Ask the Experts
ISO, a member of the Verisk Insurance Solutions group at Verisk Analytics, offers risk assessment services and decision analytics to professionals in many disciplines throughout the property/casualty insurance industry. It serves insurers, reinsurers, agents and brokers, insurance regulators, risk managers, and other participants in the property/casualty insurance marketplace.
Here are expert responses from the ISO team to timely questions concerning:
Shawn E. Dougherty
Specialty Commercial Lines
With all the focus on cyber liability over the past few years, what does “cyber” actually refer to within the insurance business?
These days, when the topic is raised, one might naturally think of computer- and/or Internet-related exposures — issues such as cyber attacks, computer hackers, computer viruses, cyber extortion, cloud computing, and the like.
Those are definitely exposures that many cyber-liability insurance policies aim to address. But focusing solely on the computer and technological risks is insufficient. Upon closer examination, one may discover that cyber insurance covers more than what’s generally considered “cyber.”
The primary exposure is data breach — which I’ll define here as the unauthorized access to an individual’s personally identifiable information (PII) or protected health information (PHI). PII includes such information as name, address, birth date, Social Security number, driver’s license number, and credit card information. PHI includes an individual’s healthcare policy number, biometric information, medical condition, and so on.
Many data-rich firms and organizations with access to their customers’ PII and/or PHI traditionally have relied on paper-centric record keeping, and many still do. Educational institutions, churches, doctors, accountants, lawyers, and even insurance agents, just to name a few, are typical examples. The information maintained is not limited to customer information. It includes PII and PHI for current, former, or potential employees as well.
And keep in mind some instances of wrongful access may not be considered at first to be a data breach. For instance, across the country over the past several years, there have been documented cases of thousands upon thousands of patient X-rays stolen from hospitals, medical imaging facilities, and off-site storage warehouses. The X-ray files — purportedly stolen to be sold for the value of the silver they contain — included information such as patient name, birth date, and patient number. Even though the X-rays were not in electronic format, the loss of the files containing the confidential information could technically be considered a data breach.
Many cyber liability insurance policies today cover the data breach exposure regardless of the medium in which the information is stored. It doesn’t matter whether the information is maintained in electronic format (stored on a server, computer hard drive, handheld device or tablet, or “in the cloud”) or in a nonelectronic format (such as paper files kept in a desk drawer or at an off-site storage facility).
Data breach exposure is real, and businesses of all sizes ought to be concerned. Each firm possessing PII and PHI must be a vigilant guardian and trusted steward of that data as long as it’s in the company’s possession.
Jeff De Turris
As we head into the summer months, with all the outside activities that implies, what should insurers keep in mind in terms of the policies their clients need?
With thoughts turning to warmer-weather pursuits, insurance clients may be preparing boats for their initial launch of the season. That means it’s also likely the right time to check in with policyholders to evaluate potential coverage needs for any watercraft or other recreational “toys” they may have purchased.
While many homeowners programs can accommodate watercraft risk, they typically provide minimal property damage and personal liability coverage. Covering such craft under the same policy as a client’s car or home can leave those insureds seriously underinsured and expose the agent to an errors and omissions lawsuit. Therefore, understanding the unique exposures of watercraft is essential.
Writing watercraft risks involving a powerboat, sailboat, personal watercraft, or equipment used with such craft presents some unique exposures. Identifying those exposures is critical to determine adequate coverage and rating.
The types of watercraft vary. Accurate rating of the craft may include length of hull, method of propulsion (for example, electric or diesel), and total horsepower. Each insurer, through its underwriting guidelines and eligibility rules, is likely to establish limitations regarding the types of boats it’s willing to write under its personal lines watercraft program (for example, only those less than a certain length and/or those for which the owner does not employ a crew).
The age of the watercraft may be a rating criterion. If the boat is older, at issue may be how well the craft has been maintained: Can the hull stand up to ordinary weather, water conditions, or the rigors of normal use?
To offer appropriate coverage for loss or damage, it’s also important to understand the value of boating equipment: anchors, dinghies, tenders, oars, or sails. The presence of certain safety equipment, such as automatic fire detection systems or antitheft devices, may make the vessel eligible for a rate credit.
In colder weather, when a boat is out of use, the insured may be eligible for a premium credit, but typically there’s also a requirement that the craft cannot be operated during this period and must remain stored in the lay-up location.
Personal watercraft, often referred to by one of several trademarked brand names such as Jet Ski, are recreational craft a rider sits or stands on. Agents may look to insure such vessels specifically and separately under a watercraft policy to provide proper coverage. According to the U.S. Coast Guard, in 2011, 44 people died on personal watercraft. The liability exposure involving passengers, swimmers, and other watercraft is a significant risk.
Jim Weiss and Isaac Wash
Commercial and Personal Automobile
Usage-based insurance (UBI) has had its advocates and critics, but it seems to be gaining traction. Can you give us a few thoughts on what UBI can do and some best practices to help with implementation?
Let’s start with UBI discounts. UBI programs typically consider multiple aspects of driving that can be divided into two categories: driving style and driving location. For driving style, we’re talking about mileage, speeding, and dangerous maneuvering habits of drivers. Insurers that rate based on driving style may look at various combinations of those behaviors to determine a discount. Some might even consider the behaviors in the context of where they happen (for instance, at intersections or near schools). While UBI based on driving style is generally the norm, another approach is based on driving locations involving, for example, the overall riskiness of insureds’ routes.
Discounts aside, some UBI programs may also provide value to insureds through safety feedback that identifies areas of driving behavior that warrant improvement. Such a feature may be particularly appealing to parents with teenage children whose “youthful” driving styles may make them more dangerous on the road. Driver feedback is available through many channels, but a common way is for drivers to access an online portal — via web browser or smartphone app — where they can view information about their driving habits.
UBI provides powerful tools that may be of interest to some insurance customers, but it also presents unique challenges to both agents and the insurers they represent. The telematics technology required to power UBI often finds insurers fronting substantial costs, so agents may find it useful to obtain clear guidelines from their insurers with respect to enrolling risks in UBI. Such guidelines will help ensure that business objectives are accomplished.
For example, a program that aspires to encourage safe driving behaviors may be most effectively marketed to all drivers who have had recent accidents (and who then are, statistically speaking, more likely to have new accidents). Such an approach may help make a UBI program more likely to succeed financially by making safety incentives available to the individuals most in need of improvement. This will potentially support writing a more profitable book of business, which, in turn, may result in larger contingent commissions for agents due to a reduced number of claims.
Establishing guidelines between agents and insurers offers more than financial benefits. Because UBI is still emerging in the industry, it has understandably drawn attention from some regulators and consumer advocates. So far, that attention has been mostly favorable due to the client-friendly nature of many UBI programs. However, carelessness or lack of discipline in administering the programs could easily draw unfavorable perspectives and attention to even those with the best of intentions. Appropriate underwriting and marketing guidelines should be designed to help agents avoid the attendant pitfalls.
With increased competition and slow growth in the business community in recent years, can you offer any ideas on how to generate new business?
To stand out and attract additional business, many insurers are interested in entering new market segments. But doing so with traditional commercial or liability policies can prove challenging.
Trends in insurance policy packaging have evolved over time. Early on, standardization of programs was a major goal. In those formative years, uniformity in coverage provisions and the like helped with regulation of the industry, contributed to market stability, and supported claims handling. While certain classifications of risk did have tailored policy language (for example, focusing on manufacturers), the emphasis on standardization was strong — and for good reason. Consistent language often supports efficiency.
Traditional insurance programs tend to slot insureds into a one-size-fits-all solution with similar coverages, similar exclusions, and similar limits. Standard programs might be the right fit for many insureds but leave others in certain segments of the market with unmet needs — presenting opportunities for insurers to address those needs and accommodate those market segments.
As competition increases and insurers seek to maximize premiums, specialization and market customization have blossomed. Specialized programs, or niches, identify, carve out, and complement offerings to provide a competitive edge. That’s a win-win scenario for the insurer and insured.
A niche market is often one that is distinguishable from the mainstream but has enough homogeneity and commonality to form a cohesive class. Insurers that know their clients can recognize whether an insured might be a candidate for a market-segmented program.
Most niches require the basic traditional property- and liability-type coverages, but they also tend to face unique exposures that may necessitate specialized treatment. An insurer needs to identify: What makes the client unique? Are all the client’s exposures addressed? Does a client need more — or something different — than conventional insurance products provide?
Answering such questions and having a tailored market segment program available show that an insurer isn’t just selling a one-size-fits-all product. Ultimately, that will help an insurer move ahead of the pack, penetrate new markets, and create an affinity with its customer base.
Reports have shown that there has been a growing trend toward reduced hospital stays and that home healthcare is once again gaining in popularity. How does that trend affect the insurance business?
What is generally different about home healthcare today is that in-home care is typically provided by healthcare companies or professionals rather than friends or family members, which was common in the past.
In recent decades, the number of older Americans has grown considerably. Some reports suggest that this increase may be related in part to the transition from informal to formal home healthcare. As such growth continues, it is important to understand the insurance exposures that home healthcare agencies may encounter. Since home care agencies may provide both medical and nonmedical services to an individual, those types of insurance risks face varying exposures. They can encounter not only exposures commonly associated with medical malpractice (for example, providing wrong dosage of medication) but also other liability exposures (such as abuse of patient) and property-related exposures (for instance, theft of patient property).
To address adequately the varying exposures a home care agency may encounter, a package of specialized coverages should be considered, including general liability, medical professional liability, crime, hired and nonowned auto liability, commercial automobile, cyber liability, commercial property, medical equipment, and abuse or molestation. Another coverage aspect to consider is whether the general liability and medical professional liability coverage should be combined in a single policy. Because of the nature of home healthcare agency operations, it may not always be easy to determine whether a particular exposure would be better addressed under medical malpractice or general liability coverage. Having related coverage under one coverage form instead of two may help alleviate some potential coverage disputes that could arise in two separate policies (for instance, if a nurse is helping a patient into the shower and the patient slips and falls).
With the shift toward more care to an at-home environment, the time to address risk exposures associated with the home healthcare industry is upon us.