The Intersection of Risk. In this session we explore another dimension beyond what is known to the common broker.   It is a dimension as vast as your customer contract and as timeless as an uncovered claim. It is the middle ground between products and services, between intellectual property and warranties, and it lies between the pit of the risk manager's worst fears and the summit of an underwriter's combined ratio.    This is the dimension of the imagination Rod Serling called The Twilight Zone – A dimension we call – The Intersection of Risk.

Jose Heftye, Flextronics Jenny Novoa , Gap Sarah Stephens, Aon Your Moderator: Alex Tokar, Aon

Scene 1: The Supplier’s Big Headache Scene 2: The Brand’s Big Risk Scene 3: A New Dimension of Possibilities

Scene 1: The Supplier’s Big Headache

The “Guest Star” of this scene: Redesign of a smart meter Contract Demands: £50,000,000 Errors & Omissions £50,000,000 Intellectual Property Liability Deductible no greater than… Conflicts & Resolution: Third party Intellectual Property Liability does not exist Possible utilization of a captive to address future situations

The “Guest Star” of this scene: Bluetooth automotive manufacturing Contract Demands: €40,000,000 Product Liability €40,000,000 Product Recall €40,000,000 Product Warranty €40,000,000 Errors & Omissions Conflicts & Resolution: Client wanted dedicated limits per the contract Utilized existing program with side agreement to reinstate limits if capacity was eroded Self-insured product warranty and able to get client to accept lower recall limits

The “Guest Star” of this scene: Electronic Retail Products Contract Demands: $20,000,000 Products Liability $20,000,000 Product Recall $20,000,000 Consequential Damages $20,000,000 Brand Reputation Conflicts & Resolution: Thus far Impossible to comply with client’s demand for brand reputation. Product Liability & Recall partly evidenced with existing programs. Consequential damages agreed, but self-insured.

Scene 2: The Brand’s Big Risk

The “Guest Star” of this scene: Software Vendors Contract Requirement: Software companies must have E&O and Privacy insurance. Access to our customer data and/or systems could expose large losses. Complaint & Resolution: Vendors claims E&O/privacy are too expensive or limits too high. Evaluate the risk to the company. In certain case we accept the risk and waive E&O.  

The “Guest Star” of this scene: Co-development deals Contract Requirement: No one wants to accept any risk!   Who owns the IP? Who caused the problem? Complaint & Resolution: Make sure the business has a defined scope of work.  We may back off of high limit requests based on the business partner.

The “Guest Star” of this scene: Outsourced IT & Data Centers Contract Requirement: Big exposures for the company – data, technology, infrastructure We want substantial E&O, GL, property, and privacy limits. Complaint & Resolution: Significant pushback during contract negotiation Risks too big to ignore. Held our ground for higher limits.

The “Guest Star” of this scene: High Risk Products Contract Requirements: Products for infants and children create unique risks Require higher product liability limits and recall insurance Complaint & Resolution: Overseas vendors often claim insurance is unavailable or they don’t wish to purchase We take a tough stance on this one

Scene 3: A New Dimension of Possibilities

The “E&O UFO” InfoSec Intellectual Property Infringement Professional Liability Media Liability Technology Professional Crisis Management Content Liability Security/Privacy Liability Professional Indemnity Cyber Liability Identity Theft Liability Data Breach Expense Network Risk Healthcare Risks Identity Theft Insurance Medical Malpractice Data Breach Insurance Third Party Recall Architects & Engineers Internet Media

The “Guest Star” of this scene: E&O Requirement on Services Contract Client Quandary: Your client requests to be added as an “additional named insured” or an “additional insured” on your E&O policy Policy Solution: Additional insured status: Makes no sense &/or not available Alternatives may better meet their goals

The “Guest Star” of this scene: Handset Manufacturers Conundrum Client Quandary: Handset manufacturer requires that you accept $50MM in liability for failures of your chip as well as any resultant recall costs they incur You don’t purchase any type of recall policy Policy Solution: E&O coverage for your technology services and products, with an additional coverage grant for third party recall costs

The “Guest Star” of this scene: The Cyber Requirement Client Quandary: A public entity requires evidence of Cyber Insurance in a contract where you will implement a new online system for residents to pay taxes, citations, and licensing fees Policy Solution: You carry E&O insurance, but “Cyber” is not an industry standard term. Be aware of indemnification obligations for data breach expenses - will your policy pay?

And Now The Tables Have Turned ! Client Quandary: You (the retailer) are hiring a vendor to implement a data-intensive new loyalty program The program will integrate the existing CRM system with mobile devices and a new social media campaign At least 4 vendors will be involved directly or as subcontractors What new risks do we face? Vendor risk assessment (financial, technical, legal, security, privacy, quality control, compliance) Contractual risk transfer Vendor insurance Your insurance

The End or Is It...? Jose Heftye Senior Director, Risk Management Flextronics, Inc. 847 Gibraltar Dr Bldg 5 Milpitas, CA 95035 jose.heftye@flextronics.com (408) 576-3726 Sarah Stephens Vice President Aon Risk Solutions  Professional Risk Solutions 199 Fremont, Suite 1500 San Francisco, CA 94158 sarah.stephens@aon.com (415)486-7438 Jenny Novoa Senior Director of Risk Management & Safety Gap Inc. Two Folsom Street San Francisco, CA 94105 Jenny_novoa@gap.com (415) 427-3306 Alex Tokar  Managing Director Aon Risk Solutions 199 Fremont Street  San Francisco, CA 94105 alex.tokar@aon.com (415)486-7377