of exposure and distinguish between primary and secondary spheres of coverage.
Supply chain interruption
Growth of the global economy has resulted in more outsourcing and dependence
on foreign manufacturing and products.
Less apparent is that lengthier supply
chains have multiplied exposure to a wide
spectrum of events, many of which are either uncommon in the domestic environment or of recent derivation.
Risks associated with fires and floods,
even earthquakes and volcanic eruptions
have always been with us, even without
climatic volatility. Yet, in addition to plant
explosions, customs issues and product seizures, global unrest has produced a panoply
of new and evolving risks that include border closures, embargoes and blockades, and
terrorist attacks, as well as closures of roads,
railways and airports; strikes and riots; and
threats of political violence and insurrection.
Such threats often occur in combination
and can produce a staggering variety of
loss categories. These normally begin with
loss of income and product replacement
costs. To these may be added the extra expenses of expediting product or service replacement, as well as increased purchasing
costs. In worst cases, damages can extend
to relocation costs or the negotiation and
mediation expenses that attend contractual differences with replacement suppliers.
The sheer proliferation of variables
can prove daunting to claims managers. Supply chain losses typically involve
dealing with different entities or authorities in various legal jurisdictions simply
to determine precise dating of events, as
well as other mitigating factors in order
to determine the amount of loss. The determination of which additional costs or
contingent expenses qualify as intended
is of critical importance and depends on a
precise and careful reading of existing insurance agreements and policy language.
The most recent decade has been char-
acterized by increased activity in new
laws and regulations as well as changes to
existing statutes and rulings at both the
federal and state level. While such activ-
ity invariably accompanies changes in
administrations, examples in the last few
years include new OSHA requirements
and changes in labor laws that affect hours
of service and how overtime is paid.
It is difficult to understate the potential
corporate exposure to regulatory change,
either at the executive or legislative level,
particularly after an election. While the
current thrust may be toward deregula-
tion, it would take an adept prognosti-
cator to attempt to determine how this
might play out.
The Affordable Care Act stands out as
an avatar of the potential effect of regula-
tory change. Behind that obvious example,
clearly the decisions and authority of many
agencies, including but not limited to the
EPA, OSHA, EEOC and the Departments
of Labor and Transportation, have all seen
heightened activity in the last decade.
Their rulings have been accompanied by
stiff fines and penalties, as well as aggres-
sive prosecution for noncompliance.
Dealing with foreign governments
brings its own forms of exposure unique
to the countries or jurisdictions in which
one is doing business. All of these, espe-
cially with the ongoing global political vol-
atility, can produce vulnerability to quick
changes in administrations resulting in
unreasonable demands and abrupt inter-
ruptions to normal business operations.
While the liabilities cannot be pre-
dicted, losses can include reduction or
temporary cessation of income result-
ing from regulatory and administra-
tive changes themselves, as well as legal
expenses resulting from challenging
administrative actions or defending
corporate actions. In addition, fines and
penalties can also often be anticipated,
as well as additional expenses for com-
pliance. Yet another category of expense
may accrue from the efforts of dealing
with foreign governments or relocation
of product or supplies following action
by a governmental body or agency.
A spate of claims handling challenges
can result. The first order of business is a
forensic gathering of details to determine
when the insured was first affected by the
legislative or regulatory change. Only af-
ter this has been accomplished is it possi-
ble to determine even the amount of loss
of income. A more robust estimate of loss
will depend on determining which addi-
tional expenses are covered according to
the definition of coverage in the policy.
Even then, further challenges remain,
including the gathering of information
involving foreign exposure regarding ex-
act dates and details of the circumstances
and events triggering the loss.
No claims strategy can be regarded as
sufficient without taking all of these factors
into account to determine the full magnitude of exposure to regulatory change.
Jeff Ellington (JEllington@atlascaptives.
com) joined Atlas Insurance Management
in 2011 and is a vice president with the
firm. As an insurance professional with
over 30 years of combined experience, he
has worked in multiple facets of the commercial insurance industry, including sales,
marketing, underwriting and management.
While the current thrust may be
toward deregulation, it would take an
adept prognosticator to attempt to
determine how this might play out.