Strategies for Attracting and Retaining Board Members In today’s challenging labor market, it has become increasingly difficult for organizations to attract and retain top talent, especially as it pertains to their board members. Consequently, organizations that lack effective senior leadership teams will be less likely to meet operational demands, accomplish company goals, and ensure overall business success. What’s worse, organizations without experienced and trustworthy board members could also face heightened directors and officers liability (D&O) exposures and be more susceptible to costly workplace litigation. With this in mind, organizations need to take steps to maintain talented senior leadership teams. Here are some valuable board member attraction and retention strategies: Set clear expectations. It’s best for organizations to carefully assess their key initiatives and determine specific skill sets and qualifications their board members should possess to help contribute to these goals. From there, organizations can create written job descriptions that outline clear responsibilities for their senior leadership teams, thus allowing them to identify their ideal candidates. Some organizations may even benefit from establishing a committee of existing board members responsible for recruiting and vetting new senior leaders. Offer support. Organizations can set new board members up for success by leveraging thorough orientation processes, conducting frequent check-ins, and having experienced senior leaders serve as their mentors. Additionally, organizations should ensure their board members receive ongoing career development and personal growth opportunities by providing plenty of educational resources and routine training. Establish a strong culture. Board members are more likely to keep working for a company with a positive culture. As such, organizations should make it a priority to establish workplace policies that promote empathy, encouragement, transparency, accountability, and inclusivity. Give feedback and recognition. As board members adjust to their roles, organizations should provide these individuals with regular feedback on their performance and ways they can continue to improve. When senior leaders display significant growth or achieve major initiatives, organizations can formally recognize them through companywide communications and celebrations. Provide compensation and benefits. If possible, organizations should consider compensating board members for their time and expertise with competitive salaries and benefits packages. Purchase D&O insurance. This coverage can provide senior leaders with financial protection following managerial decisions that negatively impact their organizations. D&O insurance may cover legal fees, settlements, and other costs related to board members’ defense. If organizations don’t have ample D&O insurance programs, it’s unlikely that they will be able to attract and retain senior leaders, given the potential risks involved. Organizations should consult insurance professionals to discuss their particular coverage needs. Best Practices for Navigating EPL Claims Any company that has employees is a potential target for an employment practices liability (EPL) lawsuit. These lawsuits can be financially draining for impacted businesses, even if they’re ultimately found not liable. Responding to and mitigating EPL claims requires company executives to be proactive by establishing consistent practices regarding mediation protocols, recordkeeping, and the utilization of external parties. Mediation and Arbitration Businesses can often minimize EPL litigation costs by having a third party hear claims and mediate resolutions, also called alternative dispute resolution (ADR). Many times, plaintiffs sue for damages that exceed the amounts they would have settled for with ADR. Speedy mediation and arbitration can reduce the lost wages an employee requests, limit how much time a company spends preparing for a case, and spare both sides the costs of going to trial. However, ADR isn’t a one-size-fits-all approach to handling EPL claims. Mediation and arbitration cannot protect a company from charges brought by any regulatory branch. Additionally, mediation and arbitration often end with a company having to pay some kind of award to the claimant, even if the company is not legally at fault. Yet, compared to litigation fees, these awards are typically less than the costs of a successful defense in court. Recordkeeping If ADR isn’t an option and a company must handle an EPL claim in court, workplace documentation can serve as powerful evidence to bolster its case against the claim. Established company policies, such as an employee handbook and records of employee training, set the standard for all company conduct and can be a major advantage in court. An investigator or jury is less likely to find a business guilty if it has records illustrating sound employment practices. Alternatively, the absence of any documentation could be seen as an effort to cover up or avoid evidence. Further, any attempt to intentionally misfile or hide company records could be considered an obstruction of justice. External Parties In addition to relying on workplace documentation, any company facing an EPL lawsuit should seek advice from legal counsel and insurance professionals to properly investigate and handle the incident. Time is essential for attorneys and insurance experts to gather information and formulate effective response measures. Steps businesses can take to assist these external parties may include contacting them as soon as charges are made, obtaining witness statements from any employees who observed or were involved in the incident at hand, compiling any company records associated with the plaintiffs, and establishing a timeline of events. EPL Insurance When an EPL claim goes to court, it is up to the employer’s attorneys, workplace records, and insurance professionals to protect the company from potential damages. Even if an employer is able to avoid punitive damages, the defense fees alone can cause financial strain. An EPL insurance policy can help protect businesses from the costs of such litigation. Contact us today to discuss EPL coverage options. This document is not intended to be exhaustive nor should any discussion or opinions be construed as legal advice. Readers should contact legal counsel or an insurance professional for appropriate advice.

The past few years have seen artificial intelligence (AI) surge in popularity among both businesses and individuals. Such technology encompasses machines, computer systems, and other devices that can simulate human intelligence processes. In other words, this technology can perform a variety of cognitive functions typically associated with the human mind, such as observing, learning, reasoning, interacting with its surroundings, problem-solving, and engaging in creative activities. Applications of AI technology are widespread, but some of the most common include computer vision solutions (e.g., drones), natural language processing systems (e.g., chatbots), and predictive and prescriptive analytics engines (e.g., mobile applications). While this technology can certainly offer benefits in the realm of cybersecurity—streamlining threat detection capabilities, analyzing vast amounts of data, and automating incident response protocols—it also has the potential to be weaponized by cybercriminals. In particular, cybercriminals have begun leveraging AI technology to seek out their targets more easily, launch attacks at greater speeds and in larger volumes, and wreak further havoc amid these attacks. As such, businesses must understand the cyber risks associated with this technology and implement strategies to minimize these concerns. This article outlines ways cybercriminals can utilize AI technology and provides best practices to help businesses safeguard themselves against such weaponization. Ways Cybercriminals Can Leverage AI Technology AI technology can help cybercriminals conduct a range of damaging activities, including the following: Creating and distributing malware—In the past, only the most sophisticated cybercriminals were capable of writing harmful code and deploying malware attacks. However, AI chatbots are now able to generate illicit code in a matter of seconds, permitting cybercriminals with varying levels of technical expertise to launch malware attacks with ease. Although current AI technology writes more basic (and often bug-ridden) code, its capabilities will likely continue to advance over time, thus posing more substantial cyberthreats. In addition to writing harmful code, some AI tools can also generate deceptive YouTube videos claiming to be tutorials on how to download certain versions of popular software (e.g., Adobe and Autodesk products) and distribute malware to targets’ devices when they view this content. Cybercriminals may create their own YouTube accounts to disperse these malicious videos or hack into other popular accounts to post such content. To convince targets of these videos’ authenticity, cybercriminals may further utilize AI technology to add fake likes and comments. Cracking Credentials Many cybercriminals rely on brute-force techniques to reveal targets’ passwords and steal their credentials to then utilize their accounts for fraudulent purposes. Yet, these techniques may vary in effectiveness and efficiency. By leveraging AI technology, cybercriminals can bolster their password-cracking success rates, uncovering targets’ credentials at record speeds. A recent cybersecurity report found that some AI tools are capable of cracking more than half (51%) of common passwords in under a minute and over two-thirds (71%) of such credentials in less than a day. Deploying Social Engineering Scams Social engineering consists of cybercriminals using fraudulent forms of communication (e.g., emails, texts and phone calls) to trick targets into unknowingly sharing sensitive information or downloading harmful software. It repeatedly reigns as one of the most prevalent cyberattack methods. Unfortunately, AI technology could cause these scams to become increasingly common by giving cybercriminals the ability to formulate persuasive phishing messages with minimal effort. It could also clean up grammar and spelling errors in human-produced copy to make it appear more convincing. According to the latest research from international cybersecurity company Darktrace, social engineering scams involving sophisticated linguistic techniques have already risen by 135%, suggesting an increase in AI-generated communications. Identifying Digital Vulnerabilities When hacking into targets’ networks or systems, cybercriminals usually look for software vulnerabilities they can exploit, such as unpatched code or outdated security programs. While various tools can help identify these vulnerabilities, AI technology could permit cybercriminals to detect a wider range of software flaws, therefore providing additional avenues and entry points for launching attacks. Reviewing Stolen Data Upon stealing sensitive information and confidential records from targets, cybercriminals generally have to sift through this data to determine their next steps—whether it’s selling this information on the dark web, posting it publicly or demanding a ransom payment in exchange for restoration. This can be a tedious process, especially with larger databases. With AI technology, cybercriminals can analyze this data much faster, allowing them to make quick decisions and speed up the total time it takes to execute their attacks. In turn, targets will have less time to identify and defend against such attacks. Tips to Protect Against Weaponized AI Technology Businesses should consider the following measures to mitigate their risk of experiencing cyberattacks and related losses from weaponized AI technology. Uphold proper cyber hygiene. Such hygiene refers to habitual practices that promote the safe handling of critical workplace information and connected devices. These practices can help keep networks and data protected from various AI-driven cyberthreats. Here are some key components of cyber hygiene for businesses to keep in mind: Requiring employees to use strong passwords (those containing at least 12 characters and a mix of uppercase and lowercase letters, symbols and numbers) and leverage multifactor authentication across workplace accounts Backing up essential business data in a separate and secure location (e.g., an external hard drive or the cloud) on a regular basis Equipping workplace networks and systems with firewalls, antivirus programs and other security software Providing employees with routine cybersecurity training to educate them on the latest digital exposures, attack prevention measures and response protocols Engage in network monitoring. This form of monitoring pertains to businesses utilizing automated threat detection technology to continuously scan their digital ecosystems for possible weaknesses or suspicious activities. Such technology typically sends alerts when security issues arise, allowing businesses to detect and respond to incidents as quickly as possible. Since time is of the essence when it comes to handling AI-related threats, network monitoring is a vital practice. Have a plan. Creating cyber incident response plans can help businesses ensure they have necessary protocols in place when cyberattacks occur, thus keeping related damages at a minimum. These plans should be well-documented and practiced regularly and should address multiple cyberattack scenarios (including those stemming from AI technology). Purchase coverage. Lastly, it’s imperative for businesses to secure adequate insurance and financially safeguard themselves from losses that may arise from the weaponization of AI technology. It’s best for businesses to consult trusted insurance professionals to discuss specific coverage needs. Conclusion Looking forward, AI technology is likely to contribute to rising cyberattack frequency and severity. By staying informed on the latest AI-related developments and taking steps to protect against its weaponization, businesses can maintain secure operations and minimize associated cyberthreats. Contact us today for more risk management guidance. This Cyber Risks & Liabilities document is not intended to be exhaustive nor should any discussion or opinions be construed as legal advice. Readers should contact legal counsel or an insurance professional for appropriate advice.

PFAS Regulations and Their Impact on Drinking Water Standards The Environmental Protection Agency’s (EPA) new proposed drinking water standard, announced on Tuesday, is one of the many PFAS-related actions that legal experts anticipate from state, federal and international regulators this year. EPA's Proposed Drinking Water Standard and Its Significance Short for per- and poly-fluoroalkyl substances, PFAS are synthetic chemicals found in nonstick cookware, firefighting foam, and food packaging, among other products. Also called “forever chemicals,” PFAS do not naturally degrade and are difficult to remediate. Researchers have linked PFAS exposure to harmful health effects in both humans and animals. If finalized, the EPA’s regulation would require public water systems to monitor for six types of PFAS and to notify the public if levels exceed regulatory standards. In the announcement, EPA predicted the proposed rule could, “over time, prevent thousands of deaths and reduce tens of thousands of serious PFAS-attributable illnesses.” “Communities across this country have suffered far too long from the ever-present threat of PFAS pollution,” EPA Administrator Michael Regan said in a statement. “That’s why President Biden launched a whole-of-government approach to aggressively confront these harmful chemicals, and the EPA is leading the way forward.” Challenges and Legal Implications of PFAS Regulation More than 20 states have already passed their own drinking water standards, resulting in a patchwork of varying acceptable levels, according to a report from law firm Bryan Cave Leighton Paisner (BCLP). Meanwhile, the European Union is considering a ban on the production and use of PFAS, including on imported products, various media outlets reported. Following a review that’s currently underway, the European Commission and member states will vote on the proposed ban, according to Clyde & Co. Beyond regulation, companies that have PFAS in their finished product are at risk of litigation, Clyde & Co. partners Alex Potente and Kevin Haas and senior counsel Yvonne Schulte wrote. Between July 2005 and March 2022, more than 6,400 PFAS-related lawsuits were filed in federal courts, according to Bloomberg Law. “Clients should track regulatory developments regarding PFAs, enforcement actions at the state and federal levels, results of state and federal PFA litigation, and evaluate their insurance coverage for pollution policy language governing or excluding PFAs,” the Clyde & Co. team stated. Governments and private parties have sued manufacturers that make or use PFAS in their operations for personal injury claims, statutory violations, or to recover costs of remedial or filtration equipment. Organizations that make, buy, or sell products containing PFAS are vulnerable to product liability and toxic tort litigation. Organizations deemed responsible parties at PFAS-contaminated sites could be liable for cleanup costs. And new regulations will likely result in facility-specific air and wastewater discharge limits. As a pollution issue, PFAS are comparable to asbestos, Kellie Vazquez, a claims adjuster and remediation expert with insurance services firm Charles Taylor, wrote. “Many governments across the globe are seeking to address the use of PFAS in products but also where land or rivers have historically been contaminated,” said Vazquez. “The costs to remove the contamination can be huge, such that many insurers do not wish to have to meet these costs.” Two additional EPA actions will pave the way for PFAS remediation requirements. In August, the agency put forward a “landmark” proposed rule designation two PFAS as hazardous substances under the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA), said Potente. And in October 2021, it proposed four PFAS substances be deemed hazardous under the Resource Conservation and Recovery Act (RCRA). RCRA regulates how waste should be managed. CERCLA, also known as Superfund, involves the remediation of hazardous materials at historically contaminated sites. The changes would give the EPA regulatory oversight of PFAS in a few ways, noted BCLP. The agency could order the investigation and remediation of sites suspected of containing those chemicals, it could seek to recover costs associated with remediating sites from responsible parties, and it could reopen sites that had already been remediated for additional investigation of PFAS. “This regulatory direction provides industries an opportunity to plan ahead and make strategic decisions regarding their management of PFAS, including consideration of remedial strategies and solutions in anticipation of future regulatory action,” BCLP wrote. “Businesses that take a proactive approach are likely to be better positioned to react to requirements resulting from these forthcoming regulations.” State Approaches to PFAS Regulations Eleven states now regulate food packaging containing “intentionally added PFAS,” though some states go beyond food packaging to include other consumer products, noted Pillsbury Winthrop Shaw Pittman in an online post. California bans the sale of cookware containing PFAS unless the seller discloses the presence of these chemicals on the product label. At the end of this year, New York will start prohibiting PFAS in apparel. Maine’s PFAS law is the broadest, Pillsbury noted. The state prohibits the sale of PFAS-containing products unless the seller notifies it of the “presence, amount, and purpose” of the PFAS in the product. “The current slate of state laws may be the tip of the iceberg, as the possibility exists for additional states to follow suit,” wrote Pillsbury. The law firm added, “Non-compliance with these new laws could subject companies to regulatory enforcement and penalties. All the states in question have codified penalty provisions that would apply to violations of the pertinent laws.”

The construction industry has quickly become the fastest-growing commercial adopter of drones, taking advantage of the technology’s vast aerial vantage point, data-collecting abilities, and more. As projects become more complex and demand increases, operators are utilizing drones to not only survey land and generate topographic maps but to track equipment, provide clients with progress reports of projects, survey job sites, ensure personnel safety, and more. Read on to learn about important regulations surrounding drone use on construction sites and how your operation can protect itself when utilizing drone technology. The Regulation of Drones Drones are still considered aircraft and must be registered with the FAA unless a recreational drone meets all of the FAA’s requirements to fall under the agency’s special rule for model aircraft. Here are the basic guidelines for registering drones: Drones that don’t fall under the FAA’s special rule for model aircraft and weigh between 0.55 pounds and 55 pounds must be registered online. Commercial drones that weigh more than 55 pounds must be registered by paper. Once registered, the drone operator will receive a registration number that must be placed on all applicable drones. Registration is valid for three years. Failing to register may result in regulatory and criminal sanctions. The FAA has separate regulations for recreational and commercial drones, although some of the regulations are similar. The following is a list of key FAA requirements for recreational drones: Operators must maintain a visual line of sight with their drones, and keep them below a height of 400 feet above ground level. Drones cannot fly within 5 miles of an airport without the operator first notifying the airport and air traffic control tower. Operators must always yield the right of way to manned aircraft. Drones cannot be flown over stadiums, sporting events, or people who aren’t directly participating in the flight’s operation. Operators must follow all local drone safety guidelines and keep their drones away from emergency response efforts at all times. Here is a partial list of key FAA requirements for commercial drones: Commercial drone operators need a remote pilot airman certificate with a small drone rating or be under the direct supervision of a person who holds such a certificate. The remote pilot must inspect drones before every flight. Operators must maintain a visual line of sight with their drones, and keep them below a height of 400 feet above ground level. Operators cannot fly the drone over anyone who is not directly participating in the drone’s operation. Drones may carry an external load if it’s securely attached and doesn’t adversely affect the controllability of the aircraft. For more details on the FAA rules regarding the commercial use of drones, visit the FAA’s website. Looking Beyond Casualty & Liability As with conventional aircraft, a drone crash could mean a hefty casualty claim. While the crash rate is actually relatively low with conventional aircraft, drones are not subject to the tight maintenance requirements or the stringent operator regulations that make conventional commercial aircraft crashes so rare. Eventually, mechanical failures and operator errors will likely result in crashes. Businesses, especially those that operate drones in populated areas, should make sure they are adequately covered in the event of property damage or injury to a third party. According to the International Risk Management Institute, Inc., drones present most of the same risks as other forms of aircraft, but on a smaller scale. For most commercial drone users, the most likely losses include: Injury or damage due to collision or interference with another aircraft Injury or damage to people or property on the ground Damage to the unmanned aircraft Violation of another’s rights when flying over private property Unauthorized collection, use, or storage of data Standard commercial property and liability policies do not cover most of the events noted above, so unless other coverage has been purchased, companies that use drones to conduct business likely have uninsured exposures. To address this issue, endorsements can be added to an existing property policy to provide coverage for first-party property damage (damage to the drone itself) and to an existing general liability policy to provide third-party coverage (bodily injury or property damage suffered by another person). Alternatively, a standalone aviation policy can provide both first-party and third-party coverage. Oftentimes, a specific endorsement is required to provide coverage for privacy and data violation claims. Questions? Reach out to a Cottingham & Butler representative today to get more information on how you can protect your business.

With today’s tight labor market, employers are looking to strengthen their attraction and retention efforts as much as possible. One way to aid this is by creating accurate job titles. However, some employers focus excessively on making the titles unnecessarily attractive for potential candidates with a practice called title inflation. This article explores what job title inflation is, explains standard job titles, and offers considerations for creating effective titles. Job Title Inflation Job title inflation is where the title of an employee’s job does not match their duties. Many start-ups popularized the use of inflated or less accurate titles, such as referring to a website manager as a “digital overlord” or calling a receptionist a “director of first impressions.” Likewise, some businesses have added designations such as “vice president” for roles that don’t have implied executive responsibilities. Internally, inaccurate or inflated titles can cause more senior employees to be upset by less experienced workers having more advanced titles. Further, employers could be at risk of having employees quit if their titles are adjusted to ones that more accurately reflect their roles. Externally, these inflated titles have caused less experienced workers to avoid applying because they feel they are underqualified for a senior role. It has also led to more experienced workers being discouraged from accepting these positions because they would not be compensated equally to other actual senior roles. Title inflation can also cause new hires to be disappointed when they learn their job responsibilities are not what they expected when they first applied. The solution is to accurately title jobs from the start so that the necessary candidates apply for the job, accept it, and stay with the organization with a clear understanding of their roles and responsibilities. Types of Job Titles Companies generally have an organizational chart showing the positions within the organization listed by job title and reporting structure. Usually, these titles have a clear progression. The following are common titles that correspond with different experience and education levels. It’s important to remember that while this list provides examples of what certain titles are commonly intended to mean, thousands of accurate job titles are possible. Entry-level—“Staff member,” “representative” and “associate” are common entry-level titles. These positions often have responsibilities such as completing routine tasks, providing customer service and supporting higher-level employees. Intermediate or experienced—“Coordinator,” “analyst” and “specialist” are common titles for intermediate or experienced roles. These positions usually require more expertise and may involve more problem-solving, decision-making, and management of projects or teams. First-level management—“Manager,” “supervisor,” “project manager,” “team leader” and “office manager” are frequently used for first-level management. These roles are usually responsible for overseeing the work of others, setting goals, ensuring work is completed efficiently and communicating with higher-level management. Middle management—“Senior manager,” “director,” “associate director,” “regional manager” and “adviser” are common titles for middle management. These roles are often responsible for developing strategies, making important decisions, managing budgets, leading departments and ensuring the success of the company or a specific department. Vice president—“Vice president,” “assistant vice president,” “senior vice president” and “director” are common titles for executive professionals at the vice president level. These roles are usually responsible for managing staff, supervising departmental operations and reporting to executives or senior management. Executive or senior management—“Chief officers,” “president,” “vice president,” “senior executive” and “executive” are popular titles for executive or senior management. These roles are usually responsible for making major decisions about the direction and overall strategy of the company, managing the performance of other leaders and employees, and representing the organization to external stakeholders. Considerations When Selecting Job Titles Many factors go into selecting the best job title for any given position. Employers should consider the following tips when creating job titles: Match the title to salary expectations. Common titles should match the amount of compensation the position will receive. For example, if an employer is searching for an entry-level applicant, making the title something like “vice president” would not be a good idea because senior-level workers will apply and likely end up rejecting the role once they realize the salary is for an entry-level position. Employers should also be aware of pay transparency laws that may require employers to disclose pay ranges in job postings. Even when it’s not legally required, disclosing pay ranges in job postings can be beneficial because employers who provide pay transparency information tend to receive more applicants and save time and money in recruitment efforts. Appeal to the right candidates. Titles should be created to reflect the amount of experience the position requires. Using senior titles for entry-level roles can deter suitable workers from applying because they feel underqualified. On the other hand, using titles that reflect the experience of the employees an organization desires is a more effective titling strategy. Create short titles. The job title should be kept short. According to research from recruitment service Appcast, the most-clicked job titles have between 50 to 60 characters, while job titles with 1 to 3 words receive the highest application rates. Keep the title short and use the description to provide other key details about the role. Use keywords. The title should include keywords. Depending on the position, an employer may use keywords related to the job’s function, level of seniority, or both. Doing this helps job seekers find the organization’s job listing more readily when they narrow their search based on key terms. Takeaways The current job market remains tight, making attraction even more important to employers. However, they should be cautious with their titling conventions for open positions. By thinking more deeply about the job titles they choose and focusing on accuracy, employers can mitigate job title inflation and likely increase attraction and retention outcomes.

The commercial insurance market is cyclical in nature, fluctuating between hard and soft markets. These cycles affect the availability, terms and price of commercial insurance, so it’s helpful to know what to expect in both a hard and soft insurance market. A soft market, which is sometimes called a buyer’s market, is characterized by stable or even lowering premiums, broader terms of coverage, increased capacity, higher available limits of liability, easier access to excess layers of liability and competition among insurance carriers for new business. On the other hand, a hard market, sometimes called a seller’s market, is characterized by increased premium costs for insureds, stricter underwriting criteria, less capacity, restricted terms of coverage and less competition among insurance carriers for new business. During a hard market, some businesses may receive conditional or nonrenewal notices from their insurance carrier. What’s more, during hard market cycles, insurance carriers are more likely to exit certain unprofitable lines of insurance. In what was one of the longest soft markets in recent years, businesses across most lines of insurance enjoyed stable premiums and expanded terms of coverage for decades. While the commercial insurance market hardened for a short period of time after the terrorist attacks of Sept. 11, 2001, the last sustained hard market occurred in the 1980s. However, after years of gradual changes, the market has largely firmed since 2019, leading to increased premiums and reduced capacity. Many factors affect insurance pricing, but the following are some of the most common contributors to the hard market: Catastrophic (CAT) losses—Floods, hurricanes, wildfires and other natural disasters are increasingly common and devastating. Years of costly disasters like these have compounded losses for insurers, driving up the cost of coverage overall, especially when it comes to commercial property policies. Inconsistent underwriting profits—Underwriting profits refer to the difference between the premiums an insurer collects and the money it pays out in claims and expenses. When an insurance company collects more in premiums than it pays out in claims and expenses, it will earn an underwriting profit. Conversely, an insurance company that pays more in claims and expenses than it collects in premiums will sustain an underwriting loss. The company’s combined ratio after dividends is a measure of underwriting profitability. This ratio reflects the percentage of each premium dollar an insurance company puts toward spending on claims and expenses. A combined ratio above 100 indicates an underwriting loss. Mixed investment returns—Insurance companies also generate income through investments. Commercial insurance companies typically invest in various stocks, bonds, mortgages and real estate investments. Due to regulations, insurance companies invest significantly in bonds. These provide stability against underwriting results, which can vary from year to year. When interest rates are high and returns from other investments are solid, insurance companies can make up underwriting losses through their investment income. But when interest rates are low, insurers must pay close attention to their underwriting standards and other investment returns. The economy—The economy as a whole also affects an insurance company’s ability to write new policies. During periods of economic downturn and uncertainty, some businesses may purchase less coverage or forgo insurance altogether. A business’s revenue and payroll, which factor into how premiums are set, may decline. This creates an environment where there is less premium income for insurers. The inflation factor—Prolonged periods of inflation can make it challenging for insurance carriers to maintain coverage pricing and subsequently keep pace with more volatile loss trends. Unanticipated increases in loss expenses can result in higher incurred loss ratios for insurance carriers, particularly as inflation affects key cost factors (e.g., medical care, litigation and construction expenses). The cost of reinsurance—Generally speaking, reinsurance is insurance for insurance companies. Carriers often buy reinsurance for risks they can’t or don’t wish to retain fully. It’s a way for insurers to protect against extraordinary losses. As a result, reinsurance helps stabilize premiums for regular businesses by making it less of a risk for insurance carriers to write a policy. However, reinsurers are exposed to many of the same events and trends affecting insurance companies and make pricing adjustments of their own. Additional Factors Influencing Insurance Rates In addition to the above, here are other key factors that may influence your insurance rates: The coverage you’re seeking— The forms of insurance you’re seeking, as well as the details of such coverage (e.g. limits of liability and value of the insured property), will affect your insurance pricing. The size of your business— As a general rule, the more employees your business has and the larger your revenue is, the more you will pay for your insurance. The industry in which you operate— Certain industries carry more risk than others. In general, businesses in these sectors are more likely to file insurance claims. As a result, businesses involved in risky industries tend to, on average, pay more in insurance premiums. The location of your business— The location of your business will also influence your insurance rates. If your business is located in an area prone to certain natural disasters, insurers may determine that your facility is more at risk for property damage. This increased risk will translate to higher premiums. Your claims history— Your business’s claims history, often referred to as loss history, will also have an impact on insurance rates. If your business has an extensive claims history, then insurance carriers will tend to consider your company more likely to file future claims. In turn, this means that your business will be viewed as risky to insure, subjecting you to higher commercial insurance premiums. Your risk management practices— Now more than ever, conducting a careful assessment of your business’s unique exposures and establishing effective, well-documented risk management practices can make your establishment more attractive to insurance carriers. After all, having a robust risk management program in place reduces the likelihood of costly claims occurring and minimizes the potential losses your business could experience from an unexpected event. As a whole, during a hard market, insurance buyers may face complex considerations regarding their coverage. Thankfully, businesses are not without recourse in the face of a hard market. Business owners who proactively address risk losses and manage exposures will be better prepared for a hardening market than those who do not. Furthermore, those who educate themselves on the trends that influence their insurance will better understand what can be done to manage their associated costs. For additional information or questions, please reach out to your Cottingham & Butler representative.

When a plan participant or beneficiary has Medicare and other health insurance, such as group health plan insurance, retiree coverage, or Medicaid, there can often be confusion as to which insurance pays first on claims. Coordination of benefits (COB) rules, which are specified in plan documents or insurance policies, decide which insurance pays first. One plan is considered the primary payer that covers most expenses, while the secondary plan covers any remaining allowable expenses not covered by the primary plan. The COB allows health plans to provide health or prescription drug coverage to individuals receiving Medicare to determine their payment responsibilities. This helps ensure that the total amount paid by all insurance plans does not exceed the total costs of the health care expenses for Medicare-covered services and items. This article provides a general overview of COB rules under Medicare. How does Medicare coordinate with other insurance? There are many important facts to remember regarding how other insurance works with Medicare-covered services and items, such as the following: The primary payer pays first and up to its coverage limits. The secondary payer only pays if there are costs the primary payer doesn’t cover. The secondary payer, which may be Medicare in certain situations, might not pay all the uncovered costs from the primary payer. If a group health plan or retiree coverage is the secondary payer, the individual may need to enroll in Medicare Part B before that insurance would pay. If a Medicare-covered individual’s other health insurance is the primary payer and fails to promptly pay a claim, typically within 120 days, that individual’s doctor or service provider may bill Medicare. Medicare can make a conditional payment for the individual’s claim, recovering any payments the primary payer should have paid at a later date. What's a conditional payment? A conditional payment is a payment Medicare makes for services for which another payer may be responsible. Medicare makes this payment, so the plan participant or beneficiary won’t have to pay the claim. The payment is conditional because it must be repaid to Medicare if the Medicare-covered individual receives a settlement, judgment, award or other payment later. Who pays first? When an individual has Medicare and other insurance, there are rules for whether Medicare or the other insurance is the primary payer for Medicare-covered services and items. Medicare is typically the primary payer for Medicare-covered services and items in the following circumstances: An individual is covered by only Medicare and Medicaid. An individual covered by Medicare refuses group health coverage. Medical services or supplies are not covered under a group health plan but are covered under Medicare. A Medicare-covered individual is covered by a group health plan but has exhausted their coverage under the group health plan. A Medicare-covered individual is 65 or older and covered by a group health plan (because the individual or their spouse is still working) offered by an employer with fewer than 20 employees. A Medicare-covered individual is 65 or older and covered by an employer group health plan after retirement. A Medicare-covered individual is 65 or older (or disabled) and covered by Medicare and the Consolidated Omnibus Budget Reconciliation Act (COBRA) coverage. A Medicare-covered individual is disabled and covered by a large group health plan offered by an employer with fewer than 100 employees. A Medicare-covered individual has end-stage renal disease and is enrolled in a group health plan or COBRA (after 30 months of eligibility or entitlement to Medicare). A Medicare-covered individual has only Medicare and TRICARE coverage unless the individual is on active duty and receives services and items from a military hospital, clinic or other federal health care provider. For a complete list of situations where Medicare is the primary payer, visit Medicare.gov or review the Centers for Medicare and Medicaid Services’ guide, Medicare & Other Health Benefits: Your Guide to Who Pays First. How does Medicare know if an individual has other coverage? COB permits an individual’s Medicare eligibility information to be shared with other payers and sends Medicare-paid claims to secondary payers for payment. The Benefits Coordination and Recovery Center (BCRC) does the following on Medicare’s behalf: Collect and manage information on other types of coverage an individual with Medicare may have. Determine whether an individual’s other coverage pays before or after Medicare. Pursue repayment when Medicare makes a conditional payment. Medicare doesn’t automatically know if a Medicare-covered individual has other health insurance; however, insurers are required to notify Medicare when they’re responsible for paying first for Medicare-covered services and items. In some instances, the individual’s healthcare provider, employer or insurer may ask them about their current coverage so they can report that information to Medicare. Additionally, insurers must report coverage changes to Medicare. Summary Understanding COB rules is vital to ensuring that a Medicare-covered individual’s claims are paid correctly. While COB rules can be complex, they can help Medicare plan participants and beneficiaries make the best use of their healthcare coverage. For more healthcare resources, contact Cottingham & Butler today.

The manufacturing sector consists of businesses that utilize raw materials to generate finished products. Due to the range of items this industry plays a role in producing (e.g., food and beverages, textiles, apparel, wood products, chemicals, plastics, metals, electronics, machinery, and furniture), it contributes significantly to the overall economy. Further, this sector has experienced considerable growth in recent years, largely brought on by rising production demand for various items amid the COVID-19 pandemic. Looking ahead, certain factors indicate the manufacturing industry is poised for continued growth in the future. Professional services firm Deloitte projects the sector’s gross domestic product (a monetary calculation of the market value of goods and services generated and sold during a set period) will increase by 2.5% in 2023. Additionally, several federal initiatives that debuted in 2022—namely, the CHIPS and Science Act and the Inflation Reduction Act—have the potential to help keep costs under control and boost resiliency across the manufacturing sector, therefore fueling long-term industry growth. Yet, some sector developments could pose challenges in the coming months and years, including labor shortages, supply chain struggles, economic issues, technology shifts, and environmental concerns. This article provides more details on manufacturing industry trends to watch. Labor Shortages The past few years have been met with labor shortages across industry lines. Furthermore, the pandemic motivated many employees to reevaluate their job expectations and priorities, thus prompting additional workforce shifts and compounding such shortages. The manufacturing sector is no exception to this trend. According to the U.S. Bureau of Labor Statistics (BLS), job openings in the industry remained near record highs in 2022, fluctuating between 750,000 and 850,000. In light of these labor shortages, businesses within the manufacturing sector have implemented various strategies to help attract and retain talent, such as: Promoting a diverse workforce—The latest BLS data shows women make up less than one-third of the manufacturing workforce, whereas Black, Asian, and Latinx employees account for an even smaller proportion. As such, some manufacturing businesses have made an effort to attract these untapped demographics and expand their available talent pools by bolstering their diversity, equity, and inclusion (DEI) measures. Common DEI measures include creating workplace policies that foster an inclusive culture and offering mentorship and career-advancing programs for diverse employees. Leveraging upskilling initiatives—Upskilling refers to the process of enhancing employees’ skills and promoting continuous learning by providing ongoing education, training and professional development opportunities. Especially as manufacturing businesses hire a greater proportion of new or inexperienced employees to fill labor gaps, upskilling can make all the difference in motivating these employees to keep improving upon their abilities. Offering greater flexibility, pay, and benefits—In response to employees’ shifting job expectations, some manufacturing businesses have adopted more competitive workplace offerings. These offerings may include flexible hours, remote or hybrid arrangements (if possible), higher pay, improved benefits and additional well-being resources. Supply Chain Struggles Apart from exacerbating labor shortages, the pandemic has also contributed to supply chain struggles over the last few years. This trend has made it increasingly difficult for manufacturing businesses to secure the raw materials necessary to conduct their operations, often resulting in production delays. To combat these concerns and ensure supply chain resiliency, manufacturing businesses have utilized several tactics, including: Strengthening relationships— By building strong connections with their suppliers, manufacturing businesses are more likely to receive additional support when navigating supply chain issues. Specifically, businesses with solid supplier relationships may benefit from solutions such as modified shipment routes and prioritized access to high-demand materials as they become available. Diversifying suppliers— Instead of relying on a small selection of primary suppliers, some manufacturing businesses have added redundancies to their supply chains by investing in multiple suppliers for the same materials. With these diversifying strategies in place, businesses can increase the likelihood of maintaining access to essential production materials even if their primary suppliers are experiencing disruptions. Forming local partnerships— In addition to diversifying their supply chains, some manufacturing businesses have also begun engaging in nearshoring, which entails selecting local or domestic suppliers rather than international alternatives. This way, businesses can minimize their risk of being impacted by global shipment delays and associated supply chain disruptions. Leveraging technology— To enhance supply chain visibility, some manufacturing businesses have implemented additional workplace technology. Examples of this technology include work instruction software and digital ecosystems, which are capable of actions such as streamlining supply chain workflows, ensuring frequent communication with suppliers, providing status updates on material shipment processes, and delivering notifications regarding possible disruptions. Economic Issues The combination of labor shortages and supply chain struggles has significantly driven up the cost of goods and services in recent years, posing widespread inflation issues across all sectors of the economy. As it pertains to the manufacturing industry, inflation issues have resulted in rising costs for many raw materials, as well as their associated shipment expenses (e.g., labor and transportation costs). Consequently, most manufacturing businesses have encountered price hikes throughout their supply chains, thus exacerbating overall production expenses and forcing them to raise the costs of their finished products to ensure profitability. As inflation issues press on within the sector, it’s important for manufacturing businesses to curb consumer frustration regarding rising product costs by being transparent about the reasons behind these price hikes. Maintaining open communication about the impact of inflation on production expenses and providing frequent updates on how their price tags will continue to fluctuate can help businesses maintain customer trust and loyalty during these difficult times. To help minimize overall inflation concerns, the Federal Reserve (Fed) has steadily been hiking up interest rates. Economic analysts predict that the Fed’s efforts will eventually pay off during 2023, with inflation slowly subsiding throughout the year. However, some economic experts have forecasted that rising interest rates and prolonged labor market challenges could lead to a potential recession—a prolonged and pervasive reduction in economic activity—throughout the United States in the near future. To prepare for a potential recession, it’s best for manufacturing businesses to consider practices such as establishing concrete financial plans, scaling back certain operations, promoting steady cash flow, ensuring proper debt management, fostering strong connections with stakeholders and leveraging effective marketing strategies. Above all, businesses must maintain ample insurance in a recession and secure financial protection against possible losses. Technology Shifts To help offset increased expenses and productivity concerns brought on by current sector trends, a growing number of manufacturing businesses have begun utilizing smart factory initiatives. These initiatives focus on improving operational efficiencies and mitigating production costs with various technology solutions. Common technology solutions introduced by smart factory initiatives include 5G, the cloud and edge computing systems. These solutions are intended to help increase network capacity, reduce delays in network communication and enable greater volumes of data to be processed at higher speeds. Such solutions often permit manufacturing businesses to minimize downtime on the production floor and elevate operational performance. In addition to implementing smart factory initiatives, some manufacturing businesses have also started leveraging disruptive technology offerings, such as augmented reality (AR), artificial intelligence (AI), the Internet of Things (IoT) and blockchain. Both AR and AI can be used to automate production processes, enhance customer service capabilities and make data-driven decisions. On the other hand, IoT and blockchain can help manufacturing businesses closely monitor their supply chains, record essential transactions, conduct predictive maintenance on production equipment, utilize advanced analytics, track inventory and assets, and detect potential safety concerns. In any case, both smart factory initiatives and disruptive technology can pose additional cybersecurity risks. With this in mind, manufacturing businesses that leverage such technology should review their digital exposures and make adjustments as needed to mitigate possible cyber losses. Environmental Concerns The environmental, social and governance (ESG) landscape continues to evolve, with both consumers and regulators placing additional pressure on manufacturing businesses to ensure eco-friendly and sustainable practices. Specifically, current ESG trends in the manufacturing industry center around: Decreasing carbon emissions—According to the latest industry research, the manufacturing sector accounts for nearly one-third of total greenhouse gas emissions. As such, it has become increasingly important for manufacturing businesses to aim for carbon neutrality. Some government agencies have even started requiring businesses to disclose information regarding their carbon emissions. Common emission-reducing measures include electrifying fleets, using clean power sources (e.g., wind and solar) and implementing energy-efficient smart devices on the production floor. Reducing operational waste—Many manufacturing processes generate substantial waste, thus damaging the environment. Fortunately, proper waste management practices and certain types of production technology can help mitigate these concerns, promoting eco-friendly operations. Conclusion Overall, there are several trends currently impacting the manufacturing sector. By staying on top of these developments and taking steps to mitigate their associated exposures, manufacturing businesses can effectively position themselves to maintain long-term growth and operational success. Contact us today for additional risk management guidance. This is not intended to be exhaustive nor should any discussion or opinions be construed as legal advice.

The construction industry consists of companies that construct, maintain and repair buildings and other structures (e.g., roads, bridges and utility systems). This sector plays a vital role in the U.S. economy by keeping residential areas, commercial facilities and local infrastructure in good condition, thus supporting the safety and welfare of communities across the nation. In recent years, the construction industry has faced various ups and downs, largely brought on by fluctuating consumer behaviors, material procurement struggles and project delays amid the COVID-19 pandemic. Yet, the sector has still managed to promote economic growth. According to the latest industry data, the construction sector saw approximately $1 trillion in total gains during 2022, representing a 17% increase from the prior year. Looking ahead, industry experts anticipate a slowdown in such growth as higher interest rates limit property owners’ abilities to invest in new construction projects, particularly in the residential space. However, recent federal initiatives such as the Infrastructure Investment and Jobs Act and the CHIPS and Science Act are intended to help maintain economic stability within the construction sector by funding a range of future projects, especially in the commercial segment. Regardless, several industry trends could pose concerns in the coming months and years, including labor shortages, ongoing material challenges, economic issues and technology shifts. As such, construction businesses should monitor the latest sector developments and adjust their risk management practices as needed. This article provides more information on construction industry trends to watch. Labor Shortages The past few years have been met with labor shortages across industry lines. The pandemic motivated many employees to reevaluate their job expectations, exacerbating such shortages and prompting additional workforce adjustments. The construction sector is no exception to this labor trend. According to the Associated Builders and Contractors, the industry is currently short 650,000 workers. Additionally, a recent study conducted by management consulting company FMI Corporation revealed that the majority (89%) of construction firms consider the scarcity of labor to be the top challenge facing their operations. What’s worse, a growing proportion of construction employees are nearing retirement, creating more job openings as these workers exit the sector. In fact, the latest data from the U.S. Bureau of Labor Statistics (BLS) found that 1 in 5 construction workers are age 55 or older. As labor shortages persist, construction businesses may resort to employing a higher number of new or inexperienced workers. Yet, without proper safety education and skills training, these employees may contribute to increased worksite accident and injury rates, rising insurance claim frequency and severity, extended project delays and compounded operational expenses. Thus, construction businesses must take steps to combat labor shortages and invest in measures to attract and retain sufficient and qualified talent. These measures may include increasing outreach efforts at community events (e.g., high school job fairs and trade school forums) to encourage a new generation of construction workers; leveraging upskilling and reskilling initiatives to continue educating existing employees and build upon their professional abilities; providing ongoing safety training to workers of all ages and experience levels; offering more competitive wages and benefits packages; and attempting to bring employees who recently left the industry back to work with various incentives (e.g., flexible arrangements and career advancement options). It may also benefit construction companies to explore unrepresented demographics to further expand their talent pools. For instance, BLS data shows that women account for just 11% of the construction workforce, highlighting substantial recruitment opportunities within the sector. Additional demographics to consider may include veterans and formerly incarcerated individuals—also known as “second-chance workers”—who can provide evidence of rehabilitation. Material Challenges In recent years, widespread supply chain disruptions and associated material challenges have occurred across the construction sector. Specifically, inconsistent demand for numerous building materials amid the pandemic, transportation bottlenecks and geopolitical uncertainties (e.g., the Russia-Ukraine conflict) have made many construction materials increasingly difficult to obtain, driving up operational expenses and causing significant project delays. Total construction material costs increased by more than 17% between 2021 and 2022, according to the National Roofing Contractors Association. Materials such as steel, iron and lumber have seen the biggest price hikes. In particular, the cost of lumber has fluctuated between $500 and $1,500 per 1,000 board feet since the start of the pandemic. With this in mind, it’s no surprise that a survey from the Associated General Contractors of America reported nearly three-quarters (73%) of construction companies had listed rising material expenses as a major concern in the year ahead. While these trends may slightly ease moving forward, many industry experts anticipate that material challenges will press on for the foreseeable future, therefore continuing to affect lead times and overall project profitability among construction businesses. To help reduce the impact of material challenges within the sector, construction companies may want to consider boosting their supply chain resiliency, revising their inventory management protocols and adjusting their project bidding strategies. This could entail preordering certain materials and holding them in secure storage areas; working with local suppliers rather than overseas alternatives to uphold timely deliveries; building strong relationships with suppliers to ensure prioritized access to high-demand materials; obtaining multiple suppliers for the same materials through contingency agreements; requesting contract clauses with stakeholders that limit the financial ramifications of supply chain disruptions; and reassessing project pricing models to better protect profit margins. Economic Issues Inflation concerns have impacted virtually every industry in the last few years, evidenced by skyrocketing costs for various goods and services. As it pertains to the construction sector, inflation will likely continue to compound already rising material costs and total project expenses, motivating some companies to increase the prices of their services to maintain profitability. The Federal Reserve (Fed) has steadily been hiking up interest rates to help minimize overall inflation issues. Economic analysts predict that the Fed’s efforts will eventually pay off during 2023, with inflation slowly subsiding throughout the year. However, some economic experts have forecasted that rising interest rates and prolonged labor market challenges could lead to a recession—a prolonged and pervasive reduction in economic activity—in the United States in the near future. During a recession, consumers may opt to cut costs and invest in fewer projects and services, potentially lowering demand and taking away business from the construction industry. Consequently, construction companies without substantial revenues, excess reserves and the additional capital necessary to offset extended periods of loss could be more likely to have to make difficult financial decisions to avoid issues such as bankruptcy or insolvency in the months ahead. To prepare for a potential recession, construction businesses should follow practices such as establishing concrete financial plans, scaling back certain operations, promoting steady cash flow, ensuring proper debt management, fostering strong connections with stakeholders and leveraging effective marketing strategies. Further, construction companies must maintain ample insurance in a recession and secure financial protection against possible losses. Technology Shifts Some construction businesses have begun implementing more advanced industry technology in their operations to help boost productivity levels, combat labor shortages, promote employee safety and offset elevated project expenses. For example, technology such as robotics, artificial intelligence and the Internet of Things (IoT) may help automate certain construction tasks, improve project efficiency, and provide greater visibility of essential worksite inventory and equipment. On the other hand, wearable safety technology and drones can permit construction companies to closely monitor their employees’ behaviors on the job and detect hazardous situations before they cause accidents or injuries. Additionally, construction businesses can utilize 3D printing to generate building components and—in some cases—entire properties or structures by layering materials such as concrete, metals or polymers in established templates or designs. This technology not only minimizes the need for physical labor and allows for projects to be completed at more efficient rates but also promotes sustainable building practices and reduces total operational expenses. According to the latest industry research, construction companies that leverage 3D printing can experience cost savings of as high as 40%. Despite these benefits, it’s important to note that implementing advanced industry technology can also lead to elevated cyber exposures for construction businesses. For instance, security firm SonicWall reported that IoT-based cyber incidents (e.g., data breaches and ransomware attacks) increased by 77% during 2022, making companies that utilize this technology increasingly vulnerable. What’s more, a recent survey conducted by IT company Forrester found that at least 75% of construction firms have experienced cyber incidents over the past year, totaling nearly $6 trillion in losses. Considering such findings, it’s imperative for construction businesses that leverage advanced industry technology to review their digital exposures and make adjustments (e.g., providing enhanced employee training on common cyberthreats and installing updated security software) as needed to mitigate possible cyber incidents. These companies should also consider purchasing dedicated cyber insurance to ensure financial protection against potential incidents and related losses. Conclusion Overall, there are several trends currently impacting the construction sector. By staying on top of these developments and taking steps to mitigate their associated exposures, construction businesses can effectively position themselves to maintain long-term growth and operational success. Contact your Cottingham & Butler representative for additional industry-specific risk management guidance. This is not intended to be exhaustive nor should any discussion or opinions be construed as legal advice.

At Cottingham & Butler, we have a dedicated team of problem solvers in the form of a Claims Advocacy team. The primary goal of our Claims Advocacy team is to work with insurance company adjusters to negotiate and resolve tense or complex claim situations. Much of our problem-solving involves leveraging our relationships with insurance companies to get our clients fair and timely claims outcomes. From day one, our team works to identify what may be impeding a claim to then remove the impediment. Depending on the claim scenario, we may persuade insurance adjusters to decrease claim reserves to help with the policy renewal process or follow up for regular status updates on the claim to maintain forward momentum to resolution. These kinds of advocacy activities, while not necessarily measurable from a financial standpoint, contribute to the idea that “time is money,” meaning that anything that can be done to speed up the claims process should result in some kind of cost savings. While there are many different types of claims advocacy that we do for clients, our Claims Advocacy team at Cottingham & Butler likes to be able to advocate for clients in such a way that it is measurable on the company’s bottom line. This tends to be in the form of successfully challenging claim valuations, overturning coverage denials and adverse liability determinations, and pursuing recoveries against negligent 3rd parties for out-of-pocket expenses incurred by clients. In 2022 alone, our Claims Advocacy team saved and recovered nearly $4 Million on behalf of our clients. Of this amount, $1.25 Million was attributed to recoveries while the remaining $2.75 million or so was attributed to savings. The average savings per claim was $36,625, with the largest savings being $325,000, earned from overturning a coverage denial. The average recovery per claim was $13,245, with the largest recovery being $117,000. See below to view additional results from clients and learn how our Advocacy team was able to positively impact their claim resolutions. 2022 Brokerage Claim Savings 2022 Brokerage Claim Recoveries If you have questions or would like to learn more about our Claims Advocacy program, contact your Cottingham & Butler representative today.

In June of 2022, a California jury awarded a verdict of $464.5 million to two men who claimed that they were forced out of their jobs after complaining about sexual and racial harassment. In August of 2022, a Georgia jury awarded $1.6 billion in punitive damages against Ford Motors for a defect in the roof design causing a wrongful death suit. You also might remember the $26 billion lawsuit against 4 of the largest U.S. corporations in the pharmaceutical industry in February 2022 related to the opioid crisis. The term “Nuclear Verdict” is defined as a verdict over $10 million. Increased “Social Inflation” (claims which exceed the increase of general inflation) and the continued attack on Corporate America contribute significantly to the increase in Nuclear Verdicts. Attorneys also continue to increase their use of “Reptile Theory”, playing to jurors’ emotions and appealing to their safety and survival tactics. Other contributing factors include: Perception of the value of money has changed/increased income inequality Media outlets & social media impact on public opinion Erosion of caps on punitive damages for pain & suffering Erosion of tort reform (time limit to file a lawsuit) Nuclear verdicts are growing, not only in frequency but in severity Since 2010, there have been over 1,400 nuclear verdicts; an average of over 115 verdicts above $10 million dollars each per year! Between 2015 and 2019, the average nuclear verdict has more than tripled, from $64 million to $214 million[1]. As you can imagine, these jaw-dropping numbers make it difficult for insurers to assess risk. How does this impact you? Nuclear verdicts don’t only impact those directly involved in a lawsuit; they also have cascading effects on all buyers of insurance. Every bad verdict drives up the cost of future cases, causing underwriters to increase rates on certain lines while simultaneously losing their appetite for certain classes of business altogether. The most prevalent impact is in claims related to professional/product liability, commercial auto, directors & officers, and employment practices liabilities. Because underwriters have no way of predicting or preparing for verdicts of this size, the increasing number of nuclear verdicts is causing a significant amount of unexpected and catastrophic losses. We anticipate these dynamics to cause even more pain for buyers in an already hard market. As the difficulty to underwrite legal risks increases, so does the chance of liability insurance becoming out of reach for businesses. What can you do? The best claim is a claim that never happens. By prioritizing risk management efforts and working with your insurance partner and legal counsel to leverage data and trends, you can take proactive measures to minimize the likelihood and reduce the impact of nuclear verdicts. A few ideas: Scrutinize contracts and use best practices when it comes to third-party risk transfer: Utilizing specific language, requiring certain limits, and reviewing who is responsible for what when working with third parties is crucial in today’s “it wasn’t us” environment. Analyze claims history: Past claims may be indicators of problem areas or lawsuits that are just waiting to happen. Getting in front of these and being aggressive early on is the key to avoiding drawn-out and large lawsuits. Enlist the right team of experts: Certain teams with an understanding of your specific class of business or types of risk can drive drastic differences in both mitigation efforts and claims outcomes. Assess alternative program structures: Having a backup carrier is important as we start to see limiting coverage language and less interest in tougher classes of business. [1] National Law Journal’s 2015 and 2019 editions of the Top 100 Verdicts studies

Since 2017, the market has been in one of the hardest cycles in recent history. The decade leading up to 2017 experienced an influx of capital into the insurance market, which increased competition, drove down rates, and encouraged poor underwriting standards as carriers ‘bought’ their way into the marketplace. It was a fantastic buyer’s market for many years. However, the insurance market, as with every other free market, ebbs and flows. In 2017, the HIM losses (Hurricanes Harvey, Irma, and Maria) changed the capital markets perspective of insurance as a diversification hedge and subsequently exited the “insurance investment class” en masse, resulting in the supply-demand curve to shift drastically in the opposite direction and kick-off this current hard market cycle. Finally, in early 2022, we witnessed a plateauing in the market and a glowing light for insurance buyers started to show at the end of the tunnel…that was short-lived. How Hurricane Ian Is Impacting the Market Early estimates from Hurricane Ian damage surveys indicate it was one of the costliest storms in U.S. history, with insured losses of $53 billion to $74 billion. To put it into context, Katrina reached $85B when adjusted for current inflation. Possibly more importantly, the cost and frequency of extreme-weather disasters have increased substantially in recent years and the frequency of billion-dollar weather disasters is now about one event every 18 days, compared to one event every 82 days between such disasters in the 1980s. This turmoil continues to exacerbate the hard property market cycle and the event frequency and severity continue to wreak havoc on reinsurance balance sheets and profitability. We anticipate seeing multiple small to mid-sized carriers with exposures in Florida going out of business in the coming quarters, and have already seen other regional carriers close their doors in the past several months due to poor profitability and inability to navigate the ever-changing and very costly treaty reinsurance marketplace. Why This Matters for Insureds As of mid-year, rate increases on non-CAT desirable classes of business started to plateau with single-digit rate increases, and in some cases rate decreases, while tougher classes of business had still experienced significant rate increases. With the ongoing Derechos (what we have started to define as an inland hurricane) and increasing frequency and severity of catastrophic-related events, the reinsurance marketplace is in chaos, incurring a significant amount of unexpected losses. We anticipate these dynamics to further deepen and lengthen the current hard market cycle, which will equate to more pain for many buyers of property insurance in the coming quarters. You may ask: “I don’t have exposure in Florida, or Wildfires in California (etc), or Midwest hurricanes… so why does this affect my property insurance?” Great question…it does indirectly because the reinsurance that the carriers bought to insure their portfolios of risk (called a reinsurance treaty) may be the same reinsurers that insure your carriers’ book. In short, the market is highly correlated at the top of the food chain (capital markets and reinsurance) so this pain will continue for the foreseeable future. What to Be On the Lookout For Many standard markets are tightening their underwriter guidelines, some due to executive action, and others due to their treaty reinsurance terms. Through October and November 2022, carriers are submitting their expected losses from Hurricane Ian. Analysts will be closely scrutinizing these figures and playing a large role in establishing what rate increases the reinsurance marketplace will seek in January when most of the reinsurance treaties renew. Throughout mid/late Q4, we should start to have a stronger pulse on the general direction of rate increases, but until then there is an apparent ‘quiet before the storm’ feeling, and frankly, we’re already seeing the storm coming faster than expected. To help our insureds remain proactive and less beholden to the market changes, here are several fundamentals to prepare for: Ensure valuation adequacy within your Statement of Values (SOV) – this is one of the most important topics that underwriters are scrutinizing harder than ever before and a primary focal point when they open a submission. Obtain and act upon loss control reports in advance – third-party or carrier engineering and loss control reports are immensely helpful in elevating your submission to the “top of the pile”. While assisting our insureds with this, we have found that many loss control firms are backlogged so we recommend planning in advance. Scrutinize terms and conditions – we are seeing many carriers trying to restrict critically important terms and conditions on short notice; it is imperative that price not be the only focal point when negotiating the renewal. Analyze alternative program structures – the limits that many incumbent standards and E&S carriers can provide at renewal may be severely limited; we believe in building backup options and “courting” other carriers throughout the policy term to ensure sound contingency capacity. The above is a brief snapshot and overview. We would be happy to talk in greater detail about the strategies we’ve successfully developed to help navigate this hard market and ease the pain. We remain committed to answering any questions that may arise and we will stay in touch as we monitor the marketplace.