Tuesday, May 30, 2023

Avoid Gaps in Defense Base Act (DBA) by Identifying This Exposure

Defense Base Act (DBA) coverage is usually relatively easy to identify as it is a contractual requirement for Employees working on U.S. defense bases and other similar contracts overseas. It becomes a little trickier when the insured is a subcontractor, as you may need to contact the principal to determine the DBA requirements in the prime contract.
When interacting with the Jones Act or other Admiralty remedies, it becomes much more complex. For example, when an insured works on a U.S. Navy vessel (considered a defense base in its own right). If the Employee does enough work on the vessel to meet the "substantial connection to a vessel in navigation" requirement for Admiralty jurisdiction, they have a right to collect those Admiralty (Jones Act) benefits.  
Taking this one step further, DBA excludes admiralty employees, so here is what happens:
·        DBA Carrier denies coverage
·        Employee sues and collects under admiralty

Here is the problem – it is so easy to assume that DBA supersedes all other coverages that most agents/brokers will not provide Maritime Employers Liability (MEL) coverage … leaving a massive gap and an E&O exposure for that agent/broker.

Even if the "substantial connection" test is not met, the Employee still has the right to sue under Admiralty law, and the DBA policy does not even provide defense cost coverage in this event!
I want to assure you that this is not some hypothetical situation. We have practical examples of claims where the DBA carriers have declined defense and indemnity under Admiralty law, and agents/brokers have had to respond under their E&O policy. Further, this does not need to be some vast Navy vessel, a carrier, or Destroyer, etc.; it could be as simple as an 18ft harbor patrol vessel!
It is rare to see this happen IF all the work is performed dockside. But, if your DBA employee ever does work on a military vessel in Navigation, you must offer MEL coverage, even if it is only to provide defense costs for the incidental exposure.
An "incidental" MEL can cost as little as $3,500 and typically provides $1mil of defense coverage with a small deductible.

If there is a "substantial connection", premiums typically start at $5,000 and above, but both pale significantly against six-figure defense costs, or worse, an actual verdict against your employer/client. Those prices can often be reduced when the MEL is packaged with other coverages.
Once you have that primary $1ml, including it in the excess program is usually straightforward.
Don't get dragged into a false sense of security when the contract requires DBA but there is an identifiable MEL exposure.

  Ian Greenway

Tuesday, January 24, 2023

Drawbacks of AI-Driven Rating

AI in underwriting poses significant risks that could have disastrous effects for both consumers and the insurance companies that underwrite them. AI can be prone to inaccuracies if the algorithms fail to properly interpret data points or mistakenly identify risks in consumers. This can potentially lead to incorrect and unfair pricing decisions, resulting in the rejection of legitimate claims or in some cases, the acceptance of fraudulent applications. Additionally, if implemented poorly, AI systems can worsen existing biases, since algorithms can maintain and even amplify existing biases without proper oversight. Finally, AI can lack transparency in its decision-making processes, making it difficult to challenge decisions and uncover systemic flaws in an insurer's underwriting process.

Surprise! That opening paragraph about the risks of AI underwriting was, ironically, written by AI. It was generated using a GPT-3 AI via an API. You can get similar results using the ChatGPT bot over at openai.com.  

It misses some key points though. To understand the problems inherent to AI, it helps to understand how it works. The basic vastly oversimplified explanation is that AI is a black box that you feed inputs and then you get an output. How it determines that output is based on Machine Learning. To oversimplify Machine Learning, you take sample input and then tell the machine what the output should have been. Do this often enough and the machine will learn how to do it.

Hopefully, this has already tipped you off to some of the simple pitfalls of AI. It is only as good as the things it’s trained with, as exampled by the AI bot Tay on Twitter, which had to be taken down hours after release due to the subject matter of its responses.

But some drawbacks are less obvious. AI makes different assumptions than humans do and sometimes they’re wrong. For example, one set of researchers was able to make the AI in a car read 35 as 85 simply by using a piece of black tape to extend the middle arm of the 3. 

Humans have an inherent bias. Sometimes an account gets declined because of how it’s presented and explained. Sometimes they are declined because of the timing in relation to a major news story. Humans are more likely to buy newspaper subscriptions if the day is sunny which there’s no logical reason behind. The machine trying to analyze these could end up making the wrong determination as to why a risk would be good or bad.    

So why do we care? Well, there already existing AI-based syndicates. Some are follow-only, meaning that a human has little to no interaction with it and the underwriting becomes solely a matter of how good the AI is. It’s not science fiction, the technology is here today and is likely already causing issues for insureds. 

Author: Mark Greenway, LIG Marine Managers


The Guardian

MIT Technology Review

The British Psychological Society

Thursday, January 19, 2023

F vs. U – Understanding Longshore Class Codes

In the world of Longshore, nothing ever seems to be as simple as it should be! So, why should class code suffixes be any different?

In the traditional sense, if you look in NCCI’s SCOPE manual, or Bureau States manuals, you will see that “true” Longshore class codes, i.e. 6872F, 6824F, 6006F, etc. will have an “F” suffix. It’s understood within the insurance industry that the “F” indicates “Federal” coverage. 

You will also see the “F” suffix attached to “true” Longshore class codes in the Advisory Loss Cost pages of NCCI’s Basic Manual. A footnote on these pages states “F Advisory loss cost provides for coverage under the United States Longshore and Harbor Workers Compensation Act and its extensions. Loss cost contains a provision for the USL&HW Assessment.”

Seems simple and straightforward enough, right?  Well, what about the “U” that shows up on the rating pages of some carriers’ quotes or policies? 

Some carriers will attach the “U” to a standard State Act class code, i.e. 3724U, 5403U, etc. to indicate that the Longshore factor has been applied to that class code. 

It is understood within the industry that the “U” represents “USL&H”. However, not all carriers will apply the “U” suffix. Many will still use the “F” suffix on their quote/policy rating pages to reflect the application of the Longshore factor. 

In either circumstance, the “F” or “U” suffix on your quote/policy indicates that coverage under the US Longshore and Harbor Workers Compensation Act has been applied.

Below is a list of the 15 countrywide true “F” classes along with the 7 State-specific true “F” classes:

Boatbuilding--wood--NOC & drivers
Boatbuilding or repair & drivers
Marina & drivers--coverage under U.S. Act
Barge building--iron or steel--U.S. Act--& drivers
Shipbuilding--naval & drivers
Ship or repair conversion
Painting--ship hulls
Stevedoring NOC
Coal dock operation & stevedoring
Stevedoring--by hand or hand trucks exclusively
Stevedoring--containerized freight & drivers
Freight handling NOC--coverage under U.S. Act
Steamship line or agency--port employees--talliers, checking clerks and employees engaged in mending or repackaging of damaged containers--coverage under U.S. Act
Steamship line or agency--port employees--superintendents, captains, engineers, stewards or their assistants, pay clerks
United States armed service risk

Marine pile driving, dock & seawall, jetty or breakwater, dike or 
revetment construction--all operations to completion & drivers (FL)
Shipbuilding--iron or steel & drivers--coverage under US Act (MO)
Boatbuilding or repair--fiberglass only--& drivers--U.S. Act (FL)
Oil rig building--mobile offshore jack--up type--& drivers (MS)
Shipbreaking (OR)
Diving--U.S. Act (LA, OR)
Steamship line or agency--port employees--tallymen, checking clerks or employees engaged in mending or repacking of damaged containers (NJ)

We hope this provides some clarity on a topic that can be confusing to many.

The world of longshore can be complex, but the experts at LIG are here to help!

 - Author: Tommy Bridges, VP of Business Development, LIG Marine Managers

Thursday, December 8, 2022

Longshore vs. USL&H vs. LHWCA, It’s All in a Name

Marine Insurance has a longstanding tendency to perpetuate confusing names for coverage. You’ve probably heard of Longshore, but are you familiar with USL&H and LHWCA? 

Let’s clear up some of these misunderstandings.

The full name of the act establishing benefits for waterfront workers is “33 U.S. Code Chapter 18 - LONGSHORE AND HARBOR WORKERS’ COMPENSATION ACT.”

If you compare the coverage names and the title of the Act, you’ll see that these three names originate directly from this piece of legislation. Two are partial abbreviations, and the third is a broad single-word simplification.

But which term is the standard for the industry and why are they all used to say essentially the same thing?

  • The abbreviation “USL&H” is somewhat incomplete, as it ignores the WCA part.
  • The abbreviation “LHWCA” is more complete, but not descriptive.

You’ll often see these abbreviations in written format, especially on ACORD or Carrier forms, as they are easier to include in a short-form question.

Meanwhile, “Longshore” is the broadest and most inclusive term and is much easier to say. Therefore, you may hear this term used more often when speaking about this coverage.

The good news is that everyone in this market segment understands all these terms interchangeably and will quote accordingly.

Now that’s the simple part … more complex is how and where Longshore applies. 

If you need to know more about that, have a look first at Longshore 101 for a basic understanding and then our other webinars for more details.

Keep an eye out for our upcoming blog post covering different types of Longshore rates and how they apply. 

Ian Greenway

Wednesday, November 30, 2022

Good News for FL Marine Contractors in 2023

As we come to the close of 2022, we’re experiencing noticeable increases in costs from both the consumer and business owner perspectives. 

From the private citizen’s perspective, whether it’s a trip to the grocery store, a restaurant, or retail shops, prices have been rising. 

From a business owner’s perspective, it seems all the costs of doing business continue to rise, including insurance, healthcare, real estate, benefits, and wages. 

Generally, the highest cost for a business owner— from an insurance standpoint— is their Workers’ Compensation policy. The great news is that, in contrast to the pricing increases we’re seeing in other industries, the cost of Marine Contractor’s insurance has been steadily decreasing over the past few years. In fact, since 2019 the rate for class code 6006F has dropped 38%. 

We’re pleased to share that significant rate reductions will continue in 2023. 

Effective January 1, the Florida Marine Contractors’ class code 6006F will drop 15% from $11.09 to $9.43.

And in Florida, the average rate reduction for all true US Longshore class codes is 14.9%. 

We think everyone can agree that lower costs are a great way to start off a new year. Contact the specialists at LIG for details about our comprehensive coverage options today! 

Ian Greenway

Thursday, August 25, 2022

Nuclear Verdicts and The Rising Costs of Maritime Claims

Many of you are aware of the term Nuclear Verdicts, which refers to cases in which a plaintiff is awarded what is considered an excessive dollar amount. This trend of exceptionally high jury awards has significantly impacted virtually every industry in recent years. Marine is suffering more than most.

The escalation of both the frequency and severity of these claims is amazing over the last 2-3 years and seems to have no signs of abating.

The excess market has suffered more from these losses with the effective erosion of the lower layers and the higher limit claims. It’s difficult to see how the excess market can survive if these trends continue without significant price changes.

Here are a handful of examples of lawsuits that we’ve seen in the last few years in the Marine Industry where jury awards or settlements have been quite significant.

I am sure many of you have other examples.  Please share in the comments or send them to ASK@LIGMarine.com, and we will include them in a future post.

Ian Greenway

Thursday, April 7, 2022

Marine Applications Reinvented

Traditional monoline marine insurance applications can be frustrating because they require repeat entry of common data. When quoting a marine package using one of these applications, you're asked to provide the address, years in business, description of operations, and other basic information on a single account multiple times. This can be very time-consuming for busy agents.  

At LIG, we've developed a new approach to applications. Our Commercial Marine General Application allows us to collect all the general data for a specific account just once. In addition, we've been able to reduce most of the supplements to just one or two pages, vastly reducing the time and work needed to prepare a comprehensive submission for a marine package.

To make submissions as convenient as possible, we've made our Commercial Marine General Application and the supplements you need for each line available 24/7/365 online at https://ligmarine.com/Apps/Printable.

  • Commercial General Application
  • Boat Manufacturers Supplement
  • Commercial Vessel Supplement
  • Diving Supplement
  • Equipment Supplement
  • Marine General Liability Supplement
  • Marine Umbrella Supplement
  • Oil Pollution Liability Supplement
  • P&I Supplement
  • Terminal Operators Liability Supplement
  • Wharfingers Supplement

If you are not actively involved in Commercial Marine and need to identify the lines of coverage you need, use our simple tool MARCOVER at LIGMarine.com/MarCover and then access the apps you need at https://ligmarine.com/Apps/Printable.

When your submission is ready, just email it to SUBMIT@LIGMarine.com and one of our underwriters will be assigned to walk you through the process.

For questions or support, please email us at ASK@LIGMarine.com.