New type of insurance protects employers in case of natural disasters, terrorist acts

Of the news stories that captivated us in 2010, perhaps none piqued public interest quite like the disasters that occurred throughout the world — from the Haitian earthquake to the BP oil spill to the Chilean mine drama.

For companies seeking to protect themselves in the event of loss of lives or serious injuries among employees harmed in natural disasters or acts of terrorism, Petersen International Underwriters has a developed an exclusive new insurance product.

Mark Petersen, a principal with Valencia, Calif.-based Petersen International Underwriters, says his company’s so-called corporate accumulation insurance is “designed to remove the liability of the financial obligation if certain catastrophic situations might occur.” Petersen International Underwriters does business with the famous specialty insurer Lloyd’s of London.

Many companies have buy/sell agreements, deferred compensation agreements or sick pay plans that are not covered by traditional insurance but instead are self-funded by the companies. However, if a major natural disaster or an act of terrorism occurs, it puts the company in a position of not being able to make good on payments under those self-insurance programs. Corporate accumulation insurance provides money to cover damages in these cases.

Corporate accumulation insurance can cover deaths or injuries of a company’s employees in a natural disaster like the Haitian earthquake.

Petersen says his company’s product came about as a way for companies to fill in the gaps of self-funded insurance. He says it also helps customers “who have tried to solve their problem through traditional sources but have been turned down due to the uniqueness of the risk.” Petersen’s company issued its first corporate accumulation policy in the summer of 2010 and has written about a dozen policies since then.

While this type of coverage gives peace of mind to a company’s brass, it doesn’t have a direct effect on employees.

Rather, Petersen says, “this is a plan of insurance that makes a (corporate) risk manager breathe easier.”

He adds: “Companies with financial obligations to their employees or partners and who find that they have large concentrations of employees … in one or more locations are excellent candidates for this type of coverage.”

Petersen declined to name any of the companies that have purchased this type of coverage. He says midsize companies are most vulnerable in cases of disaster or terrorism, while Fortune 500 companies tend to have offices scattered in numerous locations, thereby reducing the chances of a catastrophic companywide loss.

“One of the firms we wrote a plan for had 120 partners in one building in New York City and another 60 partners in one location in Los Angeles,” Petersen says. “They had several other locations in the U.S., but with much less accumulation and in areas of less concern from a natural- or manmade-hazard standpoint. If you could, imagine if another 9/11 or a major earthquake struck one of these two locations.”

Petersen notes that the risks covered by corporate accumulation insurance don’t always have to involve the workplace. Such a policy could, for instance, cover a conference or promotional trip where several employees are assembled for a day or more.

Companies generally can buy corporate accumulation coverage for about one-half to 1 percent of the liability. In other words, a policy covering a risk valued at $1 million might cost $5,000 to $10,000.

“The costs can vary significantly depending on the concentration of the risk, the locations of the risk and the length of time needed for the risk,” Petersen says.

–Kevin Allen