Tag Archives: risk

Chargeback Insurance

In the event that a business has to pay for charges related to a credit card chargeback, there is a chargeback insurance coverage a company can purchase to cover such an eventuality.

When an acquirer (bank) or Independent Sales Organisation (ISO) signs a business up for a merchant account, they are taking on the risk that the merchant will stay solvent and not owe money to various card issuers due to chargebacks, not shipping goods or other reasons.

A merchant may not be fraudulent, but they may have a poor product that results in a lot of refunds. Some merchants may receive a lot of chargebacks from third party fraud.  Some merchants may be fraudsters themselves. There are many risks an acquirer takes on when they underwrite a merchant.

In case a merchant cannot cover the cost of their chargebacks, a Chargeback Insurance policy protects that acquiring bank or ISO.

If a business is unexpectedly hit by many chargebacks in a short period of time and the charges are immediately deducted, a business could become severely cash strapped, while trying to locate documentation. Banks and other financial businesses such as PayPal often charge merchants a penalty or a processing fee per chargeback, to discourage bad business practices.

Additionally, credit card companies such as Visa and Mastercard issue steep penalties to banks that continue to service merchants with frequent chargebacks.   This penalty is usually passed on to the merchant involved. It is not uncommon for merchants that continue to frequently incur chargebacks to be charged in excess of $100 per chargeback. If chargeback frequency continues, the merchant’s bank may discontinue service altogether. A business should check if their bank requires a reserve to cover any future chargebacks. Some banks can demand a reserve as high as $5, 000.


Often the merchants themselves cause chargebacks. Hidden system errors could be the problem. Two common merchant errors are:

Recurring payment chargebacks may be filed against specific types of merchants that have a recurring payment system for on-going services such as gym or magazine subscriptions. A cardholder cancels a recurring payment or claims to have done so. Such a chargeback can be filed against merchants that allow for payments in instalments, particularly if the payment plan is not clearly defined at the time of the purchase.  In such a situation, chargeback insurance would be well worth having.

Authorisation errors can occur when the merchant tries to override a declined transaction, particularly if the override is done with voice authorisation. Multiple deposits made to complete a single authorisation can result in chargebacks.


This type of chargeback may be true criminal fraud and it is one of the most common types of chargeback. The cardholder claims that a charge was made on their card without their permission. It sometimes happens that a family member has used the card without the cardholder’s knowledge or permission.


There is a type of fraud known as friendly fraud. A consumer makes an online shopping purchase with their own credit card. After receiving the goods the consumer asks for a chargeback from the issuing bank. Once approved, the chargeback cancels the financial transaction and the consumer receives a refund of the money they spent. When a chargeback occurs, the merchant is accountable, regardless of whatever measures they took to verify the transaction.

Although chargebacks cannot be completely avoided, steps can be taken to reduce their occurrence.

The business name provided to financial institutions should be a name which customizers recognize. Sometimes customizers do not recognize a business name next to the purchase on their credit card and then think it is a fraudulent transaction.

Receipt signatures on credit and debit cards should be checked against the signature on the back of the card.

If a credit card is declined, one should not continue to run the transaction.

The authorisation obtained should be for a total amount and not broken in several smaller amounts.

If a purchase is made online or by phone, the Address Verification System should be used to ensure that the customer is providing a correct billing address.

A shipper must provide proof of delivery and a customer’s signature if the item is expensive.

A business can get chargeback insurance that reimburses the cost of a product or service and the loss of profit if a chargeback stems from a stolen or counterfeit credit card, signature mismatches or post-purchase shipping address charges.

There are banks which offer sophisticated chargeback defense systems as part of their merchant services. These electronic dispute systems can allow you to manage chargebacks more efficiently and speed resolution. They also provide online reporting tools that will notify a business quickly of chargeback and retrieval requests.

Insurance and technology

The insurance industry has always been slow to grasp the different facets of technology. The reason lies in the fact that the industry is reliant on historical data. They are therefore understandably averse to risk.

The insurance industry is thus being put under pressure by technology. Customers want to pay an individualised insurance premium which reflects the actual risk taken by the insurance company.

The cyber security market is growing at an alarming rate. There is also pressure to incorporate and manage the risk more effectively. Traditional insurers are however reluctant to make plausible offers to vulnerable clients.

Huge amounts of data are provided by technology. In addition, insurers spend vast amounts of money on claim processing as well as fraud detection. New algorithms are able to predict risk. They allow for vast automation in the underwriting process. Furthermore, contracts can be managed more efficiently. Examples are wearables for healthcare and GPS trackers for cars.

Only about a fifth of insurers claim that they want to fully automate the process. Nearly 80% of insurers say they are struggling or just getting started with automation.

Between eight and fifteen factors are taken into account when an underwriter issues a policy. This may be a motor, home or life policy. As many as 60 answers may be required from a life insurance applicant. A sophisticated automated system could supply vast amounts of data.

Policy writers are wary of underwriting risk based on technology which supplies no justification for pricing.  Furthermore, staffing will be reduced with increased use of underwriting automation. Risk assessment algorithms will become more reliable. Executives will have increasing confidence in them. Low-level underwriting will become cheaper and more consistent.

Surfing Insurance

Whether a surfer is travelling with a surf company or alone, here are the main reasons for taking out surfing insurance.

* The insurance provides medical cover in case of injuries;
* These policies cover a surfer against personal liability if a surfer hurts somebody else
* A surfer’s board is covered for board damage.

A number of providers offer this type of insurance, for example:-

* World Nomads:

Surfing insurance is available to travellers from over 150 countries. This insurance is designed for adventurous travellers.  It covers  overseas medical evacuation, baggage and activities.  Examples are surfing, skiing and snowboarding.

Surfing is fun but also dangerous. Medical cover is the most important part of surfing insurance. Simple medical treatment abroad can cost a small fortune. A surfer may have to be airlifted. It maybe from some tropical surf spot.  Furthermore smashing into a reef can be accidental.  Extreme sports are often excluded under basic cover. The activity of surfing has to be specified.

A surfer needs protection against hurting someone else.  This insurance provides Personal Liability Cover.

Rogue baggage handlers may result in the loss or damage of a surf board. The insured should check that surf gear is covered for its true value, i. e. particularly expensive surf boards.

A surfer may have questions that need answers about his insurance:

Am I covered if I get bitten by a shark or bash into coral?

The policy provides cover for such encounters. An insurance provider, however, may reject a claim if surfing took place at a known shark breeding ground or on a dangerous reef.

Am I insured if someone surfs over me?

Yes. In this instance you are covered.

Does travel insurance cover me if I surf Mavericks?

Because  a surfer puts himself at risk his  ability to claim may be affected. The insurer will therefore thoroughly investigate all claims to determine if a surfer put himself in danger.

Unfortunately, the surfer cannot obtain insurance against flat spells.



Key Person Insurance

Key Person insurance is an insurance policy taken out and paid for by a business which is then able to recoup any financial losses suffered, which may arise due to the death or extended inability of an important member of that business to perform his/her duties. Also known as trauma insurance, it is a standard life insurance policy which protects the business. Should a person who is an income generator die or become incapacitated, then with this cover, the business is compensated by means of a fixed monetary sum specified in the policy, which sum facilitates the continuity of the enterprise. The term of the policy does not extend beyond the usefulness of the individual whose knowledge, creativity and/or skills are critical to the viability or growth of an organisation, and whose loss may cripple it. The compensation amount may go towards financing the search for and training of a successor. (Source: Wikipedia)

Martha Stewart is the founder of Martha Stewart Living Omnimedia. In 2004 Stewart was convicted of charges related to the ImClone insider trading affair. When Stewart was indicted, she stepped down as CEO and Chairwoman of MSLO. Following her release from prison in March 2005, Stewart launched a much-publicized comeback. Some huge corporations have the luxury of having a key person to take charge during a severe but non-threatening illness, such as a non-fatal heart attack. When Roger Deromedi, CEO of Kraft Foods was hospitalised for a severe viral infection, the company’s chairman, Louis Camilleri took temporary charge, with no adverse effects to the company. Robert Robins, a professor emeritus at Tulane University said that a determining factor in planning for key personnel disability issues is the CEO’s personality and work style: is he willing to work with the board and senior management on a transition basis, even if an illness is not terminal but merely prevents him from performing his duties. The end of a career is the same as the end of life to some company leaders. Capitulation will be resisted in every way possible. When a CEO has a hands-on rather than a delegatory style, the situation is much worse. Founder and CEO of Intel, Andy Grove was able to carry on during treatment for life-threatening prostate cancer. He left the company at a time that was suitable to him and the corporation. He was later diagnosed with Parkinson’s Disease.

At SouthWest Airlines, shareholders’ questions about 69 year old Herbert Kelleher’s prostate cancer resulted in his relinquishing his interim presidency and CEO position in 2001, although he retained his chairmanship of the board. In today’s competitive business environment, protecting the value of a star executive is critical. Using markets once reserved for elite athletes and entertainers, carriers such as Lloyds of London have developed products designed to protect a company’s most critical assets. These carriers have the ability to deliver disability benefits up to $100 million for the loss of an individual whose vision, knowledge and experience are critical to a company’s operation and future. Why do so many risk managers ignore this exposure? The due diligence needed to secure life and disability coverage is not part of a risk manager’s culture. They may feel awkward going to the boss and telling him that he may be putting the company at risk because of his lifestyle or his health. It involves personal information and health issues and has the added risk of opening secret doors and having unpleasant news revealed. Fewer than 35% of the corporations that secure key person life insurance, secure the corresponding key person disability coverage.

Obviously there are daredevils like Richard Branson and risk managers are aware of his activities. It is far more likely a key person will succumb to a stroke or cancer or hit by a car, than is that they will be disabled or killed while sky-diving over the Pyrenees. International travel can be hazardous though. In a recent situation, a private equity firm made a significant investment in a defence contractor. Shortly after the investment closed, the company named a new CEO. With hundred of millions of dollars at stake, the private equity firm sought to hedge their investment by acquiring $50 million key person life and disability insurance. As of the day of the request, the insurance adviser had eight business days to secure the insurance before the CEO departed for the middle east, with stops in hotspots such as Iraq and Afghanistan. As a result of the abbreviated time frame, traditional life and disability insurance was not an option. The adviser needed to turn to a speciality underwriter that deals with exceptionally large and complex risks. Within 72 hours, a policy was issued that covered the private equity firm’s loss of the CEO due to an accidental death or disability, as well as a result of acts of war or terrorism. The premium was for $50 million insurance and cost $62,500, covering a 2 week period. Sickness cover was included for certain elements of the insurance policy. Few domestic life and disability insurance carriers possess the ability to underwrite high risk exposures to the world’s hot zones. Unfortunately, many times, risk managers and their insurance advisors do not look beyond traditional channels to secure the needed key person disability coverage for their clients, partly because the cost of key person disability coverage is far greater than the cost of term life coverage. However, the risk is proportionally greater . The impact top CEOs and corporate leaders have on the success of their businesses is almost unfathomable. If you think about how many companies are dependent on one or two individuals, risk managers may need to re-examine how they insure human capital risk.