SPEAKER: Welcome to the WTW Podcast Construction Blueprints where we
discuss the latest risk management and insurance trends, as well as issues
facing the construction industry. We'll speak with a variety of
construction leaders and experts on global topics who can help provide you
a blueprint for building your industry knowledge.
JOHN MARSICANO: Hi, my name is John Marsicano. I have the privilege of
being the moderator for this episode of the WTW Construction Blueprint
Podcast. I'm joined today by Kishan Dasan, Director of Strategic Growth
Construction and Natural Resources in Melbourne and Todd MacDermott,
Regional Construction Client Executive Claim Director Global Construction,
Boston. In this episode, we would like to discuss the shifting dynamics of
the natural catastrophe coverage globally and how we can learn from the
more established cat markets in the US.
Kishan, we'll start with you. What are the current market conditions that
you see in Australia versus here in the US?
KISHAN DASAN: Thanks, John. Thanks for that commentary. Australia has
always had Nat-cats. And I'm going to just caveat that we do like to use
acronyms in the industry. So I will short form natural catastrophe to
Nat-cats. So Australia historically has had a fair few Nat-cats that go on
every year-- bushfires, windstorm, hail storms. But in the last 24 months,
the intensity and frequency of these events have really gone up. And that
has caused insurers to really look at their books quite carefully over the
last 24 months.
But in particular in the last 12 months, we've seen a number of events
where insurers have taken a bit of a knee jerk approach. I'll give an
example of a particular industry. So solar in particular, we've had a
couple of large losses in solar where it has really triggered insurers to
look at their limits that they're putting out, the capacity that they're
putting out for such exposures. And they're actually paring back a fair bit
and they're doing that in the manner of sub limits. And what they are
starting to impose now similar to what I understand, John and Todd, that
you see in the US-- annual aggregate sub limits for Nat-cat.
And that's something that we've not seen here. It's quite new to our
market. So solar is really the first sector to see that imposed. So it's
quite a big shift for us here. And understand that's something that you've
been going through in the US for quite some time now. Would that be right,
Todd?
TODD MACDERMOTT: It's been prevalent here for the last number of years in
the United States. And Kishan, thanks for the kick off. The US has
experienced a number of catastrophic event tied to the weather specifically
named, storms, throughout the southern sector of the United States. So
markets are a bit skittish on that front, obviously looking to share the
risk with a number of their carrier partners out there in seeking, looking
for the insurers to take a greater risk, a greater retention levels,
especially with the cat losses.
JOHN MARSICANO: So Kishan, with that being said and the changing and the
policy limits and the aggregate limits, how does it work from a deductible
structure? Is it similar to that here of the US-- as it relates to Nat-cat
coverage?
KISHAN DASAN: Yeah. We're starting to see-- I'll stick with the solar
example, John. We're starting to see, especially on construction policies,
values at risk at time of loss deductibles, so vital deductibles imposed
now. And usually, anywhere between 2 and 1/2 to 5% vital with a minimum and
a maximum. That's something that we've seen insurers starting to impose
now. That can be challenging as well. Challenging in the sense that we need
to explain to clients how a veto works.
And in simplistic terms, if you have 100 million exposed on site on a
particular day, you have a giant cyclone come through, if you've got a 5%
veto deductible. Essentially, you've got a $5 million excess potentially.
So that's something that we need to explain to clients, we need to explain
how those deductible works. We're seeing that being imposed. The maximum is
something that we're pushing hard for our clients to bring in. Because the
last thing you want is a 5% veto on $1 billion project with no maximum. And
that's a significant amount of self-insured retention that the client needs
to carry.
JOHN MARSICANO: And I think, Todd, I think maybe one of the things Kishan
that I think you guys will see over time and learning is that BI valuations
to create the correct aggregate limits. We still struggle here with clients
developing the right limit on the aggregate side to ensure that they have
coverage for the losses that they incur other than complete policy limit
losses or catastrophic losses. The aggregate limit plays a big part. And I
think, Todd, tell me-- correct me if I'm wrong, but I do believe we still
have a lot of clients and businesses that don't look at it that way.
And they don't think ahead as to the coverage that they need against the
aggregate limits. It's a one-and-done look for the lower cost on that end.
TODD MACDERMOTT: I would agree 100% there. I think there's a tremendous
need for education both on the contractor side as well as the owner
development side as to how to properly insulate themselves for these
potential for catastrophic type losses seeking the appropriate limits. And
as Kishan alluded to-- I believe that the insureds, the contractors, they
and owners, whoever's purchasing the property builder's risk policy has to
be cognizant of their retention levels.
Because if you're at the 11th hour on a project, and you have a percentage
of CD a time of loss deductible, those things I don't necessarily think are
always being contemplated as to how they're being funded. Contracts are one
thing. But the reality is, if you have a $5 million retention on a loss,
that's a significant risk someone has to take on and how that's funded
going forward is, I don't think always contemplated by the partners in a
project.
KISHAN DASAN: It's a really good point. And I was just going to add that I
think we're at a point here in Australia that insureds or clients are not
looking at lower aggregate limits as an option. At this stage, they're just
looking to buy as much as possible. But I think that will shift with the
price going up for this aggregate limits. Like I'm assuming that's what
happened in the US where there's a cost associated with it, and there's an
increasing cost. I think that's where we're probably headed where insurers
are going to have to consider options of taking lower aggregate limits for
lower pricing.
But then they've got to work out, hey, what do they really need? That's
going to be the key.
JOHN MARSICANO: And I think that is the, Kishan, right? I think they need
to focus on what is most important to them from a coverage perspective?
What are the largest loss items within the policy, within the types of
coverages? And focus on that to maximize and decrease the amount of
exposure that they ultimately will have. I would imagine there would be
some challenges in the coming months and years as that transition from a
policy limit-- policy to the aggregate limit that we will face.
So with that being said, let's move on to the next category of the carrier
broker relationships and how they are integral working in cat claims.
Kishan, is there a spirit of cooperation when you're working on a
catastrophic claim? Do they work as a partner together with all parties
involved?
KISHAN DASAN: I would say so on the few recent examples that we have seen.
I think carriers have really done their best to get alignment. I think the
key is having alignment between all stakeholders. And I think it is key for
us as brokers to really drive that. And we've done that on a number of
cases on our side to drive that alignment between the insured, the insurer,
the loss adjuster and any specialist that they may have, and make sure
everyone's aligned from day one.
And I think that's really the key focus. Especially where there's DSU or
delay in start up, DI type covers involved. There's an interest from the
insurer to really get the insurers back on their feet as quickly as
possible to reduce that DI, DSU claim. So I think our experience with a few
insurers on the recent losses has been good. But I think the complexity
will get more difficult and more challenging when there are many insurers
on a panel. And we're seeing that for some of these projects, because
there's challenge with sub-limits. I'll give you an example.
We place a recent solar farm, $750 million Australian dollars in values.
And we had 13 markets on it. So you can imagine the complexity there from
adjusting a claim. And there's 13 different insurers. Understand that there
is a lead insurer, but we do have a claim that would be challenging.
JOHN MARSICANO: Todd, and to you I mean, we're seeing the change here in
the US based on recent years with the challenges of cat claims. Is there
anything you could tell Kishan that he should be looking for as they move
forward with these changes in aggregate limits and some of the challenges
that you're seeing with the spirit of the cooperation and how important it
is to work together as a team and a partnership between the carrier broker
and the insurer?
TODD MACDERMOTT: I really think it's a delicate balance. And first off, I
believe there is an intent by the parties, the carriers to do right by the
insured at the end of the day. I think having a high level of transparency
between the parties at the outset of any type of event is critical to
creating an efficient process and maximizing recovery on behalf of the
insured. Ideally, we coordinate a partnership between the parties.
When we've been successful in doing that, allowing the carrier to have
input into the-- I'm going to use the term corrective actions that are
required by a cat loss with a great deal of focus. We talked about DI and
DSU, delaying startup, and potential interruption at the end of the
project, creating that visibility for the carriers. As long as they feel as
though they're being viewed as a partner, I find the process to go
relatively smoothly. One of the problems-- I don't know if you're seeing
this, Kishan-- and your knock of the woods, but the use of third party
vendors is becoming extremely prevalent here in the US.
It's not something new, but it's becoming a growing as carriers outsource a
lot of their services and requirements to handle and mitigate these type of
claims. Getting all parties involved and justifying existence is probably
where the biggest challenge is presented to our insurers at the end of the
day.
KISHAN DASAN: We're seeing that as well, Todd. Third parties coming in and
that. I think you're absolutely right that partnership piece is so
important. Say you do have a loss adjuster involved. And depending on the
industries, getting the right adjuster out there for that industry. And I
think that's becoming so important. If the right individual who has the
experience as well. And that can be challenging when these adjusters are
quite busy. It's hard to get the right individual with the right experience
out for that particular case. I think we talk about alignment as well as I
think one piece that I've started to focus on is even engaging the
underwriters in these claims, heavy claim discussions, especially when you
have a cat loss. Because there's-- again, I mentioned earlier, what is the
intent? Or what was the intent to cover the project? Number one, our
insurers, our contractor partners are finding themselves in a delicate
position where terms and conditions of the policy require them to mitigate
loss and take appropriate action timely.
TODD MACDERMOTT: But by the time the carrier representatives are out on
site, you could have upwards of $1 million of incurred expense, and how we
go about bucketing and capturing the coverage under the policy could become
a debate between the parties. So early notice to the carriers, getting them
involved, having transparency are instrumental to the successful outcome at
the end of the day.
KISHAN DASAN: And I think, I was going to add as well, it's also
preparedness before the claim happens to make sure we have manuals in place
to explain to the client exactly what would occur in the event of a claim,
who to contact, what's best practice, simple things like taking photos,
making sure that document appropriately, as you said, Todd. So yeah, I
think that's something that we try to do. And it is something that's quite
important with full help.
TODD MACDERMOTT: Best practices are key. And you take a lessons learned
approach on all of these things. And if you can develop consistency in how
contractors manage the projects from the outset goes a long way to an
efficient recovery process of a claim should happen and daily records,
photographs, progress reports, those are all instrumental as to maintaining
an accurate schedule in the event of a loss. So as if we get into a DSU or
a delay in completion, those type of documents will be extremely helpful if
they're current and accurate.
JOHN MARSICANO: And I think one of the things too, Kishan, I think one of
the challenges that you all may face that you don't see now is with the
policy limit laws and the use of consultants from the carriers. Insurers
need to counter that with their own consultants. And here in the US, there
are limits as to the expenditure of dollars for those consultants to offset
the consultants from carriers. We basically tell people, look, you want to
get them in early so that you establish the process and protocols.
And what we find is, the sooner you engage your own consultants to work
alongside the consultants of that of the adjuster, you have a more seamless
process. You have less questions, less responses. They know how to package,
the claim itself. So the challenge, I think, is going to be or one of the
challenges is going to be during this transition is, I don't know how
consultants are paid for now in the open policies. It just whatever the
cost is the cost is. Here, there's a set limit. And you need approval.
This is, hey, I'm using so and so, and then you go through the process of
bringing those consultants in to help, level the playing field per se. So I
think keep that in mind, too. I think that will be a challenge that you
guys should start to see in the very near future unfortunately. So as we
move forward and we talk about the consultants, and we talk about the
adjusters and spirit of cooperation, one of the things that we really push
hard for, and we think helps especially during a time of crisis is, get
advanced payments on things that are easily identifiable, mostly that
direct impact.
Do you see that, Kishan, a lot being used over in Australia, the use of
advanced payments or from a cash flow perspective to get people back up and
running? Or do you see as a challenge as you move this forward?
KISHAN DASAN: The recent large claims we've had, John, we've seen advance
payments. And that's been fairly good. We've also seen when there is DSU or
delay in start up, there's insurers are willing to offer mitigation costs
to speed things up. So get clients back up and running as quickly as
possible. So we've seen that on those cases. But I think the challenge is
going to be that on those losses, the annual aggregate sub-limits weren't
imposed just yet. These are policies written a couple of years ago.
With those annual sub-limits now imposed, it'll be interesting if we do
have-- god forbid, another loss. It will be interesting to see how the
market works through those limits. And these are limits across policy
sections as well, single limits. So I think it'll be quite new to adjusters
and also insurers. So it would be interesting. I mean, but as a whole,
advance payments hasn't been an issue here.
JOHN MARSICANO: Todd, do you have anything to add to that as and maybe some
points, focus on as they move through these transition from open policy
limits to the aggregate policy limits?
TODD MACDERMOTT: I think, Kishan, you have a good grasp of it. I think we
see similar approaches by the markets here creating that cash flow.
Obviously, delays in ordering material and stuff is a challenge here. The
sooner we can get funding for those, it goes a long way to mitigating the
long-term risk and exposure potentially created by a cat event here.
But just paying attention to the various limits, aggregates, and single
policy limits it's critical that's where bringing your broker resources or
third party vendor who is familiar, intimately familiar with the policy
terms and conditions, so that you can properly bucket and present to the
carriers your view on incurred costs and where they should be funded from
just helps manage the claim long-term.
KISHAN DASAN: That makes a lot of sense. So again, I think the other
challenge is, I mentioned the number of carriers on policies now with
everyone being quite cautious with capacity. And as I mentioned, you could
have anywhere between 10 to 12 carriers. Then the challenge is, are you
going to get everyone paying at the same time and the delays of getting
those things approved? That's something that we haven't seen just yet, but
I suspect that on some of these policies it could be a challenge. I'm not
sure if you see that in the US with multiple carriers involved.
TODD MACDERMOTT: Definitely see it more regularly now. The way I've really
tried to approach those things is obviously, there's a lead market. Lead
market will take the control of a situation. But I would encourage in a
practice that I've implemented and deployed on behalf of my clients is
engaging all the markets, find out who the decision makers are, who
controls the distribution of funds, making sure you make that connection,
so that you can manage our client, the contractor, whoever our client is
expectations on the delivery.
Because that is a concern. You may have agreement to fund X in advance but
you know it's broken out over 10, 12. However, many carriers getting those
funds distributed timely move forward whatever challenges that may be
presented purchasing material and so forth. You want to have some level of
guarantee that you can expect funding in an appropriate period of time. If
other markets are all that's over in London, you never know how long it
takes to get a check cut.
But I guess the point there is just establish connection with all
participants in the who are on the risk at any time
JOHN MARSICANO: Todd, do you have any closing thoughts to wrap this whole
piece up?
TODD MACDERMOTT: Biggest point of emphasis I have, John, is have that
transparency, really get to try to create that partnership amongst all
participants here. I mentioned earlier, there is an intent, there is a good
faith effort put forth by most of the participants in these situations. And
if you give them clear visibility on where the project was at a particular
time, should a loss occur, what the proposed corrective actions are and
allowing them to review and approve that. I think that helps streamline and
create an efficient process.
It's easier said than done. Because people don't always necessarily
contemplate worst case scenario. But everyone has a disaster plan, an
emergency response plan within their organizations. It should really be
transferred into all project activity as well. And it should be part of the
orientation of the project management team in the event of a loss. What are
we going to do? So I think intent is there by the markets, but it's our job
to work with our clients to educate them on best practices proper steps to
take and ultimately to get us involved as early as possible.
JOHN MARSICANO: Kishan, closing comments?
KISHAN DASAN: Conversations like this, John, with yourself and Todd, really
helped because we can draw on experiences and us as a good example. It's a
established market where, and you've seen this already. So it's drawing,
from some of those experiences. I think we are going through a bit of a
challenging time with a shift and getting everyone aligned is going to be a
challenge. But I think as Todd said, there's an intent and there's good
faith involved. I think we'll get through that period.
JOHN MARSICANO: Great. Well, I'd like to thank both Kishan and Todd for
your participation in this episode of the WTW Construction Blueprint
Podcast Series and what appears to be the ever changing market of global
catastrophes.
KISHAN DASAN: Thank you, John.
TODD MACDERMOTT: Thanks, John.
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