Views
March 2016
Willis Towers Watson Merger
Willis Towers Watson Public Limited Company (NASDAQ: WLTW) began
operating on January 5, 2016 following the completion of the merger of Willis
Group Holdings Public Limited Company and Towers Watson & Co. Doing
business under the brand Willis Towers Watson, this new combination creates
a leading global advisory, broking and solutions company serving 80% of the
world’s 1,000 largest companies. 1
A truly compelling combination with a stong client focus and an emphasis on
teamwork:
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39,000 colleagues in 120+ countries
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Scale, diversity and financial strength — $8.2 billion revenue
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A deep history dating back to 1828
“Willis Towers Watson is uniquely positioned to see the connections between
talent, assets and ideas and how they can lead to strong performance and
growth for our clients. We intend to help our clients manage risk and engage
their people in a whole new way,” said John Haley, CEO of Willis Towers
Watson. “We believe we can change our industry by delivering solutions that are
driven by data and analytics, and are integrated, innovative and tailored to meet
the evolving needs of our clients.” 2
The company advises clients across four business segements:
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Corporate Risk and Broking — We know how companies can unlock
potential through effective risk management. Our clients rely on us to craft
strategies to quantify, mitigate and transfer risk, taking advantage of our
specialist industry experience and unparalleled market know-how. The result
is a new way of embracing risk that drives superior results.
In this issue, we:
…provide an overview of the recent
Willis Towers Watson merger and how
this compelling combination of talent,
assets and ideas will benefit our clients.
…review the latest trends in the
insurance market as it continues to
seek a floor with respect to property
and casualty rates.
…explore the risk transfer tools available
to protect a company’s balance sheet
against potential punitive damage
awards.
…investigate insurance certificate
tracking services available from
Willis Towers Watson to real estate
companies.
…discuss the steps retailers can take
to prepare themselves for a potential
terrorist attack.
…cite the IRS announcement that
expands the favorable tax treatment of
identity protection service expenses
incurred by a company or its employees
to include expenses made prior to the
occurrence of a cyber breach.
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Exchange Solutions — A changing health care
landscape creates new opportunities. With our combined
understanding of regulation and risk, behavioral insights
and technology platforms, we create innovative exchangebased services and solutions that enable people to
navigate options with confidence and give employers
decision-making peace of mind.
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Human Capital and Benefits — High-performing
institutions cultivate and grow talent, carefully balancing
costs and rewards. From employee benefits to executive
compensation, we take a rounded perspective based
on leading-edge thinking, data, analytics and software,
unearthing new ways to motivate people, foster well-being
and implement solutions that work.
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Investment, Risk and Reinsurance — Our sophisticated
approach to risk helps clients free up capital. We work in
close concert with investors, reinsurers and insurers to
manage the equation between risk and return. Blending
advanced analytics with deep institutional knowledge, we
reveal new opportunities to maximize performance.
Risk & Capital
Re/insurance
Management
Brokerage &
Advisory
Exchange
Solutions
Rewards
ions
Powerful Global
Solut
Advisory
Growth Platform
MarketScout recently reported that the property and
casualty composite rate for U.S. business declined by 4%
in January of 2016. This overall decrease was led by a 5%
reduction in commercial property rates. Richard Kerr, CEO
of MarketScout, observed, “Commercial property insurers
are getting ready to scratch each other’s eyes out as they
fight for market share. We see nothing to prevent commercial
property rates from dropping further.” 4 Other noteworthy
trends cited in the report are: 5
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Business interruption, business owners policies,
professional liability and directors & officers coverages
were more competitively priced compared to December,
while umbrella/excess liability experienced a slight
increase.
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Habitational as an industry class experienced a 5% overall
decrease.
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Medium sized accounts (under $250,000) also saw a 5%
decrease compared to a 4% decrease for large accounts
(over $250,00).
Broking
Talent &
Market Trends Update
Most experts believe that an improved U.S. economy in 2016
will provide further support to the property and casualty
insurance sector. While it is expected that the industry will
experience positive underwriting gains in 2016, there are also
other potential challenges in play: 6
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Continued low interest rates will dampen investment yields
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Downward pricing pressures will continue to squeeze
profits
Benefits
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Additional industry consolidation through mergers/
acquisitions
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Potential disruptive changes from digital technology
Broad Appeal to
Clients Worldwide
“Our focus now is on realizing the full potential of this
powerful combination for our clients, our people and our
investors,” said Dominic Casserley, Willis Towers Watson
President and Deputy CEO. “These are two companies with
world-class brands, shared values and now, a vastly expanded
set of capabilities, people and geographic reach. Together, we
can continue to provide the services and solutions our clients
have been used to receiving from us, and also create new
offerings that they cannot find elsewhere.” 3
Learn more at willistowerswatson.com.
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VIEWS March 2016
(analytics and telematics) that impact traditional insurance
models
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Slower economic growth than expected
We believe that the trend toward lower rates for most buyers
will continue in 2016, as discussed in detail in our October
26, 2015 Marketplace Realities report. However, we continue
to monitor the financial results reported by the carriers with
whom we do business to determine potential changes in their
approach to pricing. As always, a major caveat remains with
respect to the impact that large catastrophic losses could have
on industry profitability, surplus and the direction of rates.
The following chart provides a summary of our rate expectations by line of coverage for 2016.
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VIEWS March 2016
The Insurability Of Punitive
Damages — A Primer
Few things stoke greater fear in risk managers, outrage in
C-Suite executives or the wrath of boards of directors than
runaway punitive damages jury verdicts. The fear is well
founded, especially when you add the difficulty of insuring
such exposures. To be sure, recent headlines demonstrate
that the potential impairment to a company’s balance sheet
by an uninsured punitive damages verdict is very real.
This article will discuss some of the risk transfer products
available and touch on the advantages and/or disadvantages
of each in mitigating this exposure.
The Bermuda “Occurrences Reported” Form
Punitive damages have historically been included in the
“Damages” definition of the Bermuda “Occurrences
Reported” form and, thus, historically have been considered
indemnifiable under the form. Such “automatic” punitive
damage coverage has long been considered a true advantage
of purchasing coverage under the Bermuda form. These
programs have traditionally attached at higher levels, but the
sustained soft marketplace has driven those attachments
down. Indeed, several companies across diverse industries
have taken advantage of these lower attachment points to
purchase the broad coverage available under the Bermuda
“Occurrences Reported” form in both traditional and multiyear programs.
The “Puni-Wrap” Policy
Since the early 90s, Bermuda-based carriers have also
offered policyholders a separate stand-alone policy to protect
against awards for punitive damages where the domestic
“wrapped” policy is otherwise prohibited from providing
punitive damage coverage due to public policy, statutory or
regulatory considerations. This policy, commonly referred
to as the “puni-wrap” policy, is offered on an indemnification
basis and triggered by a judgment in a court of law. Payments
made under the domestic wrapped policy erode the limits of
the puni-wrap policy; therefore, the puni-wrap policy does not
provide an insured with additional limits or coverage per se.
Nevertheless, a puni-wrap policy provides “gap” coverage for
punitive damage verdicts in those 20+ states in which punitive
damages are otherwise deemed uninsurable. Premiums on
puni-wrap policies historically have ranged from 10% to 15%
of the premium for the corresponding domestic “wrapped”
policy. The policies carry a per policy minimum premium of
$7500.
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While the insurance industry has long recognized this gap
protection as the perceived value of the puni-wrap policy,
perhaps its greater value lies in the alignment of interests
puni-wrap coverage creates between an insured and its
insurer in the context of litigation. Indeed, the determination
of whether and when a case should be settled and the
commensurate value of a case often turn on the merits of
the allegations related to the punitive damages demand.
Alignment of interests between insurer and insured regarding
defense strategy, whether to settle or take a case to trial
and case outcome are critical to secure the right result. An
insurer, obligated to defend and/or reimburse an insured for
defense costs regardless of venue, with exposure for both
the compensatory and punitive elements of a case, provides
an insured relative certainty that the interests of both insurer
and insured are aligned for purposes of case outcome.
However, where an insurer has an obligation to an insured to
defend or reimburse the insured for defense costs but has no
obligation to reimburse the insured for the punitive damages
part of a verdict (or settlement), differences as to case value
inherently exist and may force an insured to contribute the
“punitive” component to a settlement or face the potential for
a runaway verdict in an undesirable trial. Thus, while the puniwrap policy serves a vital purpose in creating gap protection,
its importance in securing an alignment of interests in the
defense of a case cannot be overlooked and, indeed, may
serve as its greatest value. This puni-wrap alternative is
offered by over a dozen excess insurance carriers’ Bermuda
facilities. Consult with your broker regarding which available
markets offer the most options for your specific risk profile.
While there have not been a large number of payments made
to date under Bermuda puni-wrap policies, there is equally no
evidence to indicate that a Bermuda-based insurer has been
unable to indemnify an insured for punitive damages due
to some regulatory or legal prohibition. Nevertheless, given
this lack of precedent and the recent heightened regulatory
scrutiny of the insurance industry, policyholders and carriers
alike have looked to alternative ways to insure against the
runaway punitive damages verdict.
The Most Favorable Venue Endorsement
The Most Favorable Venue (MFV) Endorsement, touted by
domestic carriers as an alternative to a puni-wrap policy,
has become a popular coverage enhancement intended
to require the contracting parties to apply the law of the
jurisdiction most favorable for purposes of determining the
insurability of punitive damages. Domestic carriers have
been largely successful in securing regulatory approval of
such endorsements and offer them in an attempt to compete
for business from insureds otherwise forced to go offshore to secure affirmative punitive damages coverage. The
question often raised about these endorsements is: Can
two parties, otherwise subject to the laws and regulations of
the U.S., contract to apply the law of a specific jurisdiction
simply for purposes of avoiding the prohibition against the
insurability of such damages by whichever court they find
themselves in? Whatever the answer, as with the puni-wrap
alternative discussed above, perhaps the true value of the
MFV endorsement lies in its ability to create an alignment of
interests between an insured and an insurer in the defense
of a case where such alignment would otherwise not exist
absent an insurer’s exposure to punitive damages.
While different insurers take different approaches to this
endorsement and offer differing language, generally speaking
the endorsements include language, such as, the definition
of a claim includes punitive and exemplary damages, and
the enforceability of this provision shall be governed by such
applicable law that most favors coverage for such punitive or
exemplary damages. The cost for this endorsement can vary
depending on the risk, operating locations and the insurer’s
view of the punitive exposure specific to a particular insured.
While the endorsement demonstrates a legitimate intent by
insurers to provide relative contract certainty as to coverage
for punitive damages, the question remains: What is meant
by “the laws of any jurisdiction that is most favorable to the
insurability of such damages”? While regulators have approved
it, the endorsement has yet to meet much heightened scrutiny
by the courts and therefore remains a bit of a mystery as to
whether (and how) it will actually work.
Conclusion
As brokers and consultants to our risk management clients,
we are tasked with assessing risk and finding viable insurance
solutions for them. While the likelihood of being hit with a
punitive damages payment, which cannot be appealed away
or reduced, is very small, the risk remains. Indeed, absent
explicit punitive damage coverage, the policyholder has an
inherent and identifiable gap in coverage. Moreover, there is
undoubtedly value in securing alignment of interests between
insured and insurer in the defense and outcome of litigation.
To those risk managers who ask is there value in purchasing a
“puni-wrap” policy? we say simply, in the unlikely but possible
event your company gets hit with a punitive damages verdict
not otherwise insurable, we would not want to be in the shoes
of the one advising the board that “well…we have a $20M
verdict against us for which we’re not insured.” If I’m a board
member, the first question that comes to mind is, “Could we
have been? Is there insurance for such a thing?” The answer
is yes, and the ramifications of such a situation would likely be
uncomfortable for the messenger.
For more information, contact Robert N. Lane, Esq., Executive
Vice President, Willis of New York, Inc. Willis Towers Watson at
+1 949 370 1468 or [email protected].
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VIEWS March 2016
Willis Towers Watson
Certificate Tracking Services
for Real Estate
Real Estate Firms Have Complex Needs
Real estate companies with large-scale operations routinely
wrestle with trying to accurately assess risk exposures
generated by their core business activities and contractual
obligations. These contractual obligations are often complex
and necessitate being able to:
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Quickly and accurately provide and verify evidence of
insurance from tenants, property management vendors and
suppliers
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Demonstrate expertise in the area of contractual
compliance; verifying coverage types, limits, effective dates;
and additional insured status, including endorsement review
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Secure compliance from tenants and third-party vendors
or implement alternatives to force place coverage or deny
payment for services
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Communicate status to all interested parties (e.g., risk
management, property manager, legal)
Willis Towers Watson Certificate Tracking Offers
A Solution
Real estate clients that contract with Willis Towers Watson for
assistance with their compliance needs can rely upon a fullservice certificate of insurance tracking solution, leveraging
state-of-the-art web-based software and comprehensive
business services, to:
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Automate and centralize the administration of third-party
insurance compliance for our clients by managing their
COIs
Fast And Accurate Assessments
The Willis Towers Watson Certificate Tracking Center
provides an efficient way for companies to manage risk from
sub-contractors, vendors and suppliers. Willis Towers Watson
maintains quality control and service standards that can
improve operational performance in the following areas:
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Accounts payable/receivable functions
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Accuracy in the verification of the required insurance
protection of sub-contractors, vendors and suppliers
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Compliance with internal quality control standards with
documented certificate status, review process and
correspondence
Reduced Costs And Risks
Willis Towers Watson reduces corporate risk exposure
by consulting on contractual compliance standards and
by verifying which sub-contractors, vendors or suppliers
are current and compliant with respect to the insurance
requirements generated by a given contract. Willis Towers
Watson can examine the following aspects of a third party’s
evidence of insurance:
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Type, scope, limits and expiration of insurance coverage
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AM Best financial ratings of carriers
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Additional insured language and endorsements
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Project-specific language
Compliance Reporting
Willis Towers Watson generates custom reports tailored to
our client’s needs and accessible via the client’s portal on
a secure website configured to a client’s specific tracking
requirements. Reports can track evidence of insurance by
multiple categories, including:
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Evaluate certificates based on contract requirements
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Contract type (vendors, sub-contractors, etc.)
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Review additional insured endorsements where required
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Specific projects or properties
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Monitor compliance, including follow-up for non-compliant
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Expiration dates
vendors
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Coverage lines
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Request renewal certificates prior to expiration
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Generate compliancy status reports
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Document history of certificate status and review process
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Store insurance documents electronically for easy retrieval
by client
Willis Towers Watson’s rapid process delivers:
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72-hour turnaround for transcription and compliance
reviews
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On-demand reports with a myriad of data formats
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Protected, customer-owned data on a secure, exclusive
website
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Reduced Workload
Willis Towers Watson efficiently delivers extensive
administrative support that saves our clients time and
money. Our automated system combined with our expert
insurance staff will generate all technical and administrative
communications uniquely suited to our client’s needs.
Examples of such communication types include:
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Initial requests for evidence of insurance
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Renewal notifications for evidence of insurance prior to
policy expiration and after expiration
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Notifying non-compliant parties, clearly communicating
insurance deficiencies and setting compliance deadlines
Why Willis Towers Watson?
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Insurance expertise — Leading global insurance broker
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Experience with tracking
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Accuracy
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Consistent delivery
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Highest level of customer service
Preparing For a Terrorist Attack:
6 Simple Steps For Retailers
A recent video released by militants has called for strikes
on shopping centers — including Oxford Street and the two
Westfield malls in London, the Mall of America in Minnesota,
and Canada’s West Edmonton mall. This threat shows no sign
of abating, and for retailers any adverse publicity concerning
the mishandling of a security or terrorist incident can have
lasting reputational and financial consequences. Here is some
guidance to assist retailers with strategic security planning.
1. Review Your Risk Assessment And Security Plans
Gather as much input as possible when reviewing your risk
assessment and security plans. Involving your local police
force and security personnel provides an objective view point
and helps ensure that your plans are suitable and sufficient.
Make sure they are simple, clear, flexible and compatible
with existing strategies, as well as ensuring all necessary
regulations are met, such as local planning permission,
building consents, health and safety and fire prevention
requirements.
2. Enhance Staff Training And Communication
Willis Towers Watson Certificate Tracking Services delivers
solutions to North American firms with complex contractual
obligations. Using EXIGIS RISKWorks’ state-of-the art
web-based software, Willis Towers Watson’s Certificate
Tracking Service offers comprehensive business services,
including managing certificates of insurance (COI) and
storing insurance documents electronically for easy access
and monitoring vendor and/or tenant compliance. Based
in Nashville, this service is available for both Willis Towers
Watson and non-Willis Towers Watson clients. Certificate
tracking is ideal for firms in the real estate and construction
industries.
Reiterate, review and retrain — With high numbers of staff it
is important to raise awareness and make sure that everyone
(including cleaning, maintenance, contract and concession
staff) is vigilant. Staff should be re-briefed to look out for
unusual packages, bags or other items in odd places and for
people showing particular interest in sensitive, important or
less accessible areas. They should also have the confidence
to report suspicious items or behaviour. Communication is
key to reinforcing this and could include sending out memos
to managers and using posters at entrance points and staff
areas — regular and consistent communication means people
are likely to be more vigilant.
For more information:
3. Establish Contact With Counter-Terrorism
Security Advisers (CTSAs)
Visit the Certificate Tracking System intranet page or email
[email protected]
Contact a member of your Willis Towers Watson Client
Service Team or Sandra Smallwood, Manager, Willis Towers
Watson Certificate Tracking Services, at +1 615 872 3849 or
[email protected]
Someone should have clear responsibility for establishing
contact with your local CTSA who can:
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Help assess the threat, both generally and specifically
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Advise on physical security equipment
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Arrange contact with emergency services and local authority
planners to develop response and contingency plans
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Identify trade bodies for the supply and installation of
security equipment
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Advise on search plans
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If a CTSA identifies any security vulnerabilities, they can alert
the appropriate authorities (e.g., emergency services) that an
inspection is necessary.
4. Maintain Good Housekeeping
On a practical level this may mean the use of clear plastic
bags for waste disposal or establishing a procedure for
checking the registration of contractors’ vehicles. On a more
strategic level this might mean ensuring an organization’s
security system has an uninterruptible and regularly
tested power supply. All equipment, from IT systems to fire
extinguishers, must be regularly checked and monitored for
interference.
5. Control Building Access
Terrorists need physical access to a building to carry out an
attack. In public areas this is difficult to control, so review and
consider enhanced monitoring of CCTV, heightened physical
security and staff awareness, and other means of entry, such
as staff entrances, delivery/collection points and maintenance
access.
Also consider who is gaining access; for example, temporary
staff, contractors and delivery persons. A balance must be
found between business needs and effective security, and
any system must comply with relevant legislation.
6. Ensure Stringent Personnel Security
Some external threats, whether from criminals, terrorists or
competitors seeking a business advantage, may rely upon
the cooperation of an insider. This could be an employee, a
contractor or an agency staff member who has authorized
access to your premises.
Personnel security policies and procedures limit the risk of
staff or contractors exploiting their legitimate access to an
organization’s assets or premises for unauthorised purposes,
while pre-employment screening establishes whether an
applicant has concealed important information or otherwise
misrepresented themselves.
To find out more about the steps retailers can take to prepare
for the threat of terrorism, read our latest risk insight: Security
and Terrorism Guidance for Retailers.
For more information, contact a Willis Towers Watson
Associate or Kelvyn Sampson, UK Industry Practice
Leader – Retail at+44 1473 222990 or kelvin.sampson@
willistowerswatson.com.
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IRS Expands Tax Treatment
for Employer-Provided Identity
Protection Services
In Announcement 2015-22, released on August 13, 2015, the
Internal Revenue Service (IRS) stated that it would not require
the value of identity protection services to be treated as
taxable income when provided to individuals whose personal
information may have been compromised by a data breach.
The IRS has now announced (Announcement 2016-02)
that it is expanding this tax treatment to identity protection
services provided to employees or other individuals before a
breach occurs (whether or not a data breach has occurred).
While consideration still needs to be given to potential state
and local tax consequences, this is good news for both the
employers providing such benefits and to the employees
receiving them.
Specifically, the announcement states:
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Individuals will not have to include in gross income the value
of identity protection services provided by the individual’s
employer or by another organization to which the individual
provided personal information (e.g., name, Social Security
number, or banking or credit account numbers).
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Employers providing identity protection services to their
employees will not have to include the value of those
services in the employees’ gross income and wages, nor
will they have to report these amounts on an information
return (e.g., Form W-2 or Form 1099-MISC) filed with
respect to such individuals.
The announcement does not apply to cash received in lieu
of identity protection services. It also does not apply to
proceeds received under an identity theft insurance policy
(the treatment of such recoveries continues to be governed
by existing law).
The Willis Towers Watson Human Capital Practice offers
a variety of health care reform-related tools, publications
and presentations. We invite you to click here to review the
archive of available information.
We update our site as new developments occur and new
guidance is published, so please check back often.
Contacts
For additional information on this issue’s topics, or
any others for which our Real Estate & Hotel Practice
might provide assistance, please visit our website at
willistowerswatson.com.
Brian Ruane
Director, Real Estate Practice
+1 212 915 7971
[email protected]
Steve Sachs
Director, Real Estate Practice
+1 410 584 8935
[email protected]
Willis Towers Watson is an insurance consulting and brokerage firm. We
are not attorneys and this publication is not to be considered legal advice.
Please consult with your attorneys prior to incorporating any of our
suggestions into an actual contract or agreement.
https://www.willistowerswatson.com/en/press/2016/01/willis-towers-watson-merger-successfully-completed
Ibid.
3
Ibid.
4
http://www.programbusiness.com/News/MarketScout-2016-PC-Business-Opens-with-4-Percent-Rate-Reduction?utm_
source=WhatCountsEmail&utm_medium=DNF_List_020816&utm_campaign=DNF_Template_2015
5
http://www.insurancejournal.com/news/national/2016/02/05/397778.htm
6
http://www.insurancejournal.com/news/national/2016/01/04/393592.htm
1
2
About Willis Towers Watson
Willis Towers Watson (NASDAQ: WLTW ) is a leading global advisory, broking and
solutions company that helps clients around the world turn risk into a path for
growth. With roots dating to 1828, Willis Towers Watson has 39,000 employees
in more than 120 territories. We design and deliver solutions that manage risk,
optimize benefits, cultivate talent, and expand the power of capital to protect and
strengthen institutions and individuals. Our unique perspective allows us to see
the critical intersections between talent, assets and ideas — the dynamic formula
that drives business performance. Together, we unlock potential. Learn more
at willistowerswatson.com.
Copyright © 2016 Willis Towers Watson. All rights reserved.
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