The recent collapse of an Interstate 75 overpass in Cincinnati, killing a worker and injuring a truck driver, is yet another reminder of the plight of America’s infrastructure, which is estimated to require billions of dollars to bring up to 2015 standards.

The bridge that collapsed had been replaced and was being torn down as part of an extended project to increase capacity on a congested, accident-prone section of the interstate, according to the Associated Press.

President Obama, speaking today in Saint Paul, Minnesota, outlined several proposals, including launching a competition for $600 million in competitive transportation funding and investing in America’s infrastructure with a $302 billion, four-year surface transportation reauthorization proposal, according to a press release from the White House. Obama also plans to “put more Americans back to work repairing and modernizing our roads, bridges, railways, and transit systems, and will also work with Congress to act to ensure critical transportation programs continue to be funded and do not expire later this year.”

More and more, states are finding ways to fund infrastructure repair. New York Gov. Andrew Cuomo, for example, in his State of the State address, proposed $3 billion in loans and grants for infrastructure upgrades, including $1.3 billion for the Thruway and the new Tappan Zee Bridge, which is under construction. The money, he said, would come from a a $5.4 billion windfall from bank settlements.

A report by the American Society of Civil Engineers (ASCE), “Failure to Act: The Impact of Current Infrastructure Investment on American’s Economic Future,” found that the cascading impact of putting off repairs affects the entire economy. The report concluded that, between 2013 and 2020, there will be an investment gap of about $846 billion in surface transportation.

At risk are a number of bridges and overpasses. According to Risk Management magazine:

“Right now, 11% of our bridges across the country are rated structurally deficient and another 13% are considered functionally obsolete,” Andrew W. Herrmann, 2012 president of the American Society of Civil Engineers (ASCE) and principal with Hardesty & Hanover LLP, an infrastructure engineering firm. “This means they were designed to an older standard, so they may not have the same lane widths or turning radius or may have been designed to carry lesser loads.”

Deterioration of the nation’s infrastructure jeopardizes public safety, threatens quality of life, and drains the U.S. economy. “If they have to start closing down, restricting or putting mileage postings on bridges, the economy will be affected,” said Herrmann, who served on the advisory council for the 2003, 2005 and 2013 report cards and chaired the council for the 2009 edition.

“Bridges are the most pressing need in the infrastructure overall. You can have all the roads and highways you want, but if you don’t have the bridges to cross the rivers and intersections, it slows everything down.”

He observed that, from a bridge engineer’s perspective, investments need to be made to keep bridges in good repair. The Federal Highway Administration (FHWA) estimates that it needs $20.5 billion annually to eliminate the nation’s backlog of bridge repairs by 2028, but only $12.8 billion has been budgeted. The challenge, then, for federal, state and local governments is to increase investments in bridges by $8 billion annually.

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With insurers facing increased scrutiny over indemnity payments from the U.K. government, there could be consequences for companies who regularly put their employees into harm’s way.

When she announced plans for new laws in the Counter Terrorism and Security Bill, Home Secretary Theresa May cited UN estimates that ransom payments have raised up to £28 million ($42 million) for militant group ISIS in the past 12 months.

Observers often ask if the existence of kidnap and ransom (K&R) insurance itself encourages kidnapping for ransom. But for corporate risk managers, the debate is immaterial. They must protect employees and ensure that jobs in danger zones remain attractive to new recruits.

May’s bill amendments, which will be inserted into the Terrorism Act 2000 if passed, do present a potential challenge to the established order and highlight the pivotal role of response consultants (AKA hostage negotiators).

How does K&R actually work?

K&R insurance typically covers against losses related to kidnap incidents, particularly ransoms, lost earnings and the costs for an outsourced expert agency whose job is to handle the case and advise the policyholder on the negotiations. However, the indemnification is only paid out to the policyholders retrospectively, after the hostage situation is over. With such an approach, insurers on the one hand prevent ransom payments spiraling out of control and, on the other hand, remain in the grey area of section 17 of the Terrorism Act 2000.

The new amendments

Under May’s new section 17A, it is now clear that the insurer commits an offense if “it knows or has reasonable cause to suspect” that payments will be handed over in response to a demand made for the benefit of a proscribed organization.

The question for their response consultants will therefore be how much notice they can give their assureds as to whom they are dealing with. Historically, negotiations for release could be made without resorting to identifying the culprit, but now the insurer will have to make sure that they are not engaging with a terrorist on Whitehall’s blacklist.

As of Nov. 28, 2014, there were 74 international terrorist organizations listed under the Terrorism Act 2000. However, a large number of organizations associated with kidnappings are not on the list, which, with a few exceptions, focuses on organizations from Northern Ireland and those operating in the MENASA Region (Middle East, North Africa and South Asia). Of course, kidnappings have increased in the Middle East in recent years, but most kidnappings worldwide are still taking place in Central and South America and Central and Southern Africa. Although the new law only targets proscribed organizations from the MENASA region, insurers have to remain attentive since the home secretary may add organizations to the list at any time.

One thing which hopefully will remain protected are the fees and costs that hostage negotiators charge; this is a critical part of the industry’s service to a market believed to include at least 80% of the Fortune 500 as its clientele.

K&R still valid

From a company’s perspective, K&R is certainly still a valid class of business. There should not be any effect on pricing as the underlying risk has not changed.

However, if your policy is led by insurers domiciled in the U.K., those insurers may be less likely to indemnify kidnappings where the culprits may be loosely associated with a proscribed group. Equivalent insurers in other territories may be less restrained, so some insureds may elect to have their business placed outside the U.K., particularly if they have workers who are frequently operating in the MENASA region.

It is important to understand that corporations are also not allowed to fund payments. From a risk management perspective, where companies do wish to ensure they are able to lawfully pay ransom demands to release their employees, they need to consider in which jurisdictions they should be located so as to lawfully pay ransoms. On a practical level, they need to review with their response companies what protocols they use to identify or qualify the identity of kidnappers who allege, possibly incorrectly, that they are affiliated to terror groups.

The proposed offence aimed at insurers provides:

17A Insurance against payments made in response to terrorist demands

(1) The insurer under an insurance contract commits an offence if –

(A) the insurer makes a payment under the contract or purportedly under it,

(B) the payment is made in respect of any money or other property that has been or is to be, handed over in response to a demand made wholly or partly for the purposes of terrorism, and

(C) the insurer or the person authorising the payment on the insurer’s behalf knows or has reasonably cause to suspect that the money or other property has been, or is to be, handed over in response to such a demand.

This article was originally posted at Airmic.com

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state of the union 2015

Last night, President Obama delivered the annual State of the Union. Unsurprisingly, the speech covered a variety of topics ranging from foreign affairs to civil rights to climate change. While these issues may ultimately have little impact on the insurance industry or risk management, there were two topics raised that could be of significant interest.

The first relates to tax reform:

“As Americans, we don’t mind paying our fair share of taxes, as long as everybody else does, too. But for far too long, lobbyists have rigged the tax code with loopholes that let some corporations pay nothing while others pay full freight. They’ve riddled it with giveaways the superrich don’t need, denying a break to middle class families who do,” Obama said.

For the past few years, the Obama administration’s annual budget proposal has included a measure that would deny a tax deduction for certain reinsurance premiums paid to foreign-based affiliates by domestic insurers. While the administration and some members of Congress deem this deduction a “loophole,” it is actually a commonly used and effective risk management tool. Doing away with this particular “loophole” would force the industry as a whole to reduce the size and scope of its U.S. offerings. A previous economic impact study found that this proposal would reduce the net supply of reinsurance in the United States by 20%, thus increasing prices by $11 to $13 billion annually for the same coverage. If Congress does take up comprehensive tax reform, this is certainly an initiative that many in the industry will need to keep an eye on.

The other issue is cybersecurity:

“And tonight, I urge this Congress to finally pass the legislation we need to better meet the evolving threat of cyberattacks, combat identity theft, and protect our children’s information. If we don’t act, we’ll leave our nation and our economy vulnerable. If we do, we can continue to protect the technologies that have unleashed untold opportunities for people around the globe,” the president said.

Cybersecurity and the management of cyberrisks is certainly one of the hottest topics in the industry. While it remains unclear what proposed legislation will look like, we will almost certainly see at least one major piece of cybersecurity legislation introduced in the next few months. Previous efforts have focused on information-sharing. With the number of attacks and damage inflicted only increasing, however, it is quite possible that new legislation may be even broader in scope.

It is also important to note that simply including something in a State of the Union address does not always translate into real action. It is quite possible that tax reform will get tabled again as various factions are unable to agree. It’s also possible that Congress will be unable to come up with a cybersecurity bill that achieves many of its goals without undermining the privacy or personal security of individuals. It is, however, an overview of the administration’s priorities for the coming year, and that does still carry some weight.

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Millions are prepared annually. People ask for them, people prepare them. They are so much a part of the business environment that people take them for granted. But like anything that is taken for granted, carelessness and indiscretion often follow. And then comes liability and state regulation.

This is the state of affairs for certificates of insurance—those documents that purport to describe the particulars of a party’s existing insurance coverage. In the last four years alone, 44 states have enacted legislation, adopted rules or issued clarifying bulletins through their departments of insurance addressing certificates of insurance. All but five states now have laws, regulations or guidance addressing them.

This is remarkable, because certificates of insurance have been used with regularity for about as long as insurance policies have been sold. In 1970, the insurance industry formed the nonprofit organization known as ACORD (the Association for Cooperative Operations Research and Development), which publishes certificate of insurance and other forms. These forms, developed over time to meet exigent commercial needs, have become the gold-standard, and one would need compelling reason not to use them for a commercial transaction.

But even the widespread use of ACORD forms has led to the growing phenomenon of state regulation. States tend to offer one of two reasons for their interest in regulatory concerns. As some explain: “there may be a misunderstanding regarding the proper use of certificates of insurance, and in some cases, of the intentional misuse of certificates.” Others claim that “some insurance producers, agencies and insurers are asked to provide certificates of insurance that purport to amend, extend or alter the terms of the underlying policy, or inaccurately suggest the existence of certain contractual rights.”

The upshot of this attention is the same—do not alter the forms and do not stray from the policy terms described. While not all states regulate certificates the same way, enough principles remain in common to be suitable guides for knowing what not to do with a certificate.

Read more about certificates of insurance here.

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