Specialized Insurance
s a state that’s heavily focused on resource development, Alaska is known for having some of the most hazardous industries. These specialized industries employ various types of insurance to protect their operations, employees, customers, and the general public.
No two businesses are identical and every operation has its own insurance exposures and risks. However, there are some core elements of insurance programs that traverse industries.
Most companies in Alaska—regardless if they’re involved with resource development—utilize some type of liability coverage, workers’ compensation, property, and commercial auto insurance.
“The policies, themselves, can be endorsed with specific coverages necessary for each client’s exposure,” says Christopher Pobieglo, president of Business Insurance Associates. “You can also layer in additional coverages, such as professional liability, employment practices liability, or cyber liability, depending on the exposure of those businesses.”
State-mandated workers’ compensation insurance is the most commonplace insurance for businesses in Alaska. It protects workers and employers from some of the losses caused by job-related accidents and illnesses. Under the Alaska Workers’ Compensation Act, all employers with at least one full- or part-time employee must purchase and maintain workers’ comp policies to cover their employees.
Liability insurance is a part of the general insurance system of risk financing designed to protect the purchaser from the risks of liabilities imposed by lawsuits and similar claims. It protects the insured company if it’s sued for claims that come within the coverage of the insurance policy.
President, Business Insurance Associates
Business Insurance Associates
There are different kinds of liability insurance, and the type a company chooses will depend on the nature of the business. Some of the most common kinds of liability coverages are general liability and professional liability (also known as errors and omissions). General liability provides coverage for bodily injury, personal injury, and property damage caused by the company’s operations. Professional liability insurance helps protect entities that provide professional advice or services against bearing the full cost of defending against a negligence claim.
Property insurance provides protection against most risks to property, such as fire, theft, and some weather damage. This includes specialized forms of insurance such as fire insurance, flood insurance, and earthquake insurance.
Commercial auto insurance, as the name indicates, provides liability and physical damage coverage for vehicles used by a business, including cars, vans, commercial trucks, and other types of vehicles. It covers injuries that the owner or employees may cause to other people and their property while driving. And a typical commercial auto policy may include liability coverage.
Cyber liability insurance helps cover costs associated with the liability of a claim or suit related to a cyber attack or data breach. This type of coverage, often called cyber risk insurance, is growing in use with the constant increase in cyber security threats. Cyber security is a big exposure because almost every business has an online presence.
Vice President
Conrad-Houston Insurance
Conrad-Houston Insurance
Umbrella insurance is a key type of insurance for Alaska businesses that need more coverage to protect their assets. Essentially, umbrella insurance is extra liability insurance that offers additional protection for losses that are not covered by the other policies. Typically, an umbrella or excess policy goes over the general liability, workers’ comp, and other insurance, according to Conrad-Houston Insurance Vice President Michael Dennis.
In more specific terms, here’s how an umbrella policy works: when an insured is liable to someone, the insured’s primary insurance policies pay up to their limits and any additional amount is paid by the umbrella policy. So it picks up where other liability insurance leaves off.
Larger companies often purchase umbrella policies as an extra precaution to protect their net worth. “Umbrella policies may be necessary if the insured has a lot at risk, if a contract requires it, or they have a ton of assets you’re trying to protect,” Dennis says.
The commercial fishing industry has some of the most hazardous jobs in Alaska. In fact, commercial fishing has the second-highest number of fatalities, which makes insurance protection essential for workers in the industry. “Worker safety is paramount beyond liability,” Pobieglo says.
There are several federal regulations that cover workers and others who are injured engaging in maritime-related activities. These laws include the Jones Act—also known as the Merchant Marine Act—and the US Longshore and Harbor Workers’ Compensation Act (USL&H). The Jones Act allows crew members to recover for damages caused by injury while working on a vessel. USL&H covers similar provisions for non-crew members.
Commercial fishing businesses also typically carry hull insurance to cover the body of their vessel, protection and indemnity insurance to protect the crew, and cargo insurance to offer protection against the destruction of the property carried on board.
Liability insurance is also a common coverage area in the commercial fishing industry. Most vessels, Pobieglo says, will need watercraft liability, which is excluded from a general liability policy.
Many commercial fishing businesses also carry pollution liability insurance, which provides coverage from spills or threats of spills involving entities like fishing vessels, shipyards, yacht dealers, and marinas. It covers clean-up, third-party property damage, subsistence, assessment of and damage to natural resources, loss of revenue and profits by third parties, loss of public services, defense, investigation, advertising, civil penalties, criminal fines, and defense and interest. “With vessels or any time you have operations near the water, you have pollution concerns,” Pobieglo explains.
Companies in the energy sector use a variety of liability insurance, based on their activities. For example, a business hauling rigs for an oil company would need a policy tailored to their responsibility to other people’s property, says Lynne Seville, principal and account executive with Parker, Smith & Feek. Other activities would necessitate liability insurance to cover their employees, property, and other people’s property. For example, oil and gas companies have exposure related to well explosions or plants burning up, both of which can endanger people and contaminate sites. “Whenever you may end up harming someone else, you may have a potential liability for them. And you can cover that through some type of liability insurance,” Seville says.
For this reason, pollution liability is a major concern in the energy sector and many oil and gas companies have coverage in this area, according to Dennis. In the event of a spill or accident, pollution insurance can help oil and gas companies with the cleanup of contaminated ground water. “It’s based on the requirements of what they’re doing, but it’s typical to sell it to somebody who’s transferring fuel or who has a pipeline or tanks,” Dennis says.
Large producers in the energy sector have higher liability. Consequently, they are highly insured and usually carry multiple layers of excess coverage. Larger companies such as BP or ExxonMobil tend to have self-insurance programs. And in some cases, they will have a mixed approach. “They will self insure the smaller losses and use reinsurance to cover catastrophic losses,” Pobieglo says.
In other cases, they may set up their own insurance company, known as a captive insurance company. This type of self insurance can help larger companies minimize the expense of covering their liabilities—which can be expensive to insure. “The benefit of it is additional profit opportunity, particularly if the risk management system performs well and they don’t have losses that they have to pay out,” he says.
Liability is also a chief concern for businesses that support oil and gas companies. Typically, insurance requirements are pretty stiff with oil field and gas field support contractors. “They usually require higher limits of coverage, umbrellas, a lot of contract endorsements like additional insured and waivers of subrogation,” Pobieglo explains. “They are transferring a lot of that risk down to the subcontractor.”
Principal and Account Executive
Parker, Smith & Feek
Parker, Smith & Feek
USL&H coverage is also applicable to the energy sector. Any individuals working on, over, or near “navigable waters” of the United States have to be provided USL&H benefits, which are typically better than the state’s workers’ compensation benefits, according to Pobieglo. This law was originally created to protect workers engaged in stevedoring and ship building operations, but it has since been expanded to encompass nearly any employee or company whose work takes them on navigable waters. This includes marine contractors, diving contractors, service companies supplying equipment “on the water,” and ship repair operations. “A lot of folks can run into that requirement even if they’re not necessarily marine or maritime contractors,” he says.
The insurance required by different mining businesses also depends on their particular operations. On the lower end of the risks are the owner-operated surface mines that are mining their own plot of land or panning in water or old creek beds. They need general liability, coverage for equipment, and workers’ compensation insurance if they have laborers.
With larger operations like Usibelli, Pogo, or Fort Knox, there may be self insurance, reinsurance, and captive insurance companies involved. These types of companies will often have different layers of coverage for auto, equipment, and property insurance. However, Pobieglo says, many of the risks for mines are not insurable, such as regulatory and legislative risks.
Some types of mining operations require a more unique approach to securing insurance coverage. Pobieglo explains: “For explosive mining, your standard liability policy probably excludes explosives. Carriers can put ‘explosion underground collapse’ on someone’s policy. Or the underwriting would tighten up with an operation that includes explosives.”
Seville says mining operations can have a huge environmental risk, making pollution insurance a major requirement. Marine, property, and production insurance are also required. For example, if they have promised customers a certain amount of resources, they would insure against production [product coverage], she says. “It’s basically failure to produce.”
Businesses that handle explosives create a general liability exposure to others around them. So mining operations using explosive devices need to ensure this type of risk is addressed by their liability coverage.
Incidentally, it’s harder to place the insurance for companies that handle explosives because fewer carriers are willing to write it. However, a mining company can minimize risk in this area by having another business do the blasting for them.
Within the construction industry, companies generally need liability, auto, and building coverage insurance, according to Dennis. And depending on their policy, they can use a builder’s risk policy—which falls under the inland marine category—to cover a building during construction, equipment, tools, and even lumber while it’s being shipped or on site.
Individuals who are involved in the construction industry could also have professional liability if they’re doing any kind of design build or stamping plans (such as architects and engineers).
Construction contractors also have certain needs when it comes to commercial insurance. “A lot of them are driven by contracts,” Pobieglo says. “In some cases you satisfy that requirement by endorsing current coverages. One of the big ones is pollution coverage, which can be specially crafted to cover certain premises or hazardous material being transported.”
Surety bonds are often a key requirement for construction contractors. A surety bond is a three-party agreement in which a surety or bonding company promises to pay another party if a contractor does not satisfy his or her obligation. Contract, or construction bonds as they’re often called, constitute the majority of the bonds used in Alaska. Primarily used in the public arena, surety bonds are designed to ensure that projects are fulfilled according to the terms of a contract. “They’re requiring these bonds to protect tax payer dollars,” Pobieglo says.
Business Insurance Associates
As a state that’s heavily engaged in transportation, Alaska has a great deal of trucking exposure. Brokerage houses often farm out work to independent contractors with their own truck. In those cases, the individual drivers are responsible for carrying their own insurance.
Trucking and transportation industry companies also require basic auto, general liability, property, and inland marine insurance (for property not licensed for road use such as cranes and dozers). Pollution insurance is also essential to cover the presence of anything that’s where it’s not supposed to be. “A pollutant can be milk if it gets into the water supply,” Dennis says.
In the trucking industry, the catastrophic risk is higher, and accidents with larger trucks can be very expensive. Many trucking companies carry cargo insurance to cover the goods they are hauling, which can be pretty expensive, Pobieglo says. “A lot of the time, truckers have excess limits and need higher umbrellas than the typical $2 million that is often covered,” he says. “We can add another $5 million.”
In addition, there’s a MCS-90 endorsement that attaches to the trucker’s auto policy. MCS-90 Endorsement coverage, which is designed with the interest of the public in mind, is proof from the motor carrier’s insurance provider that when an accident happens, restitution will be paid no matter what. “It constitutes proof that the insurance carrier has met all the financial requirements under federal regulations for motor carriers,” Pobieglo says.
Alaska companies that engage in tourism and small-plane cargo operations also have specific insurance needs. For example, tourism—which encompasses everything from cruise ships, hunting, and fishing guides to the Alaska Railroad—is largely dependent on general liability and property insurance.
From there, the insurance needs can vary according to the intricacies of the operations. For instance, businesses need the proper liability coverage for the particular modes of transportation they employ, whether it’s buses, boats, or planes. Likewise, a lodge or hotel would need to cover different exposure. A hotel will need general liability and perhaps an umbrella worth several million dollars. “Some hotel franchises require a $10 million umbrella,” Dennis says. “The umbrella depends on your level of risk and how many assets you have and your contract.”
In tourism, companies also need protection for legal agreements. “For example, if you’re running a snow machine operation, we recommend that you have your participants sign a waiver holding you blameless,” Pobieglo says. “If you’re dealing with other people, the use of waivers is definitely recommended, done in connection with a legal professional.”
Small-plane cargo operations also have unique insurance requirements. These businesses, which keep much of Western Alaska supplied with goods, often need general liability, aircraft liability, and cargo insurance.
Industry aside, some risks are uninsurable and others are too expensive to insure. That’s why it’s important for businesses to work with a broker who understands their industry and can provide the most appropriate protection. “The stakes are high,” Pobieglo says.
The key is to sit down, identify the risk, and determine how to mitigate it, Seville says. “It’s not just enough to know the risk you’re trying to control, but it’s also about knowing what you’re not controlling.”