Zurich Resources
ZRS services for secondary perils
The first cut isn’t always the deepest: Convective storms top secondary perils to property
The term “secondary peril” might suggest a lesser danger, but when it comes to natural catastrophes, secondary perils can shoot right to the top of the worry list for property owners and managers.
While “secondary perils” is sometimes used to describe smaller or mid-sized events, today the term is more commonly applied to events following a primary peril: such as flooding in the wake of a hurricane or fires coming after an earthquake. Secondary perils from natural catastrophes are increasing in frequency and exceeding loss totals from primary perils.1
With the coverage of the aftermath of recent major hurricanes, most people are probably aware that post-storm floods are often more devastating than the immediate wind-driven destruction of a hurricane or other tropical storms. (Indeed, flooding is often categorized as a primary peril, even when following a storm.) However, many might be surprised to learn that severe convective storms (thunderstorms, tornadoes and hailstorms) claimed a whopping seven of the top 10 global insured loss events of 2023 according to one report.2
While primary perils may be more expensive on a per-event basis, the increasing frequency and severity of convective storms is adding up to eye-opening costs. There were 37 thunderstorms in 2023 that each resulted in losses of at least $1 billion, far above the average of 14 storms per year in that category.3 (Hurricanes are also convective storms, but as a primary peril, they are separated from this grouping.)
Program Administrators in any property-related sector need to be aware of this underreported risk and work with customers to help limit exposures and reduce potential impacts. Zurich Resilience Solutions (ZRS) is one resource to draw on for knowledgeable guidance, tools and services dedicated to helping meet the challenges of climate-related events. ZRS’ Climate Solutions can provide a number of valuable services, from natural hazard assessments to flood resilience strategies.
Beyond the years of experience and ever-growing knowledge base of ZRS’ own Risk Engineers and risk specialists, we also work with trusted vendors to make an even wider range of services available to businesses. Last March, a few of these valued collaborators participated in a ZRS Vendor Expo at Zurich North America’s headquarters in Schaumburg, Illinois. The event was held to grow awareness among Zurich employees outside of ZRS about these valued collaborations so they can be proactive in communicating the availability of these services.
Among the vendors participating at the Expo were property restoration specialists BluSky, which provides restoration and renovation services for commercial, healthcare, industrial, governmental and residential buildings. BluSky works in collaboration with Zurich North America’s Claims team to respond to fire, smoke, water and storm damage, including environmental services and commercial roofing work. They also work with customers on preventative, pre-loss strategies.
BluSky representatives at the Expo described the company as a “one-stop shop” for restoration, with services that can begin with cleanup work in the immediate aftermath of a disaster and continue through completion of property repairs and/or renovations. In responding to damage resulting from a convective storm and any related flooding, BluSky specialists can perform water extraction and pumping; structural drying; temporary power distribution; infrared moisture detection; sewage cleanup and sanitation; and even total reconstruction of water-damaged property.
Another vendor at the Expo showed how sustainability planning and disaster mitigation can go hand-in-hand. Conservations Labs provides water-monitoring technology and services that can improve the efficiency of buildings by reducing water consumption while also helping property managers reduce the risks of catastrophic water events.
Conservation Labs’ easy-to-install monitors identify leaks and then property managers or staff are notified via email or text message. The leaks are measured and ranked by type of event, fixture classification, and the amount of water used, so the magnitude of the leak is quickly known.
While notification of potentially catastrophic leaking may be the most critical information these monitors provide, informing customers of non-emergency leaks — as well as the general level of water use in a building — can save a business tens of thousands of dollars a year in water
waste and energy costs.
These are just a couple of examples of the specialized, third-party services ZRS works with to better serve customers in preparing for and responding to severe weather events, including secondary perils like convective storms.
- Howard, L.S. “Rising Costs of Secondary Perils Force Reinsurers to Require Higher Attachment Points.” Insurance Journal. 31 January 2023.
- Gill, Mehr. “New normal: Secondary perils are reshaping dialogue on cat losses.” Insurance Insider: 1 February 2024.
- Naik, Gautam. “After $70 Billion Hit, Insurers Wake Up to Growing Risks of Severe Convective Storms.” Insurance Journal. 25 January 2024.
Zurich Resources
HBO’s “Succession”:
An insurance nerd’s perspective
By Bart Shachnow
Sales Performance Director/Head of Zurich Academy, Zurich North America
With an enviable haul of awards and critical acclaim, HBO’s concluded “Succession” made a big impact in the popular culture, as its millions of fans discussed and debated what the series says about family businesses and corporate ethics. As someone interested in risk management and insurance issues, and the implications for the businesses we work with, I find “Succession” offers an abundance of lessons learned.
While you don’t need to watch the series to get value from this article, I strongly recommend doing so. It’s very compelling drama, and a great cocktail party or office water-cooler conversation-starter. And, by necessity, there are some spoilers ahead for those who have not watched the show as I detail plot points you need to know for my “insurance nerd’s” perspective on this popular program.
“Succession” follows the Roy family, which owns Waystar Royco, a global media, cruise and entertainment conglomerate some have likened to the Murdoch family-owned News Corporation (and Fox News). The Roy family is fighting to retain control of the conglomerate. The central players in the drama are Logan Roy, the billionaire founder, CEO and Chairman of the company, and his children.
Kendall, Roman and Siobhan (aka Shiv) are Logan’s children from his second marriage and are all involved in company management to varying degrees. There is constant in-fighting among the children, as each vies for leverage, power and influence within the company and with Logan. Shiv’s fiancé (and later, husband) Tom Wambsgans is elevated to a senior leadership position within the company, so he has access to power but is never totally embraced by the entire family. Greg Hirsch, grandson of Logan’s brother Ewan, is assigned to work under Tom’s direction.
Connor Roy is the only child from Logan’s first marriage and is not directly involved in corporate affairs (nor much of anything else, except funding his much younger girlfriend’s futile career as a playwright), but he uses his access to Logan, his voting interests and access to insider information to his advantage. He also has delusions of grandeur, manifested in his desire to run for President of the United States.
Key non-family members in the drama are Frank Vernon and Gerri Kellman. Vernon is COO and later vice-chairman of the company. He is a longtime confidante of Logan and Kendall relies on him to curry favor with his father, but Vernon is disliked by Roman. Kellman is the general counsel to the company, the godmother of Shiv, and mentor to the immature Roman. He treats her (about 30 years his senior) in a manner that can politely be described as “inappropriate” and non-mutually consenting (sexual connotations intended).
So, with these relationships as the model, what are the big risk management and insurance takeaways from “Succession?”
Be mindful of the “family” in family businesses
There are over 24 million family businesses in the U.S.1 Needless to say, this is a significant market. In order to succeed serving this market, one must understand the business and the family that runs it — its personality, culture and internal dynamics. Of course, every family is unique. Dysfunctionality and self-defeating behaviors like nepotism, in-fighting, and petty jealousies — all on full display on “Succession” — are not uncommon in real-life family businesses. These behaviors can and do impair the ability to manage and sustain a business.
You need a stakeholder analysis and management strategy
In family businesses, centers of power and influence can shift rapidly for a variety of reasons. To be successful in this market, you need to know who the key stakeholders are and how to access and leverage them to achieve your sales and marketing objectives. A stakeholder is anyone who might be directly or indirectly impacted by your objectives (for example, to place the company’s global insurance business).
Stakeholder management is about maximizing the impact of stakeholders who can help you and blunting the impact of those who can hurt you, or who might have interests that run counter to your own. The Roys are a tight-knit family. When they need help, they reach out to those they want to work with (and those decisions do not always turn out well).
Some non-family stakeholders may be better points of access, at least initially. I would put Gerri and Frank in this category, or even people much lower in the “food chain” and work my way up. Kellman and Vernon at least turn out to be somewhat supportive of doing what’s best for the company, even if they are lacking in their ongoing fiduciary duty to call out bad family behavior.
Business continuity planning is vital
This is a cardinal rule of estate planning yet so infrequently pursued effectively. More than one-third of all family-owned businesses do not get passed on to the next generation because of non-existent, incomplete or faulty estate planning. Part of this is psychological: founders and owners of businesses often feel they are immortal and therefore there is no need to plan. Having single-handedly built a global corporate mega-power, you get the sense that Logan feels he is invested with superpowers and immortality. Why else would he not have adequately planned for the inevitable?
Logan is, in fact, in failing health throughout the series, and there are no formal plans to address his sudden or permanent incapacity (like a living will, healthcare proxy or power of attorney). Thus, at a critical shareholder meeting, Logan has a urinary tract infection which renders him helpless and incoherent. Family members hastily devise and carry out a strategy to fend off a shareholder vote that would have shifted control of the company away from the family. This decision would have had to be approved by Logan but, in the moment, there was no legal authority to do so.
After Logan dies, his will seems to indicate that he wanted Kendall to take over as CEO (in spite of the mutual antagonism between them throughout the series). That becomes a point of ongoing dispute as there is disagreement among the survivors as to whether Logan underlined that directive for emphasis or crossed it out completely. Clear succession and business continuity plans are vital to any business’ survival.
Management competence
As mentioned, nepotism is always a potential problem with family businesses, and other than Logan, it’s hard to see how any of the family members have the requisite experience, temperament, or technical, consensus-building or leadership skills to lead a global conglomerate. (Yes, I’m even looking at you, Kendall, in spite of your Ivy League pedigree.)
Tom, Shiv’s husband, is promoted to run the cruise division despite no indication he has any experience in that space. Shiv is promoted to the presidency of U.S. operations seemingly only because Logan trusts her (at a particular moment in time).
The culture of nepotism is so bad that Connor, who never had to work a day in his life, begs Logan to appoint him head of an overseas cable division primarily to burnish his credentials for his political aspirations.
The behavior and management style (moral and morale hazards) of the family should give any underwriter cause for alarm. It is also a recurring cause for concern among key shareholders. Shareholder disputes, proxy battles and threats of hostile takeovers are a staple in the series. These circumstances naturally lead to instability and are avoidable barriers to sustainable and profitable growth and success.
Attitudes toward risk
Business is inherently risky and we help our commercial clients manage risk in a manner that helps them accomplish their short-, mid- and long-term business objectives.
From an underwriting perspective, it’s important to get a sense of a company’s attitude toward risk. Is it responsible or careless? There are many indicators in “Succession” that prudent risk management is not a high priority. A less obvious one is that the company has taken on massive debt at the direction of Logan, with seemingly no input from anyone else. The creditor has the right to demand full repayment if the company’s stock falls below a certain price. This creates two problems: First, leverage increases the risk of default and the temptation to cut corners when expenses need to be shed to service debt (and insurance premiums are usually a primary target when companies shave costs). Second, it forces Logan to seek alternative buyers which compromises the company’s control and flexibility, a situation that only deteriorates over time because of compromises and settlements the family is forced to make.
In spite of this, senior leadership seems to have no interest in responsible budgeting or expense management. For example, the handful of family members and their lieutenants running the company require two massive private jets and two helicopters to transport them to various destinations. The negative optics and expense of the private jets ultimately becomes an issue for a major investor whose support is vital to continued Roy control of the business.
Corporate culture
Where to begin? The Roys have a complete lack of moral values. Every family member is out for themselves. Following the rules (and the law) is clearly for suckers. Reckless drug use, criminal cover-ups, harassment, blackmail, and even negligent homicide — the Roys cover the bases of bad behavior.
So yes, getting a carrier to write the D&O and EPLI for this risk will be a major challenge. And failure to secure comprehensive, high-quality management liability coverage will be a deterrent to attracting and retaining talented executives and directors.
Bottom line
The economic engine of the U.S. economy is family-owned and operated businesses. So, to be successful developing, retaining and growing a portfolio of commercial clients, one must be successful at understanding and dealing with the challenges family businesses face. That work can be richly rewarding and can help those businesses grow and be successful. But there are often family dynamics in play that can endanger the long-term well-being of these companies. The Roy family is an object lesson in that.
- Van Der Vliet, Daniel. “Measuring the Financial Impact of Family Businesses on the US Economy.” FamilyBusiness.org. 2 June 2021.
