Insurance & Risk Management

A better understanding of Insurance and understanding Risk Management basics

Mike Arnold

Commercial Account Executive

The Partners Group, Ltd

Disclosures

Mike Arnold “declare(s) no conflicts of interest,

real or apparent, and no financial interests in

any company, product, or service mentioned in

this program, including grants, employment,

gifts, stock holdings, and honoraria.”

The American College of Apothecaries is accredited by the Accreditation Council for Pharmacy Education as a provider of continuing pharmacy education.

Learning Objectives

At the conclusion of this program, the participating

pharmacist or technician will be able to:

– Objective #1 – Define Insurance & Risk Management

Terminology

– Objective #2 – Identify “Risk” and steps to minimize

financial impact

– Objective #3 – Identify & Describe key insurance

coverage

Who am I?

Who am I?

Why this is important for YOU

• Developing risk management strategy

decreases chance of loss and reduces severity

• Understanding your exposures will help you run

your business

• Insurance protects YOU from extreme financial

loss

What is Risk?

Two types of risk

1) Pure Risk – situations that present the opportunity

for loss but no opportunity for gain (generally

insurable)

2) Speculative Risk – Uncertainty about an event

under consideration that could produce either a

profit or a loss (gambling, business transaction)

What is at risk?

What is at risk?

Risk in business

Risk Appetite

• Amount and type of risk that an organization is

prepared to seek, accept or tolerate

Risk Tolerance

• Organizations readiness to bear risk in order to

achieve its objectives

What is Risk Management

Risk Management: is the identification,

assessment and prioritization of risks (positive

or negative) followed by coordinated and

economical application of resources to

minimize, monitor, and control the probability

and/or impact of negative events or to

maximize the realization of opportunities

Sources: Risk Managemenet: www.udemy.com/business-risk-management

Risk Management is…

Identification of Risks

Assessment of Risks

Prioritization of Risks

Resources available to

Minimize Risk

Monitor Risk

Control Risk

Implementation of RM Strategy

1) Identifying Risks – make list of all risks. Best done

through brainstorming with team

2) Assessing Risk - analyze and prioritizing risks and

create action plan

3) Controlling / Mitigating Risk – Implementing strategy

(Risk Avoidance, Risk Transfer, Risk Acceptance)

4) Reviewing Controls – Regularly review the identified

risks, identify new risks, remove irrelevant risks

Assessing Risk

Probability and Impact Matrix

Formula: Risk Score = Probability x Impact

Probability Table (Likelihood) Impact Table (Severity)

•Very High

•Risk event expected to occur5

•High

•Risk event more likely than not to occur 4

•Medium

•Risk event may or may not occur3

•Low

•Risk event less likely to occur2

•Very low

•Risk event is unlikely to occur1

•Catastrophic

•Risk event would be fatal5

•Significant

•Risk event would result in major impact4

•Moderate

•Risk event would cause damage3

•Low

•Risk event will result in minor impact2

•Negligible

•Risk event will have insignificant impact1

Risk Rating

Risk Management Case Study

Scenario: Employee promoted from Assistant Manager to Manager. Employee struggles

with role, is accused of misuse of authority, belittling employees, rude to

customers. Business owner has employee handbook that addresses

process for problem employees. Process includes contacting third-party

human resources firm the business has contracted with and pays an annual

fee. HR vendor has agreed upon process for handling personnel issues.

Business owner addresses each complaint but no documentation is kept

and does not involve HR firm. Manager receives additional training but

complaints persist. Business owner decides that Manager was promoted

too quickly but still valuable employee, decides to demote back to Assistant

Manager. Assistant Manager quits and files suit for hostile work

environment, sent demand to Business owner for $300,000.

Case study summary

• Business owner did not follow employee manual

• Did not involve third party HR service

• With no documentation Business owner cannot prove that training

was provided, every opportunity given to keep employee as

manager and that demotion was intended to help employee develop

• Case settled for $80,000 plus legal fees of $25,000

Risk assessment practice

• Identification

• Assessment

• Control / Mitigate

• Monitor

Principles of risk management

1) Create value

2) Be part of decision making process

3) Be integral part of organizational process

4) Be structured

5) Be responsive to change

6) Capable of continue improvement and enhancement

7) Periodically and continually re-assessed

Risk Management…Summary

• Two types of Risk – Pure Risk and Speculative Risk. Pure risk is

generally insurable

• Risk Management: is the identification, assessment and prioritization

of risks followed by coordinated and economical application of

resources to minimize, monitor, and control the probability and/or

impact of negative events or to maximize the realization of

opportunities

• Implementing a Risk Management strategy should

– Create value to the organization

– Be a part of the decision making process

– Structured

– Responsive to change as Organization changes

– Continual review

Insurance

Insurance Agent vs Broker

Insurance

Insurance Defined

• A contractual relationship that exists when one

party (the insurer) for a consideration (the

premium) agrees to reimburse another party (the

insured) for loss to a specified subject (the risk)

caused by designated contingencies (hazards or

perils).

Source: International Risk Management Institute

Insurance…Key TerminologyProperty

Building

Business Personal Property

Business Interruption

Inland Marine

Earthquake

Flood

Liability

Bodily Injury

Property Damage

Professional Liability

Management Liability

Cyber Liability

Business Auto

Liability

Physical Damage

Hired / Non-Owned

Rental Reimbursement

Medical Payments / PIP

Workers Compensation

Umbrella

Excess LiabilitySurety (Bond)

Property Insurance – Building Coverage to look for

Is the building insured to value?

If you have a sewer back upwhat’s your limit?

Building owners, do youhave sufficient Ordinance or law coverage?

If your business is notoperating due to a coveredclaim do you have enoughbusiness Interruption coverage?

Are you in a flood zone?

Are you concerned aboutEarthquakes?

What is your wind deductible?

Property Insurance – Business Personal Property

What would it cost to replace all your business property, equipment and inventory?

If there was a sewer back upwhat would need to be cleanedor replaced?

Do you have a capped limitfor spoilage? Is it enough?

Property Insurance – Business Personal Property or Inland Marine

Do you need to scheduleyour large equipment?

Back up question again, what happens if these getdamaged?

Do you have EquipmentBreakdown coverage?

Claims statistics to consider

• First half of 2015 $12 billion in weather related

losses in North America, $8 billion insured

Source: National Underwriter Property & Casualty Volume 119

General Liability – Common claims1. Slip and fall, are you liable?

2. Read your lease agreement

3. Do you need Primary and Non-Contributory language?

4. Have a CDTA? Is the physicianconsidered an Insured under your policy?

5. Personal and Advertising Injury

General LiabilityFour basic requirements for negligence to be established

1) There must be a legal duty of the insured to act

or not act;

2) Breach of this duty must be committed;

3) The breach (act) must be the proximate cause

of injury; and

4) There must be actual damage

Liability claim case studyChipotle can’t catch a break

• June 2015 in Palm Beach County, Florida

• Chipotle Mexican Grill Manager observed wet floor, wiped up,

notified corporate office, and placed yellow caution sign.

• Determined water coming from leaking roof

• Despite repeated calls to corporate, Chipotle failed to fix the roof

• Customer slipped and fell hitting head causing concussion and three

disc herniations

• Injured person made demand of $425,000

• Verdict $1,351,362: $244,363 past medical cost, $430,191 future

medical costs, $11,500 past lost earning capability, $15,308 future

lost earning capabilities, and $325,000 future pain and suffering

Professional Liability

Coverage designed to protect professionals against liability as a result of an actual or alleged error or omission

Professional LiabilityNo two policies are the same

• Intent is to cover actual or alleged bodily injury while operating

within scope of practice

• If business model / operations change talk to agent / broker to verify

coverage. If not covered, it’s possible to manuscript custom policy

form

• Defense costs may be inside or outside limits

• Policy can be Occurrence or Claims Made

– Occurrence Form: Covers claims that took place during the policy

period regardless of when the claims are made

– Claims Made Form: Triggered when claim is made after the Retroactive

Date, during the policy period regardless of when the wrongful act took

place, and before the end of the policy period

Professional Liability Case Study

Wrong drug

Patient was dispensed Diabinese instead of the

prescribed Diamox. Patient developed a rare

series of adverse effects and subsequently

permanent, significant vision loss.

Claim settled for $275,000

Source: www.CNA/HPSO

Business Auto - coverage to look for

1. Review and update Employee Handbook on policies for employees using personal vehicles

2. Implement Driver Agreements

3. Ask broker / agent for carrier driver training programs

4. Order MVR’s BEFORE you hire a prospective employee

Umbrella / Excess Liability

Commercial General LiabilityEmployee Benefits LiabilityBusiness AutoProfessional Liability (depends on carrier)

Directors & Officers LiabilityEmployment Practices LiabilityCyber LiabilityProfessional Liability (ask your agent or broker)

Not Covered

Management Liability

Defined: Insurance designed to cover directors, officers, managers, and

business entities that arise from governance, finance, benefits, and

management activities

Policies Include

• Employment Practice Liability

• Directors & Officers Liability

• Fiduciary Liability

Employment Practices Liability

• Covers wrongful acts from the employment

process: wrongful termination, discrimination,

harassment (doesn’t have to be sexual),

retaliation

• Most common charge? Retaliation

• Coverage often missed – Wage and Hour, if it’s

not specifically covered, its excluded

• Higher retention = lower premium

Directors and Officers Liability

Defined: covering directors and officers for claims

made against them while serving on a board of

directors and/or as an officer.

Fiduciary Liability

1) Per the Employee Retirement Income Security Act

(ERISA), an individual or corporation that: (1) exercises

any discretionary authority or discretionary control in

managing a pension or benefit plan or exercises any

authority or control in managing or disposing of its

assets; (2) renders investment advice for a fee or other

compensation, with respect to any monies or other

property belonging to the plan; or (3) has any

discretionary authority or responsibility in administering

the plan

2) Fiduciary Liability is essentially an E&O policy

Management Liability

• Can be written as stand-alone policies or as a

package

• When sold as a package policy limits can be

shared or separate, may provide premium

discount and may have same or customizable

retention limits

• Higher retention limits = lower premium

Claims statistics to consider

Employment Practices Liability

• Chubb conducted a study from 2004 – 2011 on

Employment Practices Liability Insurance claims

• Average settlement over 7 year period for all

types of employment related cases was

$631,589

• Two-thirds of all awards exceeded $100,000

Source: www.chubb.com

Cyber, Cyber, Cyber

Defined: Designed to cover a variety of both liability and property

losses that may result when a business engages in electronic

activities such as selling on internet, collecting data within its internal

electronic network. Cyber and Privacy policies cover liability for a

data breach in which customers personal information is exposed,

website media content, business interruption, data loss/destruction,

funds transfer loss, extortion, computer fraud and more.

Coverage IncludesLiabilityNotification and monitoringBusiness IncomeReputational HarmRegulatory Actions and Investigation

Cyber Risk Management

• Make privacy and data security a part of your organizations

corporate culture

• Have one person in charge of privacy / security

• Continuous training and awareness

• Strengthen contracts with vendors and associates

• Collect and retain minimum amount of personally identifiable

information

• Review and update policies and procedures

• Share knowledge and experience with colleagues

• Mitigate risk with Cyber Insurance

Cyber Liability Case Study

Scenario: Company was broken into and non-encrypted laptops were

stolen. Contained in laptops were SS#’s and bank account

information from the firms clients (about 10,000)

Exposure: Personally Identifiable Information

Action Required: Remediation costs, both to notify the clients and retain

company to protect the privacy and identity of the clients and restore

their ID to pre-theft status as required and report any security breach

to credit agencies.

Claim Cost: $150,000

Claims statistics to consider

2014 Cyber crimes study conducted by NetDiligence

• 117 claims studied

• Healthcare sector most frequently breached (29.3%) followed by

Financial Services (15.0%)

• Claims submitted for study ranged from $2,500 to $20 million

• Median claim payout was $242,500. Average claim payout

$954,253

• Median per-record cost $107.14. Average $6,790

• Median number of records lost 1,000. Average 2.3 million

• Median cost for Crisis Services $209,625, average $737,473

• Median legal defense $7,500, average $574,984

• Median legal settlement $22,500, average $258,099

Insurance Summary

• Insurance should be a part of your risk

management strategy

• Your Agent / Broker needs to be knowledgeable

about your profession, risks, and provide

solutions for insurable risks and advise on

uninsurable exposures

• It is your responsibility to review your coverage

and ask questions

• Management Liability and Cyber Liability

exposures are growing

Need More Information?

Mike Arnold

Commercial Account Executive

The Partners Group

Email: marnold@tpgrp.com

Phone: (425) 467 – 3152

Website: www.tpgrp.com