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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Cyber Risk a Top Concern for C-Suites

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NEW YORK—Risk managers no longer have a problem getting the attention of their company board and executives when it comes to cyber issues, according to panelists at the Advisen Cyber Risk Insights conference yesterday.

At Royal Ahold N.V., in fact, a supervisory board “insists on an annual presentation on the insurance policies,” which include cyber, said Nicholas Parillo, vice president of global insurance for the company. Giving his annual presentation to the board is made much easier, because “the person before me is the chief security officer and before that, the CIO and it’s good to know that they are saying the same things I’m saying. That’s the level this kind of risk has achieved within major corporations.

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In the U.S., Ahold owns about 2,000 supermarkets—780 in the northeast, including Stop ‘n Shop and Giant Food Markets and 300 pharmacies, Parillo said. The company, which has annual revenue of $42 billion, also owns a number of chains throughout Europe.

Parillo noted that Ahold’s chief concern is the large amount of customer data needed for its goal of major online sales growth.

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“Our CEO a couple of years ago established a goal of increasing our online sales from $400 million annually to $1.5 billion,” he said. “We should hit that target in the next two years or sooner. One of our big concerns in this area is fast growth in ecommerce,” and also that “good governance surrounds” that growth.

The company purchased its first cyber security insurance policy in 2007, he said, an action that was hastened by “two watershed events in retail business,” the Hannaford Bros. Co. privacy violation and the TJ Maxx case. Both of these have run into the “hundreds of millions of dollars now with a significant amount of legal fees associated,” he said, adding, “These events made my job a lot easier in terms of going to my management and saying that this could happen to us, despite the biggest and the brightest in our IT group.”

Jimmy Kirtland, vice president, corporate risk management with ING said that in the past, “trying to convince your CFO and CEO and general counsel that there really was [cyber] exposure,” was an issue. He explained that 10 or 15 years ago, “Even if you were going to look at cyber coverage you had only three brokers you could go to.”

Since then, “There has been a complete turnaround in 10 years. The market has grown tremendously and so have the brokers and it’s become much more sophisticated, which we appreciate. The C-suite has recognized that this is something that has to be looked at,” he said.

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Dutch-based ING is restructuring, separating its banking and insurance operations. ING U.S. plans to rebrand as Voya Financial, a retirement, investment and insurance company, according to the company’s website. “In our case, one of the biggest concerns we had was that because of the split with our parent company, we had very little time to place our financial lines products, including cyber. So the concern is to get it right.”

The company filed an IPO in May, “and yesterday we announced we would have a secondary offering. When you don’t have the umbrella of a major global corporation anymore, you become keen on your risks and exposures,” Kirtland said.

What happens if technology fails at the company? “With us it really is out in the cloud,” Kirtland said. “Classic business insurance reimburses you for supply chain problems or if a warehouse burns down, so it’s an extra expense we have to worry about.”

To be able to stay in business in case of a technology failure, or in the case of “a system-wide blowout, we went with a time-limited type of retention. It’s a set amount based on the time you are out,” he explained.

The ABCs of Ultimate Bridge Building

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Photo courtesy of the California Department of Transportation

A trend in bridge replacement is in full swing in the Hudson Valley, New York. The second bridge, being installed on eastbound Interstate 84, will be completed over the course of just a few days. This keeps motorists happy, lowers the auto accident rate and creates a safer environment for bridge workers.

It will only take about a day to slide a pre-constructed bridge into place. This is an amazing feat, especially considering that a bridge that was recently replaced where I live required the town’s main road to be closed for about two years. Traffic had to be rerouted onto several convoluted routes.

Early Saturday morning a portion of I-84 will be closed and it will take crews about 18 hours to remove the old bridge and simply slip the new one into place. That portion of the highway will be closed for five days.

The first bridge replacement, for westbound traffic, took place in September. the process, called “accelerated bridge construction” (ABC), has been used internationally and in a number of U.S. states to minimize the length of time a highway is out of commission and to lower the risk of injury to workers.

A project like this is the ultimate in planning. ABC has been promoted by the Federal Highway Administration (FHWA), which issued a report with the California Department of Transportation (Caltrans) and several other entities.

According to the report, there are many advantages to ABC:

“Proven benefits include minimized traffic disruption, improved work zone safety, and reduced on-site environmental impacts. Related traffic impacts derive from both expedited congestion relief projects and minimized traffic disruption due to reduced on-site highway construction activities. Safety enhancements benefiting the motoring public and highway workers, as well as lessened environmental impacts are directly attributable to limiting in-situation work requirements. For these reasons, European and Asian countries have already embraced the ABC philosophy for many of their urban construction projects.”

The FHWA explains that structural components of a bridge—prefabricated bridge elements and systems (PBES)—are built offsite, or near the site of the bridge to be replaced. The components include features that drastically reduce the length of time for onsite construction for new bridges or rehabilitated or replacement bridges. The components are built away from traffic areas, transported to the site and quickly installed.

Photo courtesy of the Federal Highway Administration

 

IICF, Sesame Workshop Announce Reading Program

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Alan and Grover promote reading program. Photo by Caroline McDonald

 A program to promote daily reading for young children was announced today at the New York Public Library in Manhattan. Making an appearance to bring attention to the Every Day is a Reading and Writing Day program were the popular Elmo, Grover and Alan Sesame Street characters.

“Studies have shown that less than half of children between birth and five years old are read to every day by parents or caregivers,” William E. Ross, chief executive officer of the Insurance Industry Charitable Foundation said at the event. “So it’s not surprising that out of 50 children, 44 have reading problems when they enter the third grade.”

Even before starting school, children from high-income families have the advantage of 400 hours more of literacy-related activities than those from low-income families, according to the Sesame Workshop. By age four, a child from a high-income home is exposed to 35 million more words than a low-income child.

Ross noted that reading and writing skills set children up for success and that “The goal is for children to arrive at their classes with stronger skills.”

To help narrow the gap, the IICF and Sesame Workshop, the nonprofit, educational program behind Sesame Street, have partnered to form an online bilingual—English and Spanish—digital resource center. The resource includes games and activities to encourage parents, families and caregivers to interact with young children and improve their reading and writing skills.

Sesame Street is promoting the program nationwide, also making appearances in Chicago, Dallas and Los Angeles.

“We have a civic responsibility to support the development of youth,” Ross said, adding that the insurance industry is caring and philanthropic and has the available resources to focus on national issues.

The IICF, established in 1994, is directed and funded by the insurance industry. The organization said it has contributed more than $20 million in grants to charities and 166,000 volunteer hours to hundreds of nonprofit community programs.

Goals of Every Day is a Reading and Writing Day are to:

• Help parents and caregivers realize the importance of their role in creating the foundation for literacy in their children.

• Give volunteers engaging, fun-filled and educational resources to positively impact the literacy development of undeserved children across the United States.

• Provide children with games and activities to stimulate their interest in talking, reading, and writing from an early age.

 

Climate Change Report Causes Alarm

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New findings on climate change, establishing it as a manmade phenomenon, are garnering attention from the insurance industry, which recommends immediate action.

The Intergovernmental Panel on Climate Change’s (IPCC) newest report  “clarifies what businesses and investors already know, that climate change is happening now and human activity is the dominant reason why,” Mindy Lubber, president of CERES, a nonprofit organization that works with insurers and investors said recently on a conference call. “Climate change is disrupting all aspects of our global economy, including supply chains, commodity markets and the entire insurance industry, which is seeing exponentially large losses from extreme weather events.”

Lara Mowery, managing director, head of global property specialty practice with Guy Carpenter & Co., noted that the report should cause “significant concern” and impact how insurers and reinsurers shape their business going forward.

Insurers’ and reinsurers’ business plans “depend critically on understanding and assessing risk, which is likely to become even more challenging as weather variability increases,” she said. Identifying and understanding the causes and consequences of climate change is essential to “implementing workable risk management solutions.”

Global cat losses are increasing, she explained. In the 1980s, “the rolling 10-year annual average for the worldwide cat loss was less than $10 billion. In the last few years that average has jumped up to more than $50 billion average, based on that 10-year rolling time frame.” In addition, 2005, 2011 and 2012 represent the top three insured cat loss years on record, she noted.

Given the IPCC’s conclusion on flood, drought and changing weather patterns and evidence of this over the past 50 years, the industry needs to evaluate how these changes could impact future losses. As an example, she said, the most widespread hazard of global warming is coastal flooding. Impact of events such as Superstorm Sandy, which produced devastating storm surge, could have even worse consequences if sea levels continue to rise. “Insurers and reinsurers must continually assess the most up to date research and adjust their business plans according to increases in calculated loss.”

While this has meant more insurer capital is at risk, “that can’t be the only response, the only solution and the only answer. We can’t just keep putting more money in the path of what’s happening,” Mowery said.

She emphasized that the industry and insurance buyers can be taking steps now to address the risks.

A recent example of innovation in this area is the Metropolitan Transportation Authority’s (MTA) $200 million catastrophe bond that was issued in July, “the first of its kind to cover storm surge specifically,” she explained. The MTA commented in the aftermath of Sandy that their traditional avenues for insurance and reinsurance “constricted dramatically,” making it more difficult for them to obtain the kind of risk transfer they needed.

She also pointed out that “We can’t continue to let human and economic costs escalate. Building codes and standards and land use strategies are accepted adaptation measures to improve resilience against flood, wind and fire impacts that may worsen under global warming.”