Author Archives: Caroline McDonald

About Caroline McDonald

Caroline McDonald is a writer and former senior editor of the Risk Management Monitor and Risk Management magazine.
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Northridge Quake Remembered

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Last week was the 20-year anniversary of the Northridge Earthquake. The 6.7-magnitude event that hit on Jan.

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17, 1994 at 4:30 a.m. stands as the second costliest disaster in U.S. history, following Hurricane Katrina. Northridge cost $42 billion in total damages, while Katrina cost $81 billion, according to federal figures.

The U.S. Geological Society (USGS) said that 60 people were killed, more than 7,000 injured, 20,000 were left homeless and more than 40,000 buildings were damaged in Los Angeles, Ventura, Orange and San Bernardino Counties.

The San Fernando Valley saw maximum intensities of magnitude-9 in the areas of Northridge and Sherman Oaks. Significant damage also occurred in Glendale, Santa Clarita, Santa Monica, Simi Valley, Fillmore and in western and central Los Angeles, the USGS said.

Seven freeway bridges collapsed, 212 others were damaged and 82,000 residential and commercial buildings were damaged or destroyed. About 200 steel-frame buildings suffering significant cracking, AP reported. Collapsed overpasses closed sections of the Santa Monica Freeway, the Antelope Valley Freeway, the Simi Valley Freeway and the Golden State Freeway.

The quake resulted in $12.5 billion in insurance payouts. If the event happened today, insured losses would be about $24 billion, AIR Worldwide said.

This was a significant event for me, as I was living in Los Angeles at the time. I had been living there for five years and this was my first, and hopefully last ever, earthquake experience. There had been many false alarms over the years that usually ended up being something like an extra heavy truck rumbling by. But when the real thing happened there was no question that it was, indeed, an earthquake.

Pretty much anything that could have been broken in my place was. Bookcases tumbled over sending contents everywhere. One of my sisters, who lived in Simi Valley, had every cabinet and drawer emptied by the shaking. Televisions, appliances and most furniture were ruined. Because there was no power for days and everyone in her neighborhood risked losing all their frozen food, she and her neighbors came together. They brought all of their grills and frozen food into the middle of the street where they proceeded to cook everything, supplying food for the neighborhood for days. This not only used up any food that would have otherwise spoiled, but it gave the kids a chance to run around and play with their friends and get their minds off of the terrible destruction surrounding them.

Because an earthquake is so sudden and severe, experiencing something like that is a shock to the system and takes a while to get over. Driving through L.A., I saw flattened homes, cars, apartment buildings, office buildings and parking structures.

One big success story and source of pride for Los Angeles was the Santa Monica Freeway, one of the world’s busiest, which had two areas collapse during the earthquake. It was a proud moment when freeway repairs were finished a full 74 days early. It’s a testament to what strong wills, traffic tie-ups and a large bonus will do.

The Los Angeles Times reported:

Spurred by the promise of an extra $200,000 a day for every day work was completed ahead of schedule, the contractor, C. C. Myers Inc., will finish the project 74 days before a June 24 deadline and rack up a $14.5-million bonus for the company.

The high-speed construction was made possible by crews working around the clock, seven days a week, and by state officials cutting through red tape.

“This freeway, with its broken bridges, broken connectors, became one of the most visible signs of the devastation brought upon Los Angeles by the Northridge earthquake,” Gov. Pete Wilson said during a news conference at the freeway.

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“Now its rebuilding and its reopening . . . will serve as one of the . . . symbols of the energy of this great community.”

In Sacramento, Caltrans Director James van Loben Sels estimated that without the accelerated effort the project would probably have taken two years to complete.

But the acceleration did not come without cost. With the bonuses given to C. C. Myers, the price tag on the project rose from the original bid of .

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9 million to nearly $30 million.

TRIA Will be Renewed, P-C Panel Agrees

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Photo by Don Pollard

NEW YORK—Insurance industry experts in a panel discussion agreed that while terrorism risks are changing, they believe the Terrorism Risk Insurance Act (TRIA), set to expire Dec. 31, 2014, will be reauthorized by Congress. In fact, a poll taken at the annual Property/Casualty Insurance Joint Industry Forum found that 93% of attendees believe TRIA will be renewed.

“In the U.S., we’re moving away from the risk of catastrophic-scale terrorism. But we are probably more likely to have the Boston Marathon type of terrorism,” said Stephen Flynn, professor of political science and founding director of the Center for Resilience Studies at Northeastern University in Boston.

The reasons are that, “The know-how to carry out these low-end acts is pervasive and the opportunities for this type of terrorism are relatively high. Because they can be conducted on a small scale, they are difficult to plan for in advance and intercept,” he explained, adding, “In my mind there is no question that the feds need to play a backstop role. This isn’t a natural market. It’s not a natural disaster environment. The role an industry can play in educating about risk and engaging mitigation measures is a very useful public policy outcome of the feds playing a role as a backstop.”

The six-member panel was moderated by Julie Rochman, president and CEO of the Insurance Institute for Business & Home Safety.

Robert H. Easton,executive deputy superintendent of the insurance division at the New York Department of Financial Services [pictured above with John Huff, director of the Missouri Department of Insurance] said, “We would like to see TRIA in some form become permanent so we don’t have to have this discussion every few years.”

Easton added, “The political reality is that this is unlikely to occur, but our view is that if anybody should be taking one of the more extreme views it is New York. The program has been critical to insuring that there is sufficient capacity in the marketplace.”

Huff agreed that it needs to be renewed, but noted that TRIA should not be a “big state, small state issue.” Rather it should be supported by states of all sizes. “Missouri has a significant urban, suburban and rural presence,” he said.

Jay Gelb, managing director and senior equity analyst for Barclays believes TRIA will be reauthorized at the last minute. If reauthorization doesn’t happen, “It would be concerning from an investment viewpoint,” however, “Insurers could underwrite the exposure or limit their concentrations in target areas, especially in lines where losses cannot be excluded, such as workers compensation.”

Matthew Mosher, senior vice president and chief rating officer for the A.M. Best Company observed that while insurers can, indeed, manage the risk of terrorism, and even avoid it, “what does that do for the nation as a whole? When you look at the impact of TRIA, it comes down to how much risk you want individuals to absorb. At this point insurers are not able to provide a large amount of coverage without a backstop.”

In terms of adjustments to the program, Easton said, “We would like to see the inclusion of cyber as a risk that TRIA addresses. The cyber world is very different today than even 12 or 13 years ago.”

For the poll questions and full survey results, go to 2014 Property/Casualty Insurance Joint Industry Forum Questionnaire.

Jan. 1 Reinsurance Renewal Rates Drop

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New capacity, rate reductions and competition are a few factors contributing to a softer market and an 11% drop in reinsurance rate on line—a calculation of reinsurance premium divided by reinsurance limit—almost across the board, according to Guy Carpenter.

Much of this was driven by a decline of 15% in the United States, while property catastrophe pricing in Continental Europe and the United Kingdom fell by 10% and 15%, respectively, Guy Carpenter said.

Willis Re said in its “1st View” report that soft market conditions are not unique to the property catastrophe market. The report found that “with few exceptions rates are down on most lines at Jan. 1.”

Key influences on the Jan. 1 renewals were over-capacity and a number of other converging factors. “Rate reductions, new capacity, new market entrants, low interest rates, greater retention of reinsurance premiums by large buyers, diminishing reserve releases, expansion in terms and conditions and the increasing tempo of regulatory oversight” were issues facing reinsurers entering 2014.

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New capital from non-traditional capital market sources has grown to reach $50 billion. Compounding the situation, reinsurers are seeing lower demand from buyers, the report said.

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Peter Hearn, Willis Re chairman said in a statement, “Faced with these market headwinds, reinsurers are adopting a variety of strategies. Larger reinsurers are using their balance sheet strength and technical ability to offer more capacity and more complex, multi-class, multi-year deals. Others are expanding into specialty lines and many have developed multi-channel capacity offerings seeking to use their underwriting expertise to deploy capacity on behalf of capital markets. Additionally, we have seen the rise of pooling arrangements that give smaller reinsurers the opportunity to access business they might not otherwise see in their local markets.

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”

The United States is seeing a softening market as increased capacity from non-traditional capital providers and retained earnings from a benign catastrophe year pressures traditional reinsurers to offer significant price reductions to compete for business.

Also in the U.S.:

• Risk-adjusted price reductions are being seen in all sectors

• There are wide variations for regional and state specific programs, depending on loss experience and reliability of vendor models

• Multi-year contracts and market facilities are becoming more routine for reinsurers wishing to lock in business

Plan Ahead for Holiday Party Risks

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Holiday office parties are a good opportunity to bring employees together, but they present potential risks for organizations. With social media added to the mix, even slight misconducts can be amplified if they go viral. What might have been an embarrassment handled quietly by a company can quickly become a reputation issue.

According to an article by Lloyd’s, the addition of social media “can seriously impair a company’s ability to manage a crisis,” said Eric Alter, Risk Consultant at Marsh Ltd.

“Social media and business entertainment can be a challenging mix—whether it is a sales conference, awards dinner or a Christmas party—the use of social media in the work environment has to be carefully considered,” he said, adding that websites like Twitter, Facebook and Instagram enable almost instant sharing of information, but even email can cause problems. An employee intending to send a funny email to a coworker, for example, could accidentally send it to clients.

Steve Adcock, Underwriting Manager at QBE Europe observed that alcohol can lead to a heightened risk of inappropriate comments, behavior or even assault. “People can lose their inhibitions and may not think about what they say or do,” he said. “Employees will not always get along at the Christmas party. Disagreements can lead to hurt feelings through to a potential assault.”

Paul Griffin, Head of Employment and Labor at international law firm, Norton Fulbright cautioned that an employer is liable for the wrong doings or injuries of their employees, unless they can show they have taken all reasonable steps to prevent them.

To protect themselves and their employees, organizations need to advise staff attending a party that the usual company rules still apply, Alter advised. “A company policy should make it clear that any event that is associated with work should be treated as work, and that the social media policy continues to apply.”

OneBeacon Professional Insurance noted in “A Guide to Minimizing Risk at Company Holiday Parties,” that because of the infrequency of company-sponsored holiday events, liability risks are often overlooked. Concerns such as liquor consumption, premises safety and security, discrimination and food borne illness are just a few of the issues that need to be addressed to help prevent injuries or even harassment.

According to the report, any accidents or injuries occurring at company events may be considered work-related and could possibly be subject to workers compensation.

To help avoid safety mishaps OneBeacon advises:

• When using a venue away from the office, inspect it to ensure it meets safety standards. Note exits, emergency lighting and whether there is flooring to prevent slips and falls, particularly if there is a chance of bad weather.

• Consider the effects that weather may have on safe travel to and from the party. Special considerations may be needed to keep sidewalks and parking lots clear if the event is outside of normal business hours.

• Think about potential security needs, especially if the event is in an unfamiliar neighborhood or of the venue is closed to the general public.

• Keep an eye on party-goers to ensure that no one wanders off or goes to a car or parking garage alone after dark.

• Have an emergency plan in place in case someone is injured or needs medical assistance. Find out the location of the closest hospital and whether anyone can perform CPR or use a defibrillator.

• Review situations for employees with disabilities who may require special attention. For example, if a disabled employee must use a wheelchair, check that there is a safe entrance, navigate the event and know how to deal with a possible emergency.