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Silverstein Properties Inc.'s exposures might appear to be “straightforward and fairly common” on the surface, according to Shari Natovitz, the New York-based developer's senior vice president and director of risk management.
The company provides management services as part of its building ownership and develops major office, residential and mixed-used projects, she points out.
But the geographic location and size of the projects “propel these into far more difficult risks. Just as earthquake or coastal wind can be significant exposures and color the structure of a portfolio, we are challenged to address the exposures,” Ms. Natovitz said.
For example, the challenges posed by physical hazards — flood, terrorism and other significant events — have the most potential to affect the company's physical assets.
“We address those through a combination of enhanced protection and security, a "best in practice' building management/maintenance program, and our property and terrorism program wording and market partners,” said Ms. Natovitz. But because all of Silverstein's assets are located in New York and values range from $300 million to $2 billion, “we are often challenged by carrier aggregates impacting available capacity,” she said.
She said that with support from Silverstein's broker, Willis Towers Watson P.L.C., she works to provide the underwriters as much information as possible about the company's buildings and what differentiates them.
Ms. Natovitz said this has been “especially challenging as respects the World Trade Center towers.” 7 WTC and 4 WTC represent in excess of $2.5 billion in value, and 120 Broadway, about two blocks away, is an additional $1 billion, she said.
The WTC buildings don't fit the standard modeling for probable maximum loss or maximum foreseeable loss, she said. “These are the next generation of fire-resistive buildings using what should be measurably stronger concrete, fire-resistive steel and fire control redundancies that are not reflected in the standard models.”
She said that Willis and Silverstein worked together to detail information that could make a difference, adjust the modeling where possible and invite the underwriters to see the actual building, its concrete core, protection redundancies and the company's staff, “which we believe helped to secure the capacity needed.”
Business continuity is also an exposure.
“Since our focus is providing the best possible environment and services for our tenants, the potential exposure of having a significant loss shut down a building is always a concern,” said Ms. Natovitz. Having the insurance to recover from a loss is important, but the company's primary concern is its reputation if it can't manage the properly, she added.
The company began upgrading its business continuity plan in early 2012, Ms. Natovitz said, working across departments including information technology and human resources.
“Our operations department had experience responding to a wide range of incidents, and I wanted to assure that we coordinated this with the backup systems IT had developed, and with our leasing and HR departments to assure the best possible response,” she said.
Ms. Natovitz said those concerns extended to Silverstein's projects because timely completion is critical to the success of the building.
“We were still in "draft' stage when Superstorm Sandy hit” in October of 2012, “but all the elements of continuity were exercised,” said Ms. Natovitz. “Due to the efforts of our operations and development departments, along with the communications managed by leasing and HR, the two buildings affected were back in operation in less than 16 days.”
In addition, the effective management of the remediation and repair, despite taking over 200,000 gallons of water, meant that construction on the new World Trade Center complex remained on schedule, and both operations and development made effective use of the advances provided by the company's insurers, which exceeded $100 million.
Not all exposures faced by Silverstein involve property, Ms. Natovitz said.
New York's “Scaffold Law” labor rule and horizontal exhaustion — whereby an excess policy is not triggered unless all applicable primary policies have been exhausted — “create a constant challenge as they both impact our building operations and our construction projects,” said Ms. Natovitz.
Owners and general contractors are targets of labor law claims, and “they allow those doing construction to not only collect through the workers compensation system but also to sue the owner and general contractor,” according to Ms. Natovitz. The law attaches strict liability and offers only a very narrow opportunity for defense.
“These verdicts are disproportionately high, and the legal environment has driven many carriers out of the New York construction and first excess markets and can also impact the real estate portfolio due to the ongoing repairs, upgrades and tenant fit-outs,” she said. “This is further exacerbated by the New York courts' application of limits, oftentime regardless of contractual wording or intent.”
Like virtually every other business, cyber is the unknown and undefined exposure.
“We have protections and protocols in place that are continually being reviewed and upgraded, and we are undertaking a review of all outstanding contracts with the objective of upgrading insurance requirements,” according to Ms. Natovitz. “We take the Internet of Things very seriously as our buildings, like all modern buildings, rely on systems that include outside vendors, but our biggest exposure is the unknown.
“We all learn from each breach,” she said. “However it is difficult to identify the potential exposures for us and one of the biggest challenges is internal education to assure that we learn about new or potential expansions of service and that legal and risk management are involved in the drafting of all contracts.
“But the underlying exposure and a major concern of the company is the reputation risk that can result in the aftermath of these or any losses or issues,” said Ms. Natovitz. “We are very proud of the men and women of Silverstein Properties and believe that the culture based on the values of integrity, quality, partnership and community service are the cornerstones of our work and services and ultimately define our reputation.”
Silverstein Properties Inc. may be best known for its iconic New York buildings, so it's hardly surprising that production companies would like to use some of them as sets for television shows, movies and commercials.