Written by Greg Merrill

 

For more than 15 years, Pan American has been fortunate to count one of the oldest family-owned wineries in Northern California amongst our clients. This vineyard enjoys unique geology and diverse soils that enable the production of high-quality wine labels.

We began handling the winery’s crop insurance in 2002. Since then, our business relationship has strengthened, and the client has become familiar with our expertise in the agricultural sector. In 2009, the client entrusted Pan American to place all other lines of coverage.

This decision was heavily influence by Pan American’s recommended approach on covering their property risks. As we explain to all current and prospective clients, vineyard and winery operations have unique property-and-casualty exposures, yet many brokers default to a simple Package Policy to cover stock. As a result, there can be numerous exclusions and policy-form limitations. Rather that instituting a one-size-fits-all strategy, our approach comprises investing significant time with our clients to fully understand their potential risks, followed by outlining a range of alternative strategies.

For this particular client, we explained the advantages of using a “Stock Throughput Policy” (STP) rather than the Property Coverage part of a Package Policy. (An STP is an “all risk” insurance policy that provides seamless coverage from the field to final sale.) Unlike the Property Coverage in a Package Policy, a properly tailored STP can offer growers and distributors comprehensive protection against numerous perils, including earthquake, flood, and contamination.

Earlier this year, during production, a valve malfunctioned and several hundred gallons of fine wine in process—valued at more than $250,000—were lost. Coverage could have been excluded had they relied on a basic Package Property coverage, but because they had already implemented the “all risk” STP, it was fortunately a covered loss.

Do you have the correct coverage in place for your unique exposures? Contact us for a consultation today.

 

About the Author:

Greg joined Pan American more than a decade ago focusing on crop insurance. He soon began to practice other lines of insurance and is now versed in both Property/Casualty and Life/Health. In 2009, Greg was appointed Director of Pan American’s crop insurance division. Greg is dedicated to excellence in his field and is committed to providing comprehensive insurance coverage solutions to his clients. He specializes in agribusiness and has clients throughout Northern, Central & Southern California.

Designations & Achievements:
CIC – Certified Insurance Counselor
AFIS – Agribusiness & Farm Insurance Specialist
National Alliance School for Producer Development (Graduate)
2009 President’s Award

Technological breakthroughs in self-driving—AKA autonomous—vehicles are dramatically changing life on the highway. The transition to machine-led driving is affecting how consumers and the auto and insurance industries view auto coverage. As this market continues to develop, the Ascension Transportation Practice is monitoring developments and sharing our take and the observations of others, with you.

We are currently seeing two ways autonomous vehicles are affecting the risk-management and insurance landscape:

Effect #1: Risk is Shifting

Autonomous vehicles are proving to be safer than human-piloted ones. Crash rates for Teslas have dropped 40 percent since the company introduced Autopilot technology. This trend is starting to directly affect the cost of auto liability insurance. In response, Farmers Insurance recently reduced premiums 25 percent for a ride-sharing firm that uses Teslas in its fleet.

Commentators note that over time, driverless cars will shift liability to the manufacturer. Accenture’s Head of Global Insurance sees greater products liability and cybersecurity exposures ahead.

Effect #2: The Way We Buy Auto Insurance is Changing

In a recent Berkshire Hathaway briefing, Warren Buffet indicated that the increased prevalence of autonomous vehicles and artificial intelligence is a threat to the current business models of traditional players like its auto-insurance subsidiary, Geico.

New players like Google, Apple, Amazon, Verizon and Tesla are in an excellent position to disrupt the industry and corner as much as 20% of the auto insurance market. Tesla is already selling insurance with its vehicles in Australia and Hong Kong.

Why Does This Matter to the Transportation Industry?

With the introduction of self-driving cars, humans inside the vehicles will essentially become passengers. Who will be held responsible for accidents and malfunctions—the driver, owner, manufacturer, or all? Much of the focus of that debate, to date, has been on cars. However, Google subsidiary Waymo has begun quietly testing autonomous vehicle technology on Peterbilt semi-trucks. In the transportation sector, self-driving won’t mean driverless. It’s likely a trucker will still be in the cab, most likely sitting in the driver’s seat, ready to take control if something goes wrong. In that scenario, insurers will need to consider potential risks to the drivers, their loads, and other passengers and cars, as well as who (or what) is ultimately held responsible.

This post is brought to you by the specialists in Relation’s transportation practice group. Do you have an interest in this topic? Get in touch.

Nut theft is no joking matter—it’s a significant and growing threat to California’s $9 billion+ nut-tree business. With more than 30 nut-theft events in 2015 compared to just one in 2009 and four in 2014, what once warranted only local agricultural area media coverage now garners national mainstream attention. The 2015 price tag? $4.6 million.

That’s enough of a hit to a vital California industry to make the state’s legislature sit up and take notice. Last year, both houses passed a bill—in record time—to establish a statewide, cross-jurisdictional “Agricultural Cargo Theft Working Group.” This funding mechanism would have activated and aligned numerous law-enforcement agencies in helping target these crimes, but Governor Brown unexpectedly vetoed the legislation on September 21, 2016. Additional legislation is in the works to increase criminal penalties for thieves from a misdemeanor to a felony.

Tailoring Insurance Coverage
In the event they are the victim of nut theft, growers should have a strong post-loss solution. As such, it’s important they work with an agent or broker with specialized expertise to ensure they have properly structured insurance placements. The analysis starts with contract review: Who bears the risk, and are there “handoffs” along the path from tree to processor to final end-user? Only when these terms are understood can insurance coverage be negotiated and implemented.

Why Steal Nuts?

• They’re valuable: A truckload of nuts, especially almonds, walnuts, and pistachios, can range from $100-500K.
• They’re in demand: Touted health benefits and drought have strained supply.
• They’re not easily traced: Unlike electronics, nuts don’t have serial numbers!
• They vanish quickly: By the time a theft is discovered, the nuts are often already on a ship or broken into smaller loads and dispersed to out-of-state destinations.

The following approaches are available to growers and distributors:

• Commercial-Package Policy
  There may be some coverage for Business Personal Property Stock in Transit under the basic policy form. However, this transit coverage tends to cover only a limited number of perils, so relying on this extension could lead to an uncovered loss.
• Cargo/Transit Policy
  Once the shipment is in the correct trucking carrier’s control, ensure the trucking carriers’ cargo policies do not exclude theft for any reason other than employee dishonesty, which is excluded by most cargo policies (this can be easily covered with a separate crime policy). Many trucking cargo policies will exclude or limit theft coverage if the vehicle is unattended or if a trailer is dropped. Additionally, consider requiring a crime policy to cover theft by employees of the trucking carrier (including theft by the dispatcher and/or the driver).
• Stock-Throughput Policy (STP)
  An STP offers growers and distributors the most comprehensive protection: Goods are covered at all times whether they’re being moved, processed, or stored. An STP can be an “all risk” type of insurance policy that provides seamless coverage from end to end and protects against perils including earthquakes, floods, and contamination.

Pre-Loss Risk Control
Growers and distributors should do everything possible on their end to prevent a theft situation, but orchard premises security (i.e., fencing, cameras, a guard service, etc.), is not an end-all-be-all solution. Nut theft is more commonly an act of fraud rather than an act of force.

Perpetrators are often part of organized crime groups, using sophisticated technologies to hack into trucking firms and utilize Department of Transportation databases. “Drivers” show up with high-quality, legitimate-looking paperwork. These forged documents incorporate burner phone numbers and enable thieves to steal shipping information and to quickly move the product to the black market stream of commerce. The thieves, and their loot, become immediately untraceable.

Growers/distributors can take any of the following precautions to prevent theft:

• Develop a relationship with a few select trucking carriers with whom a consistent protocol can be established to confirm the correct drivers are picking up the loads.
• Ensure your computer systems’ security is state-of-the-art, and ask carriers about their data integrity.
• Call the carrier on the phone number provided during the originally contracted shipment and not the phone number given on any shipping documents (given their potential fraudulent nature). Require those firms to advise detailed information at least 24 hours in advance of pick up.
• Get each driver’s license number and thumbprint.
• Photograph both the driver and his/her truck.
• Consider using radio-frequency trackers to ensure the loads end up where intended.

Because of the potential high profits and low risk, nut theft continues to be alluring for thieves and a challenge for growers/distributors. Taking a 360° risk-management approach—contract review, insurance program design, and pre-loss prevention can go a long way towards minimizing or, at best, avoiding exposure to loss.

 

About the Authors

Greg Merrill is Senior Vice President and Director of Crop Insurance Services of our Pan American business unit. Greg has been helping agribusiness clients manage a wide range of operating risks for more than 13 years.

Andy Sharpe is Regional Transportation Leader for Ascension’s Transure business unit. For more than 15 years, Andy has focused on transportation risk management and insurance, and is a renowned industry specialist.

For the first time since 2010, the Workers’ Compensation Insurance Rating Bureau of California (WCIRB) is changing the formula for calculating experience modifications, effective January 1, 2017. This could impact your Workers’ Compensation premiums.

What is an Experience Modification?

Experience rating is a method that compares an employer to other companies in its industry class based on their historical claims experience. It is expressed as a percentage—called an experience modification factor, or “Ex Mod”—and utilizes past loss experience to help predict future losses. The Ex Mod is applied against premium and either penalizes a company (if its loss experience is worse than the industry average) or rewards it (if its loss experience is better than the industry average). Experience modifications create a powerful incentive for employers to prevent claims and control claims costs.

How is it Currently Calculated?

The experience modification rating process uses what is known as a split point of $7,000. An insured’s actual losses below $7,000 are considered primary and go into the formula at full value. Losses above the split point (to a maximum of $175,000) are considered excess losses and have less weight in the formula. Dividing losses into primary and excess components gives greater weight to loss frequency, which is typically more controllable by the employer, than to loss severity, which is typically caused by less predictable catastrophic claims. The current formula, in effect since 2010, is a one-size-fits-all approach for all employers regardless of company size.

How will it be Calculated Starting January 1, 2017?

WCIRB found that the pattern of claim frequency and severity in California has changed over time, and the single $7,000 fixed split point was “no longer producing optimal results.” On January 1, 2017 it will be implementing a variable split point methodology where, depending on the size of the employer, there will be 94 different primary loss split points between $7,000 and $75,000. Losses above an insured’s split point will no longer be used in the experience modification calculation. The overall effect of the change will be to give greater weight to claims frequency while claims severity, although still a factor, will be limited at no more than $75,000.

What is the Potential Impact?

The WCIRB states: “While the variable split point plan represents a fundamental change in the values used to calculate experience modifications, there is no expectation that experience modifications for California employers as a whole (emphasis added) will change.” However, each individual insured’s experience modification will be dependent not only on its losses, but also on its size. Under the new formula, insureds whose split points increase above the current $7,000 level will have a greater amount of their losses designated as primary and will be more negatively affected by frequency than severity.  This in turn could lead to an increase in their Ex Mod. On the positive side, the $75,000 excess cut off limits the impact of catastrophic losses which should especially benefit smaller employers.

This article was first published by Captive Review, and written by Richard Cutcher.

 

California-based Ascension Insurance Services is expecting to add a second cell to its segregated portfolio company (SPC) in the Cayman Islands.

Captive Review reported in February 2015 AARIS Insurance Company SPC, owned by Ascension Insurance Services, had formed the jurisdiction’s first portfolio insurance company (PIC) – AGG 1 PIC.

Legislation enabling PICs, comparable to incorporated cell companies (ICCs) in Guernsey, came into effect in January 2015.

“We were up against a tight deadline because the renewals for the members were in February and the legislation was only passed the month before,” Paul Tamburri, west coast risk management practice leader at Ascension Insurance Services, told Captive Review.  “We had to get the fronting in place and ensure the carrier understood they were now contracting with the PIC rather than AARIS.”

When AGG 1 PIC was established it originally had 13 members.  That has since grown to 15.  All members are agriculture businesses with California or Arizona risks writing workers’ compensation.

The rush to find a solution for the original 13 members came about after the owners of a separate Bermuda segregated account company (SAC) changed hands and the clients in two of the three cells wanted to continue working with Ascension.

Tamburri said one of the reasons the SPC option was so attractive to Ascension was they saw the potential to offer a PIC solution to other groups of clients.

“We are already working on a segregated portfolio which we hope to get running by 1 April,” he added.  “That cell will be for another group of agricultural clients and is also for workers’ compensation.”

Ascension also works with the trucking industry and education institutions.  A large part of its client base is non-profits and the firm is considering setting up another vehicle especially for medical stop-loss.

“The SPC is a big opportunity for our company as a whole, and not just for this one PIC,” Tamburri said.

 

This article was first published by Captive Review, and written by Richard Cutcher. Captive Review was launched in 1999 and caters for the risk management and captive insurance communities.

Please join us for a seminar and panel discussion, led by Shiraz Saeed, Cyber Specialist at AIG, and John Simios, ARM, AAI, Vice President, Captive Resources LLC.

This seminar will focus on sharing ideas and expertise regarding creative risk transfer solutions and assessing new and growing exposures for middle- market companies.

Questions Answered/Topics Covered:

• Market Update: Property & Casualty and Employee Benefits
• How can I assess my Cyber Risk?
• Am I large enough for a Captive? Isn’t that only for large companies?
• What are rates doing? Should I expect an increase in next year’s renewal?
• Regulatory Environment Changes: OSHA, ACA Compliance
• Learn about current Trends and Best Practices

Date:
Thursday, October 29th, from 8:00am to 10:00am
Location:
Charlotte Country Club, 2465 Mecklenburg Avenue, Charlotte, NC 28205

RSVP to Michael Betters

The economy simply can no longer be the excuse as to why safety is not a top-tier priority in the waste and recycling industry. During recent challenging times, companies of all shapes and sizes elected to adopt a cost-cutting focus simply to survive, causing many to rethink their investments (both time and money) in programs related to fleet management and safety.

In 2013 as a result, the number of industry fatalities spiked by more than 25 percent, which boosted the waste-and-recycling industry to the fifth most dangerous profession (up one spot from the prior year). All workers in this industry should be focused on how to increase the odds of getting drivers home safely to their families each day.

Traditional Approaches to Injuries

Mindsets around safety in our industry have frequently been based from “nature of the beast” to “the employee has to be held accountable… I can’t hold their hand.” Driving a compactor truck loaded with nearly 10 tons of waste is an extremely dangerous profession.

Any profession can be made dangerous while operating with a laissez faire attitude. Safety starts at the top of the organizational chart and must be constantly visible. If safety is driven home on a routine basis with a set of professionally crafted operating procedures, the waste industry can be thought of in the same light as our other trucking brethren. Insisting that a driver is 100 percent to blame and responsible is like saying a sales individual is in charge of the overall financial performance of the company. While they drive growth that directly impacts the bottom line, they are only part of the solution; not the end all/be all.

The most prevalent and damaging company environment is the all too familiar lip service to risk and injury mitigation efforts. In this scenario, some signs are put up in the break room, and a safety-first pizza lunch is provided every once in a while. These gestures are not entirely wrong, but they must be included in a much larger overall safety-imperative effort. One driver, making one bad decision, can completely change the entire direction of a company.

Damaging Consequences from Traditional Mindsets

There are significant, and often unrecognized, outcomes from injuries within our industry, including, but not limited to, the following:

• Increased out-of-pocket expenses
• The inability to bid on certain jobs
• Rising insurance premiums
• Declining customer satisfaction and retention rates
• Weakening driver attraction/retention and absenteeism

A company doing the bare minimum in regards to protecting its most essential assets (its people) is much more likely to experience downward spiraling financial performance. The next time a garbage truck passes, wonder whether or not the team carrying out that service is satisfied with what they are doing or if they’re just putting in their time. It might change how close you are willing to drive hugging the center line.

Due to being in the high-frequency/high-severity quadrant when it comes to employee injuries, waste and recycling companies are discovering it is increasingly difficult to find more than a handful of insurance carriers that provide coverage for our industry. Carriers are funny—fond of premiums. Excessive claims? Not so much. The rising litigation costs, followed by increasing fatality rates, are ugly to see. Barring companies embracing the safety imperative, as opposed to giving it lip service, these trends will only get worse.

The Good News

The waste industry does have a lot of things going for it as far as finding well qualified drivers. They are home at night. The hours worked often leave free time during the middle of the day for employees to take care of personal needs. Drivers are familiar with routes and work within a limited radius. Helpers are used in residential vehicles. And the weather does not affect their weekly number of hours; as is often the case in other trucking industries. The waste and recycling industry is generally thought of as stable in terms of hours worked and providing steady pay. This being said, employees have to know that they are regarded as valuable tools that need to be consistently sharpened.

So how do you know you have an effective program in place that will generate long-term success, stability, and reverse the trend of profit drain? It all starts with the Proactive Risk Approach (PRA). This PRA is based on a sequential and protected process.

• Assess your current situation and find the deficiencies. You’re only as good as your weakest link.
• After the gap identification, address the low-hanging-fruit improvement opportunities you’ve known about for a while and have put off.
• The most important aspect of a proficient PRA is to not stop here. Companies must invest in a multi-prong approach that addresses the true problems rather than simply masking the symptoms.

Core Elements of an Effective PRA

These additional steps are essential:

Select Drivers Carefully

This is an ongoing practice—not an event. What happens if you lose your best driver tomorrow? How do you replace them? Creating a list of qualified prospects and working it frequently allows for a much less severe situation than starting from scratch. In the hiring process, lowering your standards should never be an option. If you don’t find a worthy hire, don’t settle or force a hire.

Create a Safety-First CultureSuch an environment cannot be faked. The buy-in must come from the top and trickle down. Keep in mind your team members will listen to what you say far less than they’ll watch what you do.

Keep Safety Training Ongoing

Training is not reserved for new hires only; it must be an ongoing initiative, be regularly enhanced, and be designed to enhance and encourage everyone to be their best at all times Creating open communication with all employees strengthens any culture of safety.

Maintain Visibility

The PRA cannot be a flavor-of-the-month program. Employees must know who they can and should turn to and should be encouraged to identify hazards or best practices. Employees are the ones who truly establish and carry out company culture.

Monitor Your Results

Any effective PRA must quantify the program outcomes. This can be done in a number of ways (e.g., sick days taken, tardiness, increased retention, customer-service ratings, yards collected per hour, maintenance dollars versus fines, etc.). Share metrics with your employees to spark a friendly competition.

Recognize and Reward Improved Performance

Incentives must be provided for clean MVRs and roadside inspections, turning in all paperwork correctly and on time, improved customer-retention rates, customer surveys, etc.

Assess Your Insurance Program Regularly

This ensures the retention versus transfer balance of potential threats in focus and will gauge if your limits are optimal given current market conditions and risk appetite.

Continue to Fine-tune

There is no one program that will be perfect for every company, and even if there were, things change. The culture of the company is going to evolve, so be flexible in finding what works, as long as safety remains top of mind.

Most companies don’t have adequate resources to establish and maintain a PRA program alone. It’s essential to partner with the right team, so seek out firms with insurance-industry experience, in-house resources, knowledge and working capital to provide external resources, and a documented track record of success mitigating injuries and overall loss with waste/hauling and recycling clients. It’s never too early to improve your overall safety program, as the short- and long-term returns are excellent. Ramp up your safety culture driven by a PRA, and you’ll experience an exceptional ROI.

 

About the Authors

 

Steven Billings is a risk advisor in Relation’s waste-management practice focused in alternative risk solutions and value-added services. He can be reached on LinkedIn, via email at [email protected] or via phone (704) 688-1285.

 

 

George H. Lucas, Ph.D., is director of coaching and learning at Schul + Baker Partners of Dallas, TX. He can be reach via email at [email protected] or via phone at (469) 291-5493.

 

 

This article originally appeared on the Waste360 website.