Cyber Risk – Management Responsibilities and Strategies!

Data and network security breaches have dramatically increased the liability exposures for all companies. Recently the Utah Department of Health announced a data breach concerning Medicaid claims involving nearly 800,000 client names, addresses, birthdates, Social Security numbers, physician’s names, tax identification numbers, etc. Come hear insurance and risk management experts discuss how breaches like this impact companies, from immediate costs like complying with state notification laws and crisis management to potential long-term financial consequences such as credit monitoring expenses, liability claims and damage to reputation. In addition, the panel of presenters will review insurance/risk transfer solutions available to help protect your company’s balance sheet.
Panel Presenters:

Spencer Hoole, Managing Partner, Diversified Insurance Group
John Campos, Vice President, Diversified Insurance Group
Mickey Estey, Managing Director, OakBridge Insurance Services

For more information on becoming a member of UTC, please contact UTC Membership Directors or call (801) 568-3500.

EVENT INFO

When:

Thursday, May 3 8:00 a.m.- 9:30 a.m.

Where:

Diversified Insurance Group
136 East South Temple
Suite 2300
Salt Lake City

Cost:

$0 – UTC Members
$30 – Non-UTC Members

Register:

HERE

SouthCoast Medical Group had long provided health insurance to its employees the conventional way, paying premiums to an insurance company that covered medical claims. Then in January 2011 the 65-doctor practice with offices in and around Savannah, Ga., opted to take on more of the risk itself.

SouthCoast thought it could save money by self-insuring, a strategy typically used by much larger companies. Today it pays directly for the medical care of the 280 staffers and family members on its plan, setting aside the cash it would have spent on premiums to cover claims and paying an administrator to process them. To limit its risk, the group also purchased “stop-loss” insurance that would kick in after any individual’s medical bills exceeded $100,000.

The approach is common for corporations with thousands of employees, where the cost of care and the attendant risk is spread out over large numbers of people. For small employers, though, one car accident or organ transplant can push expenses far above the expected level. Still, with premiums for traditional policies continuing to rise, small businesses are increasingly ready to roll the dice. Some 20 percent of companies with 50 to 199 workers self-insured in 2010, up from 14 percent four years earlier, according to a Rand Corp. analysis commissioned by the U.S. Department of Labor.
. . .
Self-insured plans are governed by federal law and not states, which typically oversee health insurance. Some regulators fear that insurers attempting to avoid state taxes on insurance premiums and skirt state laws requiring minimum benefit levels will offer plans that are self-insurance in name only. One way they can do that is with stop-loss policies that start paying out at very low levels, after as little as $10,000 in claims, which sharply reduces the risk companies face. If “the employer is not in fact bearing the risk and the insurance company is, then the states take a look,” says Sabrina Corlette, a researcher at the Georgetown University Health Policy Institute. New York and Oregon already forbid insurance companies from selling stop-loss insurance to groups with fewer than 50 employees, and California’s insurance commissioner wants to outlaw the sale of certain stop-loss policies to small businesses.

Self-insuring appeals to employers because dollars not spent on medical care stay in the company instead of flowing to the insurance carrier’s bottom line. The approach also gives businesses more detailed information about how their workers use health care. Claims data, which insurers are often reluctant to share, can help companies tailor plans and wellness programs to improve workers’ health by helping them quit smoking or lose weight.

For small employers, self-insurance programs can bring unexpected problems. In its first year of self-insuring, SouthCoast faced a spike in major claims that ate up 60 percent of its reserves. When the company’s stop-loss policy came up for renewal, the premiums more than doubled, to $250,000, because of the costly claims, even after SouthCoast agreed to take on an additional $25,000 of risk per employee. The total cost to SouthCoast—including claims, stop-loss coverage, and administrative fees—jumped 25 percent, says Chief Financial Officer Gary Davis. Traditional insurance, though, would cost double what the company spent last year, he estimates. “You have to keep your eyes open that it’s a risk,” says Davis. “One out of every five or six years, you’re going to have a bad year.”

Insurers offering stop-loss policies sometimes protect themselves with what the industry calls “lasering.” That’s when they raise the dollar amount the employer must pay before stop-loss kicks in for certain workers deemed to be high-risk—which can shift even more cost to employers. The practice can be “devastating” to small businesses, says Carl Mowery, a managing director in consultancy Grant Thornton’s compensation and benefits practice. Employers pay more up front for guarantees that they won’t have sick workers carved out later on, but Mowery says small businesses should insist on that protection to avoid being overwhelmed by catastrophic claims. “A premature baby who has a lot of health issues could be a million-dollar claim in a single year,” he says. “That could be twice as much as [small companies] pay in health premiums altogether.”

Any benefits from self-insurance don’t materialize overnight, cautions Sam Fleet, president of AmWINS Group Benefits, a wholesale insurance brokerage in Charlotte. “You need an engaged employer, and it’s not a one-year savings,” he says. Fleet says small companies drawn by the promise of lower costs may not fully grasp the risk involved. “What scares me is there are a lot of people out there that recommend self-funding to employers,” he says. “It’s really, really important that you understand what you’re getting into.”

Full Businessweek Article can be found HERE

For the Property insurance market, 2011 was a challenging year, with insured global catastrophe losses totaling $108 billion. Revisions to catastrophe modeling tool RMS 11.0 is also putting upward pressure on rates. Catastrophe-exposed accounts saw rates climb an average of 5%-10% in Q4 2011, with many accounts experiencing increases in the 10%-15% range – a trend that has continued through Q1 2012. While Willis expects rates for catastrophe risk to continue to climb throughout 2012, abundant capacity and the lingering weak economy have tempered upward pressure on a broader level.

In primary/umbrella Casualty lines, more than 75% of insureds are seeing modest rate increases on renewal, driven by gradual increases in revenues and rating exposures.

Key Price Predictions for 2012

Property

• Non-CAT risks: Flat
• CAT-exposed risks: +7.5% to +12.5%

Casualty

• General Liability: Flat to +7.5%
• Umbrella: +2.5% to +7.5%
• Excess: Flat to +7.5%
• Workers’ Compensation: +2.5% to +7.5%
• Auto: Flat to +10%

Executive Risks

• Directors & Officers: -5% to +5%
• Errors & Omissions: Flat to +5% with good loss experience; +10 to +20% with poor loss experience
• Employment Practices Liability: Flat to -5%
• Fiduciary: Flat to -5%

Cyber:

Flat to -5%; more competitive for first-time buyers

Benefits:

+8%

Information excerpted from Yahoo!Finance

Researchers asked two students and a university professor to spend 10 minutes going through the Facebook profiles of employed college students. They looked at comments, photographs, friends and interests and then answered a series of personality-related questions about the student workers. (e.g., “Is this person dependable?” “How emotionally stable is this person?”)

A large number of friends and a wide range of interests demonstrated agreeability. The researcher also found that photographs of employees partying were seen as positive because they showed the person was sociable and extroverted.

Six months later the researchers obtained supervisors’ performance reviews of the students’ work and compared them to the earlier Facebook evaluations. They found a strong correlation between high scores for traits including curiosity, agreeability and conscientiousness and successful performance at work. The researchers believe the Facebook evaluations proved to be more accurate than traditional personality tests that employers often use to gauge potential employees. “Your Facebook profile ‘can help predict your job performance,’” www.economictimes.com (Feb. 23, 2012).

Link HERE to read full article in Chubbworks.

An increasing number of employers are requesting that job applicants provide their Facebook passwords in order to review the applicants’ private Facebook profiles as part of the hiring process. Even a cursory review of an applicant’s profile page can provide an employer with a wealth of knowledge about the potential hire and often plays a role in the hiring decision.

In response to this growing trend, several state legislatures, including Illinois, Maryland, Connecticut, New Jersey and California, have introduced or plan to introduce laws prohibiting public and/or private employers from requiring applicants and current employees to disclose or provide access to online social media accounts, including Facebook. Federal lawmakers have also indicated that they intend to propose federal legislation that would prohibit the practice, and two U.S. senators recently asked the Attorney General to determine whether the practice violates the Stored Communications Act or the Computer Fraud and Abuse Act.

In addition, Facebook has taken a stand against the practice, stating that it is a violation of Facebook’s Statement of Rights and Responsibilities to share or solicit a Facebook password. In a blog post on March 23, 2012, Facebook’s Chief Privacy Officer Erin Egan states, “As a user, you shouldn’t be forced to share your private information and communications just to get a job . . . we don’t think employers should be asking prospective employees to provide their passwords because we don’t think it’s the right thing to do.” The Facebook blog posting further provides, “We’ll take action to protect the privacy and security of our users, whether by engaging policymakers, or, where appropriate, by initiating legal action, including by shutting down applications that abuse their privileges.”

. . .

If an employer chooses to require applicants to disclose their Facebook passwords, it should ensure that the employee acknowledges and consents to the disclosure in writing and require such information from all applicants. As always, employers should base all employment decisions on legitimate, nondiscriminatory reasons.

To read all of the article by Kimberly F. Williams in Insurance Broadcasting click HERE.

Louis Wischmeier oversees 5,300 acres of farmland near Columbus, Ind., and spends much of the winter trying to find the perfect “prescriptions,” as he puts it, for his fields. A large, soft-spoken man, Wischmeier pores over weather data, takes soil moisture readings, and studies the latest news on seed hybrids with the aim of maximizing crop yields. Over the past few years that meticulous planning has been undermined by unusual weather. Heavy rains fell during the brief five-day planting windows, then scorching temperatures cracked seeds and suffocated crops. “Sometimes we have to replant two or three times to get a crop up and started,” Wischmeier says. He refuses to utter the words “global warming” or to complain, saying only that “the excessive weather events seem to have a huge impact on our success.”

To fight back, last year Wischmeier turned to a surprising place: Silicon Valley. He bought crop insurance from Climate Corp., a startup founded by two former Google (GOOG) executives and funded by $60 million in venture capital. Staffed by an army of data scientists, the company is bringing data analytics to rural America and helping farmers reap more consistent profits from their fields. It’s an example of how cloud computing, modeling, and other technologies that have reshaped the Web and business are now revolutionizing more traditional industries. “Software is going to fundamentally change how the world operates,” says David Friedberg, Climate’s chief executive officer and co-founder.

Historically, farmers have relied on crop insurance sold by the federal government. The program is rife with all the red tape bureaucracies are famous for. Farmers must plant their fields on a schedule determined by the government and consent to inspections. To estimate crop value, they have to record and turn over years’ worth of data about yields. When disaster hits, claims take months to process, and the payout often only covers costs, not lost profits.

Climate Corp. has a different approach. The 130-person company includes a dozen PhDs in fields including applied math, statistics, and neuroscience. They’ve harnessed decades’ worth of data from the National Weather Service and other sources to come up with a picture of rainfall, temperature, and soil conditions in farmland across America. The data sets are fine-tuned enough that Climate Corp. knows how the average weather at one spot differs from another 2½ miles down the road. It uses this information, along with historic crop yields, to predict how next year’s haul is going to look. “We’ve got a bunch of quants going over 30 years of daily weather data,” says Friedberg. “For each location, we have simulated the weather for the next 730 days, 10,000 times.” The data let the company customize insurance prices according to each farm’s risk factors and offer protection that supplements the federal offering, covering weather events including excessive rain and heat.

Climate Corp. approaches crop insurance with the typical Silicon Valley emphasis on speed and automation. Farmers log onto the startup’s site, input a few details about their planting plans, and an algorithm dubbed the Farm-Level Optimizer spits back policy options. Because its servers are always recording weather data, Climate Corp. knows when a policy is triggered by, say, a drought and automatically issues payments to the affected farmers. Climate Corp. also opens up its data trove to its customers, showing them the range of yields and profits they can expect based on likely weather conditions. Friedberg says thousands of farmers have insured millions of acres through the startup, though the company won’t divulge revenue details.

Friedberg studied astrophysics at the University of California at Berkeley before starting a career in finance in 2001, and he joined Google a few years later as an early member of its corporate development team. He got the idea for Climate Corp., originally called WeatherBill, after driving past a bike rental shop. “This guy rents bikes to tourists, and when it rains he just shuts down,” Friedberg says. “I started thinking about all the businesses affected by the weather, like ski resorts, festivals, and baseball games.” He co-founded Climate Corp. in 2006 and took a crack at insuring these types of businesses but ultimately found a more receptive audience among farmers.

Friedberg has hired dozens of recent graduates from agriculture-focused university programs to make sure the 10,000 agents selling federal insurance know about the Silicon Valley option. It’s not always easy persuading people accustomed to a formulaic government program to push a newfangled, data-driven product from Silicon Valley, even though they get a commission. Nor is it simple for them to persuade farmers to pay for additional insurance. But George Bercaw, an agent at Water Street Solutions, has taken a Climate Corp. training course and says the high-tech approach fits well with what the farming industry calls the Age of Precision Agriculture. “We work with progressive growers, and I need something to bring to the table,” he says.

Wischmeier likes the added peace of mind Climate Corp.’s insurance provides. Every year he spends millions of dollars during the planting season, including an annual purchase of three massive John Deere (DE) tractors equipped with $15,000 computing systems. (Wischmeier sells the old ones because he likes to have the latest technology to minimize the chance of a breakdown during the short planting window, when farmers work around the clock.) If excessive rains damage his crops in May, Climate Corp. will pay him quickly enough to buy more seed and replant; the federal insurance doesn’t pay out until after the season.

The government also bases its payments on yield averages established over many years, so it tends to trail advances in farming technology that boost yields and doesn’t cover so-called specialty crops such as avocados and blueberries. With Climate Corp., there’s no such disincentive. “This gives us a huge chance to feel comfortable targeting high-profit, specialty crops,” Wischmeier says.

Agriculture isn’t the only industry that stands to gain. Friedberg says Climate Corp. shows what Silicon Valley can do when it steps away from its maniacal focus on building social networks and advertising companies. “Doing yet another app just because everyone seems to be into it is not the right reason,” Friedberg says.

The bottom line: Some farmers like Climate Corp.’s supplemental weather insurance because claims are processed quickly and automatically.

Link to the full article by Ashlee Vance of Businessweek HERE

There is a simple reason health care in the United States costs more than it does anywhere else: The prices are higher.

That may sound obvious. But it is, in fact, key to understanding one of the most pressing problems facing our economy. In 2009, Americans spent $7,960 per person on health care. Our neighbors in Canada spent $4,808. The Germans spent $4,218. The French, $3,978. If we had the per-person costs of any of those countries, America’s deficits would vanish. Workers would have much more money in their pockets. Our economy would grow more quickly, as our exports would be more competitive.

There are many possible explanations for why Americans pay so much more. It could be that we’re sicker. Or that we go to the doctor more frequently. But health researchers have largely discarded these theories. As Gerard Anderson, Uwe Reinhardt, Peter Hussey and Varduhi Petrosyan put it in the title of their influential 2003 study on international health-care costs, “it’s the prices, stupid.”

As it’s difficult to get good data on prices, that paper blamed prices largely by eliminating the other possible culprits. They authors considered, for instance, the idea that Americans were simply using more health-care services, but on close inspection, found that Americans don’t see the doctor more often or stay longer in the hospital than residents of other countries. Quite the opposite, actually. We spend less time in the hospital than Germans and see the doctor less often than the Canadians.

“The United States spends more on health care than any of the other OECD countries spend, without providing more services than the other countries do,” they concluded. “This suggests that the difference in spending is mostly attributable to higher prices of goods and services.”

Prices don’t explain all of the difference between America and other countries. But they do explain a big chunk of it. The question, of course, is why Americans pay such high prices — and why we haven’t done anything about it.“Other countries negotiate very aggressively with the providers and set rates that are much lower than we do,” Anderson says. They do this in one of two ways. In countries such as Canada and Britain, prices are set by the government. In others, such as Germany and Japan, they’re set by providers and insurers sitting in a room and coming to an agreement, with the government stepping in to set prices if they fail.

In America, Medicare and Medicaid negotiate prices on behalf of their tens of millions of members and, not coincidentally, purchase care at a substantial markdown from the commercial average. But outside that, it’s a free-for-all. Providers largely charge what they can get away with, often offering different prices to different insurers, and an even higher price to the uninsured.

Health care is an unusual product in that it is difficult, and sometimes impossible, for the customer to say “no.” In certain cases, the customer is passed out, or otherwise incapable of making decisions about her care, and the decisions are made by providers whose mandate is, correctly, to save lives rather than money.

In other cases, there is more time for loved ones to consider costs, but little emotional space to do so — no one wants to think there was something more they could have done to save their parent or child. It is not like buying a television, where you can easily comparison shop and walk out of the store, and even forgo the purchase if it’s too expensive. And imagine what you would pay for a television if the salesmen at Best Buy knew that you couldn’t leave without making a purchase.

“In my view, health is a business in the United States in quite a different way than it is elsewhere,” says Tom Sackville, who served in Margaret Thatcher’s government and now directs the IFHP. “It’s very much something people make money out of. There isn’t too much embarrassment about that compared to Europe and elsewhere.”

The result is that, unlike in other countries, sellers of health-care services in America have considerable power to set prices, and so they set them quite high. Two of the five most profitable industries in the United States — the pharmaceuticals industry and the medical device industry — sell health care. With margins of almost 20 percent, they beat out even the financial sector for sheer profitability.

The players sitting across the table from them — the health insurers — are not so profitable. In 2009, their profit margins were a mere 2.2 percent. That’s a signal that the sellers have the upper hand over the buyers.

This is a good deal for residents of other countries, as our high spending makes medical innovations more profitable. “We end up with the benefits of your investment,” Sackville says. “You’re subsidizing the rest of the world by doing the front-end research.””

Article excerpted from Washington Post by Ezra Klein HERE

“The people who are the happiest at work, compared to unhappy ones, take 10 times less sick leave, are twice as productive, stay twice as long on the job and believe they’re achieving their potential twice as much,” says performance coach Chris Cook.

“Happiness is a mind-set that enables employees to work to their full potential,” says Cook, who just finished her Master’s in Management degree at Southern Oregon University. Cook, 51, spent 35 years in marketing and public relations.

The Performance-Happiness Model calls for a culture of contribution, conviction about your motivation, a feeling that you fit in the culture, a commitment to engage and the confidence of believing in yourself and your job, she said. The idea of happiness can be elusive, but research shows it’s 50 percent genetic and 10 percent about health, marriage and money. That leaves 40 percent, she said, for workers and managers to play with. Google, Apple and Facebook are noted for having “a culture of helping people achieve their full potential … motivating by mastery, autonomy and purpose, where people are able to grow and get better at what they do.”

So the two things that companies should do to have more productive employees are hire happy people and foster a culture of happiness. Stress is a part of every job, but there are many things that a company can do to help their employees be happy:

1. Make employees feel safe. When employees feel you care, they are more likely to give you their best and not hold back.
2. Communicate with your employees. In addition to the obvious positives, litigation risk is lowered when you communicate with your employees.
3. Involve your employees with planning. They feel they have a stake in the outcome of the business.
4. Consider incentive programs. They can be financial incentives, trips, or extended vacation periods.
5. Develop leadership skills. Merely knowing what managers have to deal with goes a long way to helping them be more understanding and happy.
6. Develop personal relationships. This has a direct effect on overall job satisfaction and commitment to the company.

This article was based on an article written by John Darling in The Ashland Daily Tidings.

Sony is still awaiting the final tally for losses related to its data breaches earlier this year. At last count, it had 100 million compromised customer accounts, and Sony anticipated the debacle would cost $200 million. With 58 class-action suits in the works, that may be wishful thinking.

But what about Sony’s insurance coverage?

In a lawsuit filed in July, Sony’s insurer, the Zurich American Insurance Company, said the company did not have a cyber insurance policy. It said Sony’s policy only covered tangible losses like property damage, not cyber incidents.

Jim Kennedy, a Sony spokesman, said that Sony has coverage for “significant portions” of the losses from the data breaches. “Sony’s coverage includes multiple cyber insurance policies for operations around the world, traditional general liability policies, and property insurance policies that contain express provisions covering damage or disruption to electronic data,” Mr. Kennedy said in a statement. “Sony has already received payments from some of its insurers, and is actively pursuing claims for additional payments.”

But despite high-profile cyber attacks at Sony, Google, Epsilon, RSA and others this year, only a third of companies surveyed by Advisen, a research group, say they have purchased a cyber insurance policy.

“That’s cyber insurance in a nut shell,” said Jacob Olcott, a principal with Good Harbor Consulting’s cybersecurity team. “Everybody needs it, and most companies don’t realize they don’t have it until it’s too late.”

Experts say that more companies will buy policies in the coming year because of new Security and Exchange Commission requirements. Last October, the S.E.C. issued a new guidance requiring that companies disclose “material” cyber attacks and their costs to shareholders. The guidance specifically requires companies to disclose a “description of relevant insurance coverage.”

for the full article in the New York Times please link HERE

Diversified Insurance Group is expert at providing advice and coverage options for technology companies to cover their cyber risks. We have been providing risk management solutions to technology companies for nearly 20 years.