Tag Archives: Michael Henk

Obstacle course racing presents insurers with unique hurdles

Obstacle course racing (OCR) like events featured on American Ninja Warrior have grown in popularity. As the extreme factor of OCR increases so does the risk for event organizers. These competitions do not have the reliable historical data, consistency of events, and general safety measures seen in traditional footraces, making it difficult for insurers to price OCR’s exposures.

A new article by Michael Henk entitled “Obstacles for insurers of obstacle course racing” explores OCR’s unique risks. It also provides perspective for insurers to consider when pricing premiums in this emerging market.

Here is an excerpt from the article:

Imagine that there is a local half marathon looking for liability insurance to cover its event. An insurance company can use data from past races (either in the same location or spread across a broad geography) to predict expected losses. Because half marathons have been around and been insured for decades, there is enough data for a credible analysis. Because OCR was almost nonexistent until 2010, insurance companies do not have that same degree of industry data. As with any emerging market (such as cyber liability, drone insurance, and self-driving cars), insurers do not know what to expect, and therefore, insurance premiums are priced higher to make up for the unknowns.

Another obstacle in the way of establishing a credible database is that all obstacle course races are not the same. When you decide to run a marathon, you know what to expect: run 26.2 miles. Road races might vary by elements such as terrain, local weather, and elevation changes, but overall, similar risks can be expected across all events. If you run a marathon in Chicago, it is similar to running a marathon in Miami. Likewise, insurers also know what to expect with these traditional races. They can use past data and rely on well-established safety standards to determine the proper level of risk and premiums.

Obstacle courses do not have the same consistency. Running a Tough Mudder race in Minnesota is entirely different from a Spartan race in Florida. The lack of standardization makes it difficult to price insurance policies. For example, if one race has a wall that is 20 feet high and another event has one that is five feet high, they pay the same premium even though the risk of injury from falling is greater with the 20-foot wall. These higher premiums can potentially cause race organizers to pay more for insurance than necessary. The risks associated with one obstacle course can be completely different from the risks of another, but insurance companies will still price them relatively the same as there is not enough historical data to allow for differentiation in the policies.

If the industry developed a consistent and credible database of obstacles, insurers would be able to accurately price each race based on the risk of individual obstacles. In fact, with a database like that, races could even be tailored to fit a specific target “riskiness,” selecting obstacles that result in an organizer-preferred premium amount. The current way of one-size-fits-all is not an efficient use of funds for race organizers.

The article was coauthored by Jenna Hildebrandt, an actuarial science student at the University of Wisconsin – Madison.

Infographic: Insurance for craft brewers

April 7th marked National Beer Day, in honor of President Franklin Roosevelt signing a law on that date in 1933 to once again legalize the brewing and selling of beer. It was one of FDR’s first steps toward ending prohibition.

Today, craft beer is a growing market, with the number of small and independent operating breweries in the United States totaling 5,301—a 16.6% increase over the year before. But as with any small, closely held business, this expanding industry faces some unique liabilities. The infographic below is based on an article by Milliman consultant Michael Henk, which examines some of the liabilities that both craft brewers and insurers should consider in order to minimize the financial impact of the risks they face.

Can blockchain enhanced security for insurers?

Blockchain technology may offer insurance companies the security that they have only dreamed about. The technology’s security components enable users to quickly identify whether a stream of data can be “trusted” for accuracy or not. In their article “Blockchain: An insurance focus,” Milliman’s Michael Henk and Robert Bell explain the basics of the technology. They also explore the benefits and limitations that blockchain could have on insurers.

Here’s an excerpt:

Blockchain technology also has the potential to limit fraudulent claims. False billings and tampered documents are less likely to “fall through the cracks” if the data is decentralized and immutable, which will reduce the amount of erroneous claims payments. Utilizing this technology will enable insurers to lower their loss adjustment expenses and pass on that savings to consumers in the form of lower rates. Furthermore, if this technology becomes widely used, it can help mitigate identity theft and other cyber liability losses.

Identity theft is the fraudulent acquisition and use of a person’s private identifying information. Usually this is done in order for the perpetrator to realize a financial gain. Because the data is encrypted at the financial transaction level, the technology minimizes the amount of identifying information available in the blockchain, thus minimizing the risk of identity theft.

The encryption protocol utilized by the blockchain technology has the capability to limit cyber liability as well. Cyber liability is the risk that personally identifiable information will be compromised by a third party storing an individual’s data. Current practice is to store this data in a central location with software to protect against hacking. With this technology, it enables data to be run and stored based on the current blockchain without unencrypting the underlying data because the chain itself can be independently verified through separate nodes….

…As with any emerging technology, these potential benefits do not come about without a few potential limitations, in addition to the security concerns discussed above. The most problematic of the limitations is scalability. In order for the insurance industry to utilize blockchain technology, it would take a remarkable amount of infrastructure.9 Currently, blockchain technology is limited by the amount of computing power available. In order for data to be decentralized, each node must be able to process the requisite data for each transaction for a growing number of participants. While smaller blockchains are currently successful with a limited number of participants, the insurance industry has a much larger population of participants that will need to have their data validated in a timely manner. This will mean not only more storage space, but also enough computing power to quickly be able to validate each new transaction or data point.

Brewing insurance solution for craft brewers

Craft beer companies need unique insurance solutions to address the distinct risks inherent in their industry. Companies can minimize the financial effects that these risks can create by purchasing specialized craft brewery coverage. In the article “Crafting insurance for the new brewery industry,” Milliman’s Michael Henk explores some of the larger risks a craft brewer faces along with the type of coverages the brewery should consider obtaining.

Here’s an excerpt:

Boiler/machinery liability
Boilers and machinery expose breweries to multiple liabilities. First of all, with production being reliant on machinery, any major breakdown could be devastating for business. When a brewery does not produce a lot of beer to begin with, even a temporary halt in production could have large consequences.

Along with a halt in production, brewers have the extra added risk of injuries if something more serious happens. An exploding boiler doesn’t just affect the production and finances of the brewery, but may also result in damages and injuries for workers, contractors, and tour-goers.

There are many steps that craft brewers can take to mitigate the potential economic impact of this risk. For the production side of the liability, brewers can obtain boiler and machinery coverage that will cover them for replacement or repair costs. Property insurance can also cover some of the loss of income from a breakdown in production.

Tour liability
One of the more interesting phenomena with respect to craft brewing is the great popularity of brewery tours, where breweries open their doors to the public (sometimes while the brewery is still in full operational mode). This serves craft breweries well as a marketing tool because it gets people in the door learning about and sampling the product. Popular tours sell out with regularity and have even become “must-see” tourist attractions in many cities. Macro-breweries have gotten in on the tour game as well. However, tours at larger breweries tend to avoid the production floor and tend not to include areas of the brewery that are currently operating.

With these production floor tours of active breweries comes unique liability. Paying customers are invited to walk around the brewery among the fermentation tanks and machinery (accompanied by a tour guide, of course). A brewer needs to make sure that conditions are safe for customers and take preventive measures.

In one specific case, a fermentation tank explosion during a tour led to customer injuries at a craft brewery in Texas.7 Not only was there an obvious halt in production in this case, but also two years after the incident, customers who were on the tour went to court for damages, citing pain and suffering as a result of the incident.

Brewers need to be covered for less “explosive” events as well. Slips and falls are a lot more likely, especially when the brewery tours contains stairwells and wet floors. Brewers must obtain general liability insurance with sufficient limits to cover the bodily injury caused to tour-goers or the potential property damage caused by them.

Can social media and data analytics expose insurance fraud?

Insurers are now perusing social media networks to detect insurance fraud and avoid paying large claims. Here’s some perspective from Michael Henk’s article “Insurance fraud and social media.”

With the immensely high rate of social media usage, some insurance companies are turning to this large source of public information to help combat insurance fraud. As of April 2016, there are 1.59 billion active Facebook users every month globally, while 400 million people use Instagram every month and 320 million users are active on a Twitter account monthly.5 Social media users account for a substantial portion of the population, and these users are generating a massive amount of data, an insurance company’s best friend.

Each day, 500 million tweets are posted—about 6,000 tweets a second.6 As of May 2013, 4.75 billion pieces of content were shared daily on Facebook. Currently, every 60 seconds on Facebook, 510 comments are posted, 293,000 statuses are updated, and 136,000 photos are uploaded.7 Unless social media users have adjusted the privacy settings on their accounts, all information that is posted is considered public. This means that insurance companies have free access to any non-private posts from their customers (or anyone else for that matter). The insurance industry thrives off of data for business purposes such as underwriting, and now, this social media “data” may help insurance companies succeed in combating insurance fraud.

Searching through these networks can become time-consuming and expensive though. Implementing data analytics in addition can optimize insurers’ time and results by sifting through extensive data and expediting a claims investigation.

While analyzing social media can occasionally result in a big win in the fight against insurance fraud, the costs will not always outweigh the benefits. However, if paired with data analytics, the likelihood of uncovering fraudulent claims can greatly increase for a company. Data analytics gives a company the opportunity to process large amounts of data and quickly identify important outliers or other potential indicators of fraud.

For example, geospatial analysis can be utilized when looking for fraud in wind, hail, or flood damage claims. This statistical analysis helps identify what geographical locations were most affected by a storm and where the company would expect to receive claims. It could also aid in identifying the likely severity of a claim based on the proximity to a storm event. Receiving a claim from outside the affected area or a very large claim from a minimally affected area should trigger the need for further investigation.

Analysts can also examine historical claims to identify typical frequencies and severities of policyholder claims. When a current period’s claims are compared to historical data, one can identify cohorts of policyholders who are either making more frequent claims or claims with higher loss amounts. Investigators may want to look further into these types of policyholders to look for further signs of possible fraud.

Pokémon GO and the non-augmented reality of risk

Pikachu and his friends have caused quite a frenzy recently. While people are enthralled with Nintendo’s Pokémon Go, the GPS-based augmented reality (AR) game presents several risks to its developer and its gamers. In his article “Pokémon Go and augmented reality: Not all fun and games,” Milliman consultant Michael Henk discusses some of these AR technology-related risks.

Concerning personal injury risks:

Firstly, AR products like “Go” provides yet another “distraction.” We’re all aware of the dangers of being “distracted.” Texting while driving is illegal in a number of cities and states throughout the country. However, drivers aren’t the only ones being distracted. Distracted walking is a growing problem, one that has arisen naturally with the increasing dependence on mobile electronic devices and one that “Go” is already contributing to. There are anecdotes all over social media about players so engrossed in catching virtual monsters that they’re running into walls and walking in traffic. …

…“Go” may lead to an increase in distraction-caused injuries and pedestrian-vehicle injuries, which is currently the fifth-leading cause of death for children ages 5 to 19. It’s not inconceivable to imagine an incident in which both the driver and the pedestrian are distracted, maybe by the same “rare” Pokémon.

What about cyber risks?

Aside from “IRL” (in real life) dangers, there’s a data security concern with some early installs. Some iOS installs of the software require the user to provide the app with full access to their google accounts, which allows access to their Gmail (theoretically being able to send e-mail from your account), files stored on Google Drive and Google Photos, among other content. The developer has responded and said this was done erroneously, and that permissions will be corrected soon, but it’s important to make sure that users know exactly what programs on their devices have access to. There are other concerns about downloading the program from non-official app stores as well, but that stands for all programs and is definitely not a “Go”-specific concern.

Legal risks?

…There’s a significant risk for trespass with AR games that utilize real-world locations. It remains to be seen whether an AR developer placing cyber-content on your property constitutes trespassing or if AR users are “engaged on a cyber plane on which you have no exclusive property claim.” There’s another legal concern with “attractive nuisance,” which states that property owners are responsible for eliminating dangerous conditions on their property which may attract children. “An individual who fails to rectify an attractive nuisance on their property is civilly-liable to injury a child sustains on it, even if the child was trespassing.” Sounds like something that may happen in the pursuit of a rare Pokémon.