The following document is an approximate, but not exact, transcript of the Operational Leaders podcast conversation between host Terrance J. O’Malley and guest Kimberly Patlis Walsh.

Please support the production of this podcast by downloading the Kimberly Patlis Walsh episode.


Narrator  0:05

Welcome to the Operational Leaders podcast featuring leaders and innovators in the investment management industry, where we discuss the business of running the business with host and top industry executive Terrance J. O’Malley.

Terrance O’Malley  0:19

This week’s guest is the President and Managing Director of Corporate Risk Solutions, an independent risk insurance advisor. She has 20 years of insurance underwriting, program structuring and multinational client risk advisory representation. She is a frequent speaker on panels for the alternative investment community, as well as the insurance and risk community. Please welcome Kimberly Patlis Walsh.

Kimberly Patlis Walsh  0:46

Thanks, Tery.

Terrance O’Malley  0:47

It’s great to have you here today. We started talking about doing this about three months ago and the world has changed.

Kimberly Patlis Walsh  0:54

It certainly has. This is an unprecedented time for many people. Certainly none of us have ever navigated pandemic for sure.

Terrance O’Malley  1:03

Kim. We’re going to walk through insurance and the insurance ecosystem and landscape. And what we would like to do is give people a very good introduction so that they understand the big picture on this. And when we do that, we’re going to then talk a little bit about how the Coronavirus is impacting your clients and impacting the world of insurance. But before we get there, can you tell us about your firm, CRS, and then maybe also tell us a little bit about how you got into the insurance business?

Kimberly Patlis Walsh  1:32

Sure. So maybe I’ll start with Corporate Risk Solutions. So we’re solely an independent risk and insurance advisor primarily to alternative investment firms, their respective portfolio company assets that they may invest into, and then stand-alone operating companies from startups to the Fortune 10. Most simply put, we serve as an outsourced risk manager for many of those companies, some of whom may have dedicated risk managers internally but in others that don’t have any type of internal risk management. They may have Treasury risk management in the investment community, or they have risk management that does other types of currency risk or other hedging or other things like that, but not necessarily commercial risk management across the risk continuum.

Kimberly Patlis Walsh  2:20

And our firm was born out of the need mostly in the investment community in principally private equity originally, back in the 80s, with a predecessor firm, and founder, my partner Joe Coughlin, who realized that there was a large disconnect between the investment firm and their portfolio company assets and what the insurance marketplace or the insurance capital. And no one was necessarily directly speaking to each other. There’s always an intermediary in the placement of insurance and so insurance is naturally fairly opaque to most folks out there. If you ask any investment fund, they don’t really understand it. Nobody really wants to be a part of the insurance world. So having a navigant who can really help you put it in layman’s terms and understand what is actually happening has proven quite helpful for a lot of our investment firm clients.

Kimberly Patlis Walsh  3:18

And for those clients that are stand-alone operating entities, they have historically relied very heavily on their brokers to help them navigate into the insurance world. That works fine for lots of firms. As you start to get into more complex risks, or the backdrop starts to get more complex or we’re headed into the marketplace drop or there’s a pandemic or something else. There’s lots of different things away and lots of different things to navigate. So the players in the insurance marketplace are pretty varied as well. And so I think there’s sometimes lots of people don’t even know how the marketplace works. And so that has created some disconnect for a lot of clients as well.

Terrance O’Malley  4:03

So you and your firm look at a lot of insurance agreements. You have very good idea of where the soft spots are, and what can be negotiated, what can’t be and exactly what the language is really saying that a lay person may not be able to identify quickly or fully understand the impact of the particular language.

Kimberly Patlis Walsh  4:23

True. Yeah, I think that’s part of the biggest gray area, right, is all the language on an insurance contract. It appears that it is opaque for a reason, right? And many people, depending on where you are across the board, there are many, many folks that don’t like insurance at all, and would only buy insurance if it is statutory or legally required. And otherwise, they want nothing to do with it. I know a handful of companies that are in the Fortune 10 at this point that wouldn’t buy insurance if they didn’t have to. And that’s unfortunately the reputation that the industry has as a whole.

Kimberly Patlis Walsh  4:58

So looking at when you buy insurance, there are some really creative and credible backstops to indemnity or financial obligation or your own personal assets, as well as enterprise protection, that are out there. But it is really about trying to navigate that marketplace as swiftly as you could, with the right teams around you to arm you with the best tools to get through those policies and get to what you really need.

Terrance O’Malley  5:27

So you’re a consulting firm, there’s also brokerage firms, and the brokerage firms will go out and shop your desired policy, or your desired protection to different underwriters or insurance companies.

Kimberly Patlis Walsh  5:40

Correct. So the typical way if you weren’t using a consultant – we don’t even like to use that word consultant because it has that negative connotation to a lot of folks in the insurance world – but that being said, we’re an independent advisor, solely protecting and standing in the shoes of our clients. When I used to work with you, we like to see ourselves as an extension of whatever client we’re representing. The insurance marketplace is comprised of a lot of different parties all advising different insureds and the insured could be an investment firm. It could be their respective portfolio asset that they may be investing into, so a stand-alone operating company in any industry sector. It could be a stand-alone operating commercial company, could be any other number of operations that may be seeking insurance for varying types of risk.

Kimberly Patlis Walsh  6:32

Typically, that company, that insured, would go to an intermediary. That intermediary is typically a retail broker. That retail broker represents that company, right? So they go out to all the insurance companies, the “insurance capital” out in the marketplace, that could be an AIG, it could be Berkeley, a WR Berkeley, it could be an AXA XL or an Allianz or something else. That’s the “insurance capital”. The insurance capital is the people that are protecting the underlying risk of the insured, brokered and intermediated by the broker. The broker still has further intermediation. Sometimes there is a wholesale broker or a specialty broker for certain types of risks that really need a lot more attention or a lot more expertise. So, as an example, environmental or pollution, sometimes director and officer insurance, sometimes specific hull insurance or boiler machinery or something else that people have made their life’s work around being a wholesale or specialty broker for a particular type of risk that a typical retail broker won’t have that level of expertise or won’t have as broad a footprint or as depth of knowledge as that wholesale or specialty broker has. Then that specialty broker acts on behalf of the retail broker acting on behalf of the insured, going to the insurance company.

Kimberly Patlis Walsh  8:08

On the backstop of the insurance companies themselves, who are providing the capacity, right, they’re providing the limits to the insured. They then sometimes lay off their risk. So they go to a reinsurer. The reinsurer then sometimes also lays off their risk and goes to the retro-sessional market, where there’s a reinsurer to a reinsurer, and the reinsurer to the insurance company. So it’s layers and layers and layers of opacity to the insured who doesn’t really always understand how it all navigates.

Terrance O’Malley  8:41

So in a nutshell, that’s the landscape for insurance.

Kimberly Patlis Walsh  8:44

That’s the insurance landscape. Typically. Yes. And then you insert folks like us, which we are further helping an insured navigate this otherwise opaque marketplace.

Terrance O’Malley  8:57

So let’s assume we have a manager who is investing primarily in the liquid equity markets, or maybe even the secondary credit markets. What types of insurance would that manager typically look to obtain?

Kimberly Patlis Walsh  9:12

So more often, the most important insurance that they would obtain would be their director and officer and errors and omissions, so their professional services as an investment advisor, and manager. These types of policies more often, obviously have regulated entities, they all have required insurance protection that you have to buy to protect the underlying assets that you’re managing on behalf of investors, or limited partners, that you are at any given point protecting. And those policies occasionally have their own dedicated policies for the manager, or they have shared policies between the manager and the funds, on behalf of the funds. So most of the time you are working as a manager on behalf of funds that you’ve created. Those [institutions] or high net worth individuals come in and invest into your funds, you’re giving them all kinds of options that they can have to make money across the board. And for that they allow for you to protect those funds as well as you as the manager.

Kimberly Patlis Walsh  10:17

The manager sometimes has certain risks that don’t have anything to do with the fund. And they would procure their own insurance as well. So director and officer and professional services, firm coverage. There are bonds that are required to protect certain funds that are being invested, especially if they’re large pension funds, that you’re bonding your investment management of that money. And then there’s commercial insurance, that is property casualty insurance, that’s workers comp that you have to buy in the United States to make sure that you’re protecting the enterprise and protecting your workers. There are also other types of additional coverages that you would purchase beyond that depending on the type of firm that you are and the type of risk that you’re taking on

Terrance O’Malley  11:01

Where would something like cybersecurity fall within there?

Kimberly Patlis Walsh  11:05

Yeah, definitely, certainly in the past, let’s call it, five years, but much more of a dramatic increase in the past 12 to 15 months. Many firms are either being required by regulatory agencies to purchase cyber insurance and make sure that they are protecting their own private information or material nonpublic information, as well as if you are investing in certain places that may have personally identifiable information as well as personal health information. So PII or PHI, as well as under legislation, like GDPR, or privacy risk around the world. Many investment firms have maybe five years ago thought they never needed coverage. Maybe they still believe they don’t need that coverage, or they think it’s a target if they buy the coverage. But many firms have adopted that “I need to have a cyber process in place, I also need to have a backstop to protecting all of that nonpublic information.” And making sure especially if you’re an investor in the healthcare space, there’s a huge increase in firms that are buying cyber insurance and network security.

Kimberly Patlis Walsh  12:17

And it’s across the board on insurance. Varying types of coverage carriers write each policy completely differently and bespoke to that individual carrier. So you never get one off the shelf coverage that is, “Okay, here’s a property policy that’s going to fit everybody, you know, in every industry sector.”

Terrance O’Malley  12:38

So are there other typical policies that people get or is that kind of the cover the range, and then it would just be one-off if somebody had a unique situation?

Kimberly Patlis Walsh  12:48

Yes, generally, I think you are buying workers compensation, property insurance, auto insurance if you have a fleet of coverages that you need to protect. If you’re in the energy space, you would obviously also be looking at pollution or some type of environmental coverage as well. And then there’s a ton of specialty issues that may be relative to protecting your supply chain and other coverages that may be more financial instruments that protect risks that you may have.

Terrance O’Malley  13:21

Biggest mistakes people make, biggest misperceptions, misconceptions.

Kimberly Patlis Walsh  13:26

I think believing that you don’t have to tell a story to differentiate yourself against your peer group or against the risks that you may be having. I think, especially in the backdrop that we’re in, any type of changing marketplace in your own sector, whether you’re an investment firm or you’re an operating company in a particular business sector. Telling the story differently to differentiate your risk and your company against the market – the broader market or your competitors – single-handedly determines how the insurance carrier perceives you. In which case [it determines] how they price out your insurance, and what type of capacity they’re going to commit to giving you. They’re underwriting the management team for sure. 100%?

Terrance O’Malley  14:13

And what are some of the factors that the insurance company’s going to be looking at in terms of determining what somebody’s rates are? Or whether they’re going to want to cover them at all?

Kimberly Patlis Walsh  14:21

I think especially on the investment space, it’s how long have the investment managers and professionals been together? What type of strategy are you executing, whether they believe in your risk strategy, your own sort of risk, personal risk tolerance, how do you approach risk in general? If you are looking to lay off your risk entirely into the insurance marketplace because they’re going to take the risk easier than you would, that probably is not the greatest strategy. They don’t want you to be providing risk to the insurance world, as they call it, kind of them walking into a burning building. They want you to provide risk that ultimately you would go without insurance on because the risk is better than your peers. And so really telling a story on why you’re differentiated, the controls that you have in place, investor demands, why you are maybe better than anybody in that industry sector and how you approach it. If you have a compelling story, then insurance carriers definitely want to be a part of it.

Terrance O’Malley  15:21

Kim, let’s move the discussion forward a little bit to the issue that is front and center – the Coronavirus. How is that impacting individual managers? Are there specific policies at play? And what should managers be doing? What should they be thinking about right now?

Kimberly Patlis Walsh  15:36

Yeah, so more broadly, specific to COVID. You know, I think that one of the broadest misnomers that came out of Coronavirus as it broke, that we’ve seen, is by virtue of business interruption, being a part of a property policy or contingent business interruption based on supply chain issues or other things, I think every company out there and their respective investors all believed, “Oh, here it is, on my property policy, I’m going to have coverage because I’ve now experienced the business interruption caused by something completely out of my control. And in some cases I’ve been forced to close if I’m not a non-essential business.” The reality is that across the US – I’ll hold it to that because in certain other countries, it’s a little bit more gray or impossible in certain places and may have direct grants of coverage. In the US, the business interruption is tied to a property damage. So you need to have a covered peril before the loss of revenue or loss of income comes into play. And there are varying levels of coverage. There are varying ways that different carriers write the policies, whether or not it triggers as a full outright exclusion on a pandemic, a communicable disease, some type of virus or other things. There may be gray areas and there may be full exclusions that you really need to get your arms around.

Kimberly Patlis Walsh  17:02

There’s also general liability, bodily injury, workers compensation that every firm out there is purchasing as well. And there are in some cases maybe specific exclusions there as well, on mold or asbestos or pollution, or certain other areas like that. Disease. They may be silent on disease, but they’re not necessarily silent on fungus or bacteria. So really knowing how to navigate and what triggers a particular policy – environmental, pollution, director and officer – there are some more covered or not covered actions within those policies, but definitely having a seasoned professional help you or in combination with an outside lawyer or your general counsel or whomever navigate these policies.

Kimberly Patlis Walsh  17:49

We are also seeing as a backdrop beyond that, just on where there may be exclusions or grants of coverage, legislation changing potentially and many states have already come out and said, “we’re going to make the insurance companies pay on business interruption.” I think that may very well not be what happens. But it is going to be going through the court systems in the US and likely could get up to the Supreme Court and have it be a federal backstop. In which case, they’re – like what happened in 911 – they backstop the terrorism piece of it. But it was definitely tied to a property damage with the towers collapsing and other damage to other businesses and properties around the Trade Center.

Kimberly Patlis Walsh  18:32

Where we see that coming out is advising clients that it may be the right time to think about putting a placeholder [claim] into these policies, even if you have full exclusions on them. And continuing to have conversations with the carriers and to say, “Here’s my actionable defense and I’ve tracked it very carefully. These are the extra costs that I’ve incurred. This is my loss revenue. Here is all of my third-party losses as a result of my supply chain or other firms that may have also impacted my own EBITDA as a result of COVID.” And then moving forward to the secondary policies, like employment practices or fiduciary liability, that may be backstopping some of the amendments to the regulatory coverages that you’re affording to keep your employees safe, to keep them furloughed, keep their benefits in place, making sure that you have director and officer protection, that you’re not being caught in an accidental foot-fault relative to looking at, you have not had an actionable business continuity plan, that you somehow mishandled the COVID event entirely, that you have potentially alleged negligence. Those kinds of things. Making sure that you are turning over every rock, that you have the maximum opportunity to recover on your insurance policies, as well as having the maximum opportunity to gain any type of backstop via the government, whether that’s state or federal.

Terrance O’Malley  20:02

Big picture, how is this Coronavirus going to impact the insurance industry? And how will it impact coverages that investment management firms seek?

Kimberly Patlis Walsh  20:11

I think it could definitely have really long-term effect. I mean, we’re watching it already have precipitous impact on professional liability, on your errors and omissions as an investment firm. If you, as an investment firm, sit on any boards – and not you know, obviously, not the hedge funds and more traditional multi asset class investors – but more private equity or debt lenders or lenders themselves. The insurance that you’re buying, the director and officer and E&O insurance that you buy, is already being impacted by the financial viability of some of these companies. So we’ve seen way before COVID, changes in the marketplace impacting hedge funds, materially for the past couple of years, many of which have lost their assets fairly quickly. Others had to adjust to change in business overall, and now compounded by COVID, their impact across the board.

Kimberly Patlis Walsh  21:07

So will new insurance be emerging? Will you have to self-insure at a higher, much higher level? Will you need to change your business? Some companies have already changed their operations to try to offset or mitigate the impact to their own revenue and their own EBITDA as a result of COVID. So the insurance companies are, and reinsurers as well are, having just a massive challenge. This [period] leading into COVID was the longest and most significant increase in premium and deductibles that we’ve seen in 30 plus years in the insurance world because of lots of different reasons which would take a whole other podcast to get through.  And so the insurance companies are all in a world of hurt before COVID hit and now compounding losses that may equal or quadruple, especially on the employment side, you know, the biggest unemployment rates that we’ve seen in probably since 1929. I don’t even know how long it has been, but biggest stock market drop. And now the biggest business interruption, which has caused the most financial distress for economies overall, and companies, commercial companies across the board. So they’re watching losses come in on virtually every line of insurance, which is making them even more skittish than what we have seen in the past.

Terrance O’Malley  22:31

Kim, thank you for joining us today. We’re all a little bit smarter about insurance and we understand it, I think, a little bit better on a high level. So I want to thank you for educating us today.

Kimberly Patlis Walsh  22:42

Great, thank you so much, Tery, for having me. It’s been a pleasure to see you again and also talk for a bit. I’m sure insurance has never been front of mind and so happy to be a part of your podcast

Terrance O’Malley  22:53

And Kim, if people want to find you or want to know a little bit more about CRS, where can they do that?

Kimberly Patlis Walsh  22:58

Yeah, certainly. You can find us on Also our contacts are across the board in our website as well as you know, we can follow up with some takeaway after this if you’d like as well.

Terrance O’Malley  23:12

Okay, great. Thank you very much. Best of luck with the business going forward.

Kimberly Patlis Walsh  23:16

Thank you.