your current D&O risk management strategy. At Conrey, my team and I attack the root cause of what drives D&O rates with a proprietary system of data analytics and enterprise risk management proven to reduce total cost of risk. Contact me at kylel@conreyins.com to see how I can do this for your business.

References

[1]-[3]

Erin Ayers. (2022, November 2). D&O prices fall for the second consecutive quarter: AON. Advisen Front Page News. Retrieved November 4, 2022, from https://www.advisen.com/tools/fpnproc/fpns/articles_new_1/P/451164456.html?rid=451164456&list_id=1

[5]

IRMI – Directors and officers liability insurance. Directors and Officers (D&O) Liability Insurance | Insurance Glossary Definition | IRMI.com. (n.d.). Retrieved September 28, 2021, from https://www.irmi.com/term/insurance-definitions/directors-and-officers-liability-insurance.