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Super Bowl: A Game of Risk

The most-watched sporting event of the year is upon us. This Sunday, the Packers will take on the Steelers in a battle of brawn. But such a large event undoubtedly poses serious risks to everyone in attendance, including vendors, teams and spectators. To understand how the NFL and the stadium handle such threats, I contacted Chris Rogers, director of risk control for Aon Risk Solutions’ national entertainment group with a few questions.

RM: For an event the size of the Super Bowl, there are bound to be concerns regarding the safety of fans, vendors and the facilities used. How does the NFL and Cowboys Stadium go about protecting these assets?

Chris Rogers: As with any event of this nature, the sponsors and promoters are very concerned with fan and participant safety. All responsible organizations spend a large amount of time in the planning and preparation phases necessary to put on such a grand event. Safety and security will be at the forefront of all deliberations during decision-making times. These plans and preparations will have begun virtually the same day that it was announced when and where the Super Bowl would be played and continues right up to, and during, the game itself.

Today, most of these plans will follow the basic outline of the National Incident Management System (NIMS) and their model of Incident Command Structure (ICS), which provides for a structured approach to coordinating all the various entities that will be involved. Using this system, risk and threat assessments will be completed that attempt to identify what threats may be posed and how best to eliminate or mitigate them. These plans will also incorporate the training needed by safety and security personnel working the event.

RM: Does the league or the stadium incorporate weather policies and procedures into the overall emergency planning process. If so, how?

CR: Weather is a large factor in the planning and preparation process. Using historical data and assistance from public and private weather services, various scenarios will be mapped out and preparations will be made for response personnel. These plans would include situations before the game as well as during. Plans will also be reviewed regarding “Sheltering-In-Place” procedures should that be required.

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Weather-trained experts will be on site during the game for immediate consultation and assistance.

RM: What types of events could cause a cancellation of the game? How would that be managed?

CR: The events that might be cause for an event of this nature to be canceled would include: severe weather situations (lightning, earthquake, flooding, tornadoes, etc), civil disorder, major fire, terrorist attack, structural collapse, major news events (assassination of a political figure, outbreak of war), as well as pandemic illness (SARS, flu, etc.).

Each of these situations will have to be addressed by risk and security personnel to determine how likely the event might be as well as how severe it might be. In other words, they will conduct a risk assessment for each during which they will address the likelihood of occurrence and how well prepared they are to handle such a situation as well as what the consequences might be if the event occurs. After this assessment, they will begin to decrease their vulnerability by outlining current controls and capabilities as well as a plan for reducing those vulnerabilities wherever they can. These reductions could involve the “hardening” of the venue with new barriers (additional perimeter fencing, additional security personnel, additional lighting, etc.) as well as implementing new restrictions on deliveries and access to the venue or providing additional training for staff and response personnel.

Another aspect of this will be who will be responsible for deciding when and if a cancellation is needed. This will be decided well beforehand and would include procedures for advising all participants that a cancellation is in effect. These procedures will obviously vary depending upon when the decision is made (before the event, just prior to the event or during the event) as each will have unique challenges associated with it.

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RM: How does the stadium work to prevent possible terrorist attacks. What types of security measures are taken inside and outside of the stadium?

CR: The potential for a terrorist attack is an ongoing threat that any stadium hosting an event must be prepared for. For several years now, large public assembly venues have been “hardening” themselves as a target in order to discourage an attack or at least make it as difficult as possible for someone to do harm. This hardening includes structural changes (additional barriers, increased security patrols, new access control systems, closed circuit TVs, etc.) along with procedural changes (employee and vendor background checks, training, delivery appointments, etc.).

There will also be many meetings with law enforcement agencies to review any known or suspected threats. Pictures of any known threats will be circulated and discussions held regarding possible scenarios that might be an issue. And if the event should be designated as a Special Security Event (SSE), additional military and government personnel and capabilities will be made available as well.

RM: Who do you think will win? Why?

CR: As for who will win, GO PACKERS. As for why, because they have a quarterback with a great last name (even though he spells it differently).

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Does Obama’s 3rd Year Mean Lower D&O Prices?

Yesterday, Aon released its quarterly D&O pricing index, finding that the average price for $1 million in coverage limits increased 4.9% from the first quarter of 2010 and, more importantly, that D&O pricing decreased 16.4% in the second quarter as compared with the same quarter in 2009. According to the report, this is the largest decrease since the fourth quarter of 2007 and the second consecutive double-digit decrease.

As for D&O securities class action claims activity, Aon found that, for the second quarter of 2010, the average D&O securities class action settlement was $39.87 million (excluding settlements of $1 billion or greater). This is an increase of almost 28% from the preceding three-year average settlement value of $31.18 million.

The report makes an interesting point in terms of mitigating factors for D&O pricing.

We all know that D&O pricing and the stock market are inversely correlated. Meaning, when the stock market goes up, securities class action litigation tends to decrease, and D&O prices go down.

But have you heard of the presidential election year cycle and its effect on the stock market (and thus, D&O pricing)?

The report cites Mark Hulbert, founder of the Hulbert Financial Digest, as saying that, on average, the third year of a presidency is the most bullish of a president’s term. Hulbert researched yearly returns for the Dow back to 1896 (the year the Dow Jones Industrial Average for founded).

Here’s a snapshot of his findings:

Screen shot 2010-09-23 at 1.21.16 PM
Clearly, there is a big spike in the third year versus the others. If this theory holds true, then there may very well be continued downward pressure on D&O rates for at least the next 12 to 24 months, the report states.

In addition, Aon’s D&O Peer Benchmarking report, which was conducted jointly with NASDAQ, outlined six best practices for organizations to follow when looking to purchase or analyze their coverage:

  1. Examine the D&O policy to determine corporate executive indemnification provisions
  2. Question any generic worldwide coverage language in the D&O policy; it may be inadequate
  3. Recognize what triggers a claim under the D&O policy
  4. Scrutinize the limits of the excess policies
  5. Understand how coverage under the D&O policy is affected by the wrongful acts of others
  6. Know how the organization and the directors and officers are protected during a financial crisis

All in all, the information in the report bodes well for buyers of D&O insurance through the remainder of 2010, as the current soft cycle for D&O underwriting is expected to continue.

Manchester United’s New, Aon-Sponsored Uniforms

Aon_Manchester_United

Here’s the first photo of what the new Manchester United uniforms (or “kits” as the footballers call them) will look like next year.

Pretty sharp. Digging the throw-back white collars. I would probably prefer white socks though.

For those who don’t know, the English soccer powerhouse used to be sponsored by AIG, but that contract ran out and — wouldn’t you know it — AIG didn’t exactly have a ton of surplus money lying around to throw at foreign soccer teams. But based on its recent $5 billion purchase of health care consultancy Hewitt Associates, it’s pretty clear that Aon does. I did an interview with one of the company’s PR reps a few weeks ago if you want to read more about the partnership.

Additionally, here’s a video Man U put together a while back to welcome Aon to the team, so to speak.

Is Lindsay Lohan Now Uninsurable?

lindsay lohan

Five years ago, Lindsay Lohan seemed poised to be the next, big starlet in Hollywood. Now, years of legal trouble have led to her being sentenced to 90 days in jail and her acting career appears to be in serious jeopardy.

Still, there have been many other improbable comebacks to the silver screen by actors who were once counted out. Look at Robert Downey, Jr.’s triumphant return as Iron Man. But a little known fact about the movie business is that the insurance that covers the financial backing put up for films can sometimes play as big a part as the actors. And if an actor becomes “uninsurable” due to erratic behavior and run-ins with the law — as Robert Downey reportedly used to be — it makes any studio think twice about committing to him or her for a role.

I recently chatted with Douglas Turk, executive vice president of the world’s leading entertainment industry insurance broker Aon/Albert G. Ruben (which is currently celebrating its 50th anniversary and has insured these and many other movies), to find out if Lindsay’s time in jail will make her uninsurable for producers and just learn a little more about how the whole process works.

Jared Wade: Even before Lindsay Lohan was sentenced, studios were having trouble placing insurance on her. How about now? Will she be totally “uninsurable” once she gets out of jail?

Douglas Turk: The issue is more on assumption of risk and cost as opposed to insurability. Anything is insurable — it’s really a question of price. Producers will need to determine the cost/benefit for Lohan’s role in a production to determine if her involvement will yield a positive result even with the inevitable higher costs.

Wade: Why does Hollywood take out policies to cover actors?

Turk: For the most part, insurance is in place to protect the financing and investment of a film and to protect against the risks that could stop the production. Certain actors are considered essential elements of a film, which is saying that they are critical to the completion of a film. Without their involvement the film could not be completed. If one of the essential elements is unable to fulfill their requirements, it puts the film at risk and, eventually, the financing (debt and equity).

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Wade: Generally, are policies taken out on all actors? If you become “uninsurable” does that mean you can’t work?

Turk: For most major productions, insurance covers the actors. If an actor is considered high-risk and cannot get insurance cover at a reasonable rate, a producer may still proceed with the production by retaining more of the risk themselves. It will become more difficult for actors to work, but not impossible.

Wade: Can this insurance cost become prohibitive enough that studios generally try to steer clear of “high-risk” casts? You’re essentially multiplying your risk of shooting interruptions with each problematic cast member, right?

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Turk: Again, this goes back to the cost/benefit analysis of the producer and financiers. If the actor is too high-risk and costly, the producers will look to other actors to fill the roles. A group of high-risk actors may change the dynamic of the film with the financers and require re-casting if the risk is judged to be too high.

Wade: What types of triggers are insurers looking at when they make their underwriting decisions?

Turk: The underwriters have seen all the news stories and understand the history of high-risk actors, so they will proceed cautiously when reviewing the risk by asking very detailed questions about the production, location, cast and crew. Insurers will also require specific activities (risk control) that could include active participation on set to ensure that the actor fulfills his or her obligations. This would be complemented by specific exclusions on the policy as well.

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