DEALING WITH THE MILLENNIUM BUG WITH PROPER RISK MANAGEMENT

Y2K touches virtually every segment of society

"A distant descendant of Nero

planned to be the millennium hero.

But he fiddled around, with time winding down,

and soon found that his years turned to zero."

That little bit of doggerel is one of several hundred limericks submitted to a contest sponsored by a Web site dedicated to the woes that surround the rapidly approaching Year 2000 and the dreaded Millennium Bug. Host of the Web site is Peter de Jager, and the author of that particular limerick is Len Sokol of Franklin Lakes, New Jersey.

The Millennium Bug problem, also known as Y2K, has been written about ad nauseam in the press and discussed on television shows and for good reason. While it is a delight to realize that at least someone is keeping his sense of humor about the dilemma, the very existence of de Jager's Web site, which was designed to provide some very serious information about the Millennium Bug situation and what to do about it, demonstrates the degree to which doomsayers may be not far off in their sometimes wild projections of a world gone mad.

An article which appeared in the June 1997 issue of Newsweek, for example, presented a gloomy picture of what might happen after the stroke of midnight as the new millennium is upon us. The article paints a bleak picture of credit cards being no longer valid, of ATMs that do not work, elevators stopping, astronomical bills for simple services that are way out of whack and of phones that do not operate.

Even more frightening, the article points to the possibility of businesses being shut down because of computer error, many of them small businesses which will not be able to recover. And here the independent insurance agent is vulnerable on a number of counts, according to a recent White Paper published by the Independent Insurance Agents of America (IIAA).

A pervasive problem

Authored by Steve Anderson, an 18-year veteran, a Rough Notes columnist, and producer with Cadenhead Shreffler Insurance Agency in Ft. Worth, the White Paper addresses the difficulties agents might face when returning to work after a happy New Year's holiday. On the surface, the problem seems trivial. But it stems from a space-saving programming decision to drop the first two digits from a date, abbreviating, for example, the year 1962 to "62." Virtually all mainframe computers that keep the world on track are filled with numbers that refuse to recognize the end of the 20th century.

Anderson puts the situation this way: "The Year 2000 problem directs insurance agencies. If an agency does not properly plan, this seemingly simple computer problem could literally put an agency out of business in less than three years." Anderson says that there are steps that can be taken to protect the agency, but that they will take time and money.

Putting the problem into perspective from the agent's point of view, Anderson says: "Imagine coming back to work after the New Year's holiday. It's Monday, January 4, 1999. Your staff starts to update your computer with the January renewals just finished. There are certificates to complete and fax, auto ID cards to print and invoices to deliver. The CSR tries to type the 01/01/00 expiration date and the computer flashes an error message saying the date is invalid or the date is 'out of range.' You panic for a moment but assure yourself that it is easily corrected. You place a call to your vendor support line but get a busy signal. In fact, the line is busy all day. This is just one example of the Year 2000 problem," says Anderson.

According to the White Paper, agents will face a situation where "policy dates will be meaningless, accounts receivable lists all become worthless because the information is inaccurate" and, according to Anderson, anything dealing with dates at all will be of no value.

The White Paper raises some serious questions about agencies' abilities to deal with these problems. Will the agency's system be able to be upgraded or will it need to be replaced completely at considerable cost? Will systems vendors be able to keep up with agency demands for increased systems assistance? And, just as important, how will these developments affect agencies' professional liability exposures and coverages?

Says Anderson: "We recommend that agents check their E&O policy and consider raising its limits. Also, carefully review the terms and conditions of any renewals received in the next couple of years for exclusions relating to problems caused by the Year 2000 bug. If you are not able to accurately track renewals because the computer will not produce an expiration list and a policy is not renewed, your insured is going to come to you for satisfaction if there is a loss."

Anderson says that lawyers who specialize in high technology and computer law are beginning to prepare for what could be an avalanche of lawsuits relating to the Year 2000 failure of computer systems and of companies themselves. "It is reasonable to expect a flood of lawsuits in the later part of 1998 and 1999. Steve Hock, a partner at law firm Thelen, Marrin, Johnson & Bridges in San Francisco, predicts that the total legal costs related to the Year 2000 issue will eventually exceed the total amount spent on the technical fix," says Anderson.

Moreover, when commercial accounts begin experiencing the expected spate of lawsuits, they will be going to agents and brokers with questions about their D&O coverages, product liability insurance, business interruption losses and other specialty policies. Agents will have to be able to respond or become part of the statistics themselves as they face E&O professional liability lawsuits.

Do traditional insurance coverages deal with the problems that may arise from Year 2000? Legal experts are really not committing themselves to answering that one because no one really knows how extensive the problem is. Are there coverages available that specifically address Year 2000? Some coverages are beginning to crop up. AIG, for example, has a "Millennium Bug" policy that provides legal liability and business interruption insurance. Coverages include, among other things, E&O and D&O.

But the agent, or any business for that matter, should examine all coverages, new and old, and be on guard for exclusions.

Anderson says that there is little the agent or any professional can do to prevent exposures from the Year 2000 problem. But planning right now for dealing with the problems and seeking proper coverage is a risk management technique that cannot be ignored.

By the way, the winner of the Year 2000 limerick contest didn't complete the submission. J.M. Turley of South Bend, Indiana, aptly wrote: In composing a limerick to portray the problems presented by the Year 2K, while searching for a rhyme, I ran out of time. *