RiskControl IndustryGuideSeries

TelecommunicationsIndustry

Thisstudyreflectsoninformationderivedfrominsuranceclaims. Theseclaimsformadatabasethatcanbeanalyzedtodetermine themanyandvariedcausesofloss.CNARiskControlpresents thisstudyofspecificCNAclaimsandindustrytrends.Webegin withareviewofexposuresinherenttotheTelecommunications Industryandconcludewithsuggestedpracticestomanagethese risks.

TelecommunicationsIndustryDefined
Telecommunicationnetworkshaveevolvedtobecomethebackbonethroughwhichweconductourdaily livesandtransactourbusiness.Theoperationofthiscomplexinfrastructureinvolvesrisksoflossranging fromdamagetotheinfrastructuresphysicalcomponents,suchastowersandswitchingequipment,the correspondinginterruptionofservicesprovidedtoworkerinjuries,andliabilityclaimsassociatedwith maintainingthesenetworks.Thisstudyusesanalysisoftelecommunicationindustryinsuranceclaims, industrytrendsandemerginglossexposurestoderivesuggestedpracticestomanagerisksthatthe industryisfacingtodayandislikelytofaceinthefuture. Forthepurposeofthisstudy,thetelecommunicationsindustryisdefinedaswiredandwirelessservice carriers,andresellers.Convergencehasblurredthelinebetweenwiredtelephoneservicecarriersand cabletechnologies.Incaseswherehighcapacitycablenetworksareusedtocarryphoneanddata servicesinadditiontotelevisionservices,cablearealsoincludedinthiscategory.Likewise,wiredand wirelessnetworkcarriersarenotdifferentiatedaccordingtothetraffictheycarry,voice,data,television programming,musicormovies. Oneoftheprimaryfactorswhichaffectslossexposuresfacingcompaniesinthiscategoryisthatthe networkinfrastructuremustbeextendedtocustomersoverageographicallywidespreadarea,bethat regional,nationalorinternational.Equipmentsuchastowers,antennae,switchesandlinesincluding copper,fiberopticandcoaxialcablemustbeconstructed,operatedandmaintainedinremote,publicly accessibleandsometimesharshenvironments.Networkendpointsareincustomerlocationswhich requireinstallationofequipmentinhomesandbusinesses.Thefactthatasignificantportionofthe industryscustomerbaseisindividualconsumersincreasesexposuresrelatedtoretailsalesofproducts suchasmobilephones,theprotectionoflargedatabasesofprivate,nonpublicconsumerinformation,and thesensitivityofconsumerstoinstallationandrepairproceduresperformedintheirhomes.

Telecommunications:AnAnalysisofLossExposuresintheTelecommunications Industry
Asawhole,thetelecommunicationsindustryfaceslossexposurefromphysicaloperationssuchas employeeinjuries,automobileaccidents,liabilityclaimsandpropertylosses,aswellasuniqueexposures involvingtheservicestheyofferandinformationthattheyhandle.Thefollowingisareviewofthose exposuresbasedonananalysisofclaimsincurredbytelecommunicationcompaniesinsuredbyCNA betweenJanuary1,2004andDecember31,2007andfromindustrydataasindicatedforsome exposureswhereCNAdatadoesnotexist.

WorkersCompensationClaims
ByTypeofIncidentCausingtheInjury,ShownasaPercentageofTotalClaims IncidentType ManualHandling/PhysicalStress/(+lifting) Slips/Trips/FallsontheSameLevel RepetitiveMotion StruckByorAgainst Caught AllOther PercentofTotalClaims(3,563) 20% 19% 14% 14% 3% 25%

ShownasaPercentageofTotalClaimDollars IncidentType ManualHandling/PhysicalStress/(+lifting) Slips/Trips/FallsontheSameLevel FallsfromElevation RepetitiveMotion VehicleAccident StruckByorAgainst Caught AllOther PercentofTotalClaimDollars 23% 22% 17% 14% 8% 8% 1% 7%

Thedataindicatesthatthetypesofincidentsmostlikelytocauseworkerinjuriesaremanualhandling andphysicalstress,slips,tripsandfallsonthesamelevel,andrepetitivemotion.Manualhandlingand physicalstress,slips,tripsandfallsonthesamelevel,andfallsfromelevationrepresentthehighest severityclaims.Leadingtypeofworkbeingperformedwhentheinjuryoccurredisfieldservice, maintenanceandinstallationofnetworkinfrastructure. ManualHandlingandPhysicalStress Theseincidentswereprimarilycausedbythehandlingofboxes,toolsandequipmentsuchasladders, andworkrelatedmaterialssuchaswire. Slips,TripsandFallsontheSameLevel Slips,tripsandfallsonthesameleveloccurredonalltypesofwalkingandworkingsurfacesatcompany facilitiesandoffsitelocations. FallsfromElevation Fallsfromelevationwereprimarilyrelatedtofallsfromstairs,ladders,utilitypolesandworkaroundopen manholesandtrenches. HighSeverityWorkersCompensationClaimsOver$100,000Incurred Claimsover$100,000representapproximately25percentofthetotalWorkersCompensationincurred losses.Leadingcausesofthesehighseverityinjurieswerefalls,manualhandling,andvehicleaccidents.

PropertyClaims
ByTypeofIncidentCausingtheLoss,ShownasaPercentageofTotalClaims IncidentType BurglaryandTheft WaterDamage WindDamage Fire Snow/IceDamage AllOther PercentofTotalClaims 56% 15% 11% 4% 1% 13%

ShownasaPercentageofTotalClaimDollars IncidentType WindDamage BurglaryandTheft WaterDamage Fire Snow/IceDamage AllOther PercentofTotalClaimDollars 64% 21% 8% 2% 2% 3%

Propertyclaimsdatashowswinddamageasthehighestpercentoftotalclaimsandalsoaleaderinterms offrequencyofoccurrence.Burglaryandtheftisthemostfrequenttypeoflossandalsoaleaderinterms oftotalpercentageofpropertylosses. WindDamage WinddamagewasrelatedtohurricanesoccurringinthesouthernUnitedStates. BurglaryandTheft Over60percentofthetheftlossesarerelatedtotheftofmobilephonesatretailsaleslocations associatedwithwirelesscarriersandserviceproviders.Businesspersonalpropertyitemsmakeupthe balance,suchascomputersandofficeequipment.Commoncontributingfactorsincludedsmashand grabstyleattacks,alarmsystemsbeingdisabledandaccessfromadjacentvacantspaces. WaterDamage Primarycausesofthesewaterdamageincidentswereplumbingleaksandheavyrains. HighSeverityPropertyClaimsOver$100,000Incurred Claimsover$100,000representapproximately80percentofthetotalincurredpropertylosses.These largelossesincludewinddamage,waterdamage,burglaryandtheftandsnowandicecausinga communicationstowercollapse.

AutoClaims
ByTypeofIncidentCausingtheLoss,ShownasaPercentageofTotalClaims IncidentType RearendedOtherVehicle Backing StruckStationaryObjectorVehicle FailedtoYield AllaccidentscausedbyOtherVehicle AllOther PercentofTotalClaims 34% 32% 10% 5% 1% 18%

ShownasaPercentageofTotalClaimDollars IncidentType RearendedOtherVehicle FailedtoYield Backing AllaccidentscausedbyOtherVehicle StruckStationaryObjectorVehicle AllOther PercentofTotalClaimDollars 40% 13% 9% 6% 3% 29%

Analysisofautoclaimsrevealsoneofthemostpreventabletypesofaccidents,rearendingother vehicles,astheleaderintermsoffrequencyandseverity. HighSeverityAutoClaimsOver$100,000Incurred Claimsover$100,000representapproximately20percentofthetotalincurredautolosses.

LiabilityClaims
ByTypeofIncidentCausingtheLoss,ShownasaPercentageofTotalClaims IncidentType DamagetoPropertyofOthers BodilyInjuryCausedbyOperationsorProducts PersonalInjury* PercentofTotalClaims 63% 33% 4%

ShownasaPercentageofTotalClaimDollars IncidentType BodilyInjuryCausedbyOperationsorProducts DamagetoPropertyofOthers PersonalInjury* *Offensessuchasslander,libelandinvasionofprivacy Theseclaimsprimarilyinvolveoperationsconductedoffsiteatthecustomersoranotherlocation.The workbeingperformedwhentheincidentoccurredincludesfieldservice,maintenanceandinstallationof networkinfrastructure.Claimsthatdidoccuroncompanypremisesarelargelyduetocustomerslips,trips andfallsatretaillocationsassociatedwithmobilephonesales. BodilyInjuryCausedbyOperationsorProducts Althoughclaimsagainstorganizationsallegingbodilyinjurycausedbytheiroperationsorproducts representonlyonethirdoftheincidents,theseverityoftheseclaimsrepresentsoverhalfofthetotal incurredcosts.Themajorityoftheseincidentsinvolvesjobsiteoperationsandincludesincidentssuchas beingstruckbymaterialsorequipment,andslips,tripsandfalls. PercentofTotalClaimDollars 54% 43% 4%

DamagetoPropertyofOthers Propertydamageincidentsarealsoprimarilyjobsiterelated.Thereisahighfrequencyofminorproperty damagetohomesandcontentsofsubscribersduringinstallationofproductsorextendingservicesto homes.Higherseverityincidentstendtoinvolveutilitydamage,waterdamagetocustomerhomesasa resultofdamaginginteriorwaterlines,firesandotherdamagescausebynetworkequipment.

ProductLiability
Incidentsinwhichproductscausedbodilyinjuryorphysicaldamagearelimitedintermsoffrequencyand severity.Typesofincidentsincludebodilyinjuryandphysicaldamagerelatedtomobilephones,chargers andothernetworkequipment installedinhomes. PersonalInjury Thedataincludesclaimsofinvasionofprivacyanddefamation. HighSeverityLiabilityClaimsOver$100,000Incurred Claimsover$100,000representapproximately35percentofthetotalincurredliabilitylosses.Allofthese highseverityincidentsarejobsiterelated.

TechnologyErrors&Omissions
Telecommunicationcompaniesfaceanevolvingarrayofrisksrisingoutoftheirproductandservice offerings.Softwarecodecancontainsecurityvulnerabilitiesthatallowhackerstopenetratecustomers networks.Allegationsofsoftwarecopyrightinfringementareincreasinglycommon.Defectsinnetwork design,software,andhardwarecancausecustomerstoloserevenueorincursignificantfinancial expenses. ErrorsandOmissions(E&O)incidentsmayariseforavarietyofreasonsassociatedwithemerging technologicalinnovation,expectationorlegalinterpretationofobligations.Themostcommonreasonsfor suchdisputesinclude:

Misunderstandingbetweenbuyerandseller Misrepresentationbyvendors Acceptanceofunrealisticspecificationsorchangesinexistingspecificationswithoutstudyor

writtenagreement Acceptanceofcustomersriskthroughholdharmlessagreements Failuretostateperformanceobligationsincontractswiththebuyers Incompatiblehardwareorsoftware Unusablerecommendationsbyvendors Delaysinprojectcompletion Failuretomaintaindisasterrecoveryplansorfailuretobackup,maintainorretainsourcecodeas requiredtoprotectbuyersourcedata Securityerrors Violationofgovernmentlawsorstatutes,includingintellectualpropertydisputesthatbardelivery ofproductsorservicesasspecified

TechnologyErrors&OmissionsLossAnalysis CNAdataindicateslimitedE&Oclaimsactivityfortelecommunicationscompanies.Theclaimsdoindicate avarietyofcomplexcauseswithelementsofthereasonslistedabove.Telecommunicationscompanies E&Orisksincreaseaccordingtothecomplexityoftheirserviceofferings,whichincreasinglyincludes informationtechnologyservicesrangingfromsystemsintegrationtocustomnetworkdesign.Modern

telecommunicationssystemsalsoserveasdistributionmeansfortraditionalbroadcastmedia,musicand movies.Productionofcustomcontent,licensinganddigitalrightsmanagementissuescanexpose telecommunicationsprovidersnotonlytoE&Oclaimsbutalsotoinformationriskswhicharediscussed furtherinthefollowingsection. InformationRisks Theemergingrisksassociatedwithhandlinglargeamountsofinformationhavesomeunique characteristicsandshouldbeincludedinanorganizationsoverallapproachtoriskmanagement.Over thepastfewyears,privacyinjuryliabilityhasbecomeasignificantconcernformanyindustries,andthe telecommunicationindustryisnoexception.InCNAanalysisofpubliclyavailableinformationonprivacy breachesacrossallindustries,telecommunicationcompaniesarebreachedabout40percentas frequentlyasretailoperationsandactuallyrankhigherintermsofseverityofbreachesthanhealthcare 1 organizations. Thisresultcomesasnosurprise,consideringthatatleast50percentoftheindustrys 2 customersfortelephoneserviceareconsumers causingtheindustrytohandleandstoretypesof informationthathasbeenthetargetofidentitythieves.Thissectionoftheguidewillanalyzeavailable lossdataandpresentpotentiallosssourcesrelatedtofirstandthirdpartyinformationrisks. Informationrisksincludethreatstoinformationtechnologysystems,theintangiblepropertyhandledby themandconsequencesoffailureofthesesystems.Theserisksincludefirstpartylossesthatwouldbe sustainedbytheorganizationorthirdpartylossesrelatedtoliabilitytoothers.Someexamplesofthese risksaregivenbelow. FirstpartyRisks

Lossofdata Lossofbusinessincome Denialofservice Virus/hacker/sabotage Theftofsystemresources Extortion

ThirdpartyRisks

Theft/disclosureof,damagetosomeoneelsesdata Privacyinjuryliability Networksecurityliability Contentliability

Theseareeventsthatmaycompromisetheconfidentiality,integrityoravailabilityofanorganizations electronicdataorotherwisecausealossofsystemresources.Thesesameeventsmaycreateliabilityto othersinregardtodataofothersthatisstored,handledorprocessedbyanorganization.Asthisisan emergingsourceofloss,thereislimitedinsuranceclaimhistorywhichcanbeusedforanalysis.However, thereisagrowingpublicrecordofincidentsrelatedtosecuritybreachesofdatabasesandprivate informationtheycontain.Theanalysisbelowwascreatedfromadatabaseofthesepublicnotices. PrivacyandNetworkSecurityLiability AccordingtodataavailablefromtheOpenSecurityFoundation,physicaltheftofdevicessuchaslaptops, hackingintosystemsandaccidentalreleaseofsensitiveinformationareindicatedastheleadingcauses ofbreachesofsensitiveorprivate,nonpublicinformationforthetelecommunicationsindustry.

IncidentsbyCauseofSecurityBreachTelecommunicationsCompanies Frequency 18RecordedPrivacyBreaches Lost/Stolendevices(laptops) 33% Hacking 22% Accidental22% Lost/StolenMedia 17% EmployeeAct 6% PercentofTotalRecordsExposed TotalRecordsExposed Approximately4.8MillionTotal Hacking 86% LostMedia 13% Lost/Stolendevices(laptops) 1% EmployeeAct <1% Accidental(website) <1%

January1,2004toDecember31,2007DATALOSSdbOpenSecurityFoundation.October16,2008 http://datalossdb.org/exports/dataloss.csv Theinformationexposedinthesebreachesincludesemployeeandcustomersensitiveorprivatenon publicinformation.Representedwithinthisgrouparewiredandwirelesstelecommunicationscompanies. Asdiscussedabove,privacyliabilityisaleadinginformationriskexposurebutitshouldalsobenotedthat thereisadirectcorrelationbetweenthehazardsandcontrolsrelatedtothesebreachesandthe exposuresthatcanalsocausefirstpartylossessuchaslossofdata,lossofbusinessincome,denialof service,theftofsystemresources,virus/maliciouscodeincidentsandextortion.Networkbreachesmay alsoresultinliabilitytoothersforimproperuseoflicensedcontentorintellectualpropertyofothersmay beinfringeduponbycontentcreatedbyatelecommunicationscarrier.Theimpactsofthesetypesof incidentsintermsinterruptionofnormaloperationsandliabilityfordamagestootherswarrantscareful attentiontotheserisksinatelecommunicationscompanysoverallriskmanagementstrategy.

SuggestedPractices
Theanalysisofclaimdatapresentedheresuggestsbasicbestpracticesthatcouldbeeffectivein reducinglossesacrossexposureareasandspecificpracticesthatwillreduceriskwithinagivenexposure area.Thetelecommunicationsindustryhasuniqueandemergingexposuresbutthereisalsoinsighttobe gainedfromthecommonelementsofexposuresacrossotherindustries. ImplementationofacomprehensiveriskmanagementprogramiskeytoreducingWorkers Compensation,liability,autoandpropertylosses.

EmployeeSafetyManualhandling,physicalstressandfallsareindicatedaslossleadersin
theanalysis.Anergonomicsprogramcanprotectworkersfromthesetypesofinjuriesand increaseproductivity.Likewise,aneffectivesafetyprogramthatraisesemployeesafety awarenessandhelpstocontrolandeliminatehazardswillminimizetheimpactofotherloss sources,suchasslips,tripsandfalls. CNAsErgoPRO,asixstepergonomicprocessthatprovidesworkmethodtechniques, engineeringguidelinesandinformationrequiredtointegratethehumanfactorwiththeoverall productionprocess,offersspecificsolutionstothefrequentinjuriesrelatedtothemanual handlingofmaterials.CNAsMotionisMoneyapproachtoergonomicstakesthesubjecttothe nextlevelbydirectlyrelatingergonomicconceptstomeasurableimprovementsinquality, productivityandprofitability.Thisprocesscouldofferspecificsolutionstothefrequentinjuries relatedtothemanualhandlingofmaterialsandequipmentduringnetworkinstallationand maintenanceactivities. CNAsFallPRO,asevenstepprocesstoidentify,evaluateandcontrolexposureswhenworking atheights,canbeusedtoaddressthevarietyoffallexposuresencounteredbythe telecommunicationsindustry.

CNAsotherresourcesincludeguidesandbulletinsonWorkersCompensationandoffice ergonomics.Theseoutlinespecificissuesthataffectthetelecommunicationsindustrysworkforce andhowtoalleviateenvironmentalfactors.

LiabilityAneffectivesafetyprogramalsohelpstocontrolandeliminatehazardsthatmay
causebodilyinjuryorphysicaldamagetoothers,creatingliabilityforanorganization.Asthe analysisshows,theseincidentscanoccuroncompanypremisesbutforthetelecommunication industryareprimarilyassociatedwithinstallationandmaintenanceactivitiesatoffsitelocations. Thescopeofthesafetyprogramshouldaddresspremisesexposures,aswellastheexposures createdbyoffsiteoperations,suchastelecommunicationlineworkinpublicareasandworkin andaroundcustomerresidences. CNAoffersresourcessuchasindustryandexposureguidesandbulletinstohelplimitliability throughappropriaterisktransfertechniques,controlofpremiseshazardsandjobsitesafety

AutoFleetsafetyisanessentialpartofanybusinesssafetyprogram.Evenifthecompanydoesnot
operateafleetofcompanyownedvehicles,fewcompaniescanoperatewithoutatleastoccasionalbusiness useofhiredornonownedvehiclesbytheiremployees.Thisanalysisoftelecommunicationindustryclaims indicatesaccidentsinwhichtheinsureddriverrearendedanothervehicleastheleadinglosssourcein termsoffrequencyandseverityofaccidents.Aswithworkerscompensationandliabilityclaims,themajority ofautoaccidentsarerelatedtonetworkinfrastructureinstallationandmaintenance.

Afleetsafetyprogramthatincludesminimumdriverqualificationsraisesdriversafetyawareness andimplementsdriveraccountabilityprocedurescanhaveatremendousimpactonthistypeof preventableaccident.Theclaimanalysisalsohighlightsthefactthatautomobileaccidentsoften resultinsignificantemployeeinjuries. CNAoffersresourcestoaidintheimplementationofafleetsafetyprogram,includingguidesand bulletinsonmanagingfleetsafetyandaccidentpreventionanddriversafetyawareness.

PropertyAprogramformanagingpropertyrisksiscrucialinthepreventionandmitigationof
potentiallycatastrophicpropertylosses.Propertylossescanhavesignificantimpactona telecommunicationcompanysabilitytodeliveryserviceswithoutinterruption.Propertyprotection programsincludeemergencyresponseplans,selfinspectionproceduresandotherspecial proceduresrelatedtohazardeliminationandmitigation. Twoareasinwhichspecialemphasisandabroadeningofscopeofpropertyprotectionprograms arewarrantedtoaddresstheexposuresoftelecommunicationcompaniesare: o EmergencyResponsePlansPlansshouldincludedisasterrecovery,business continuity,andcomputersecurityincidentresponse.Together,theseplansprovide processestorecoverfromdisruptionsrelatedtorisksthatmaybenatural,technological orhumaninnature.Theseplansservetominimizeinterruptionstooperationsthatnot onlymaycauselossofbusinessincomebutalsoliabilityorE&Oclaimsrelatedto damagetopropertyofothers,lossofdataofothersandinterruptionsofservicesto customers. o SecurityManagingphysicalandinformationsecurityshouldbeapriorityforthe telecommunicationsindustry.Ingeneral,securityfortangibleandinformationassetsis aboutaccesscontrol.Carefullycraftedpoliciesandprocedurescanaddressthe exposurestobothtypesofassets. CNAoffersavarietyofresourcesforthemanagementofpropertyrisks.Thesetools includeguidesandbulletinsonemergencyresponseplanning,propertyprotection,and guidelinesaddressingbothphysicalsecurityandinformationrisks.CNAalsohasDRII

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certifiedAssociateBusinessContinuityProfessionals(ABCP)onstaff,providesinfrared thermographyservicesandassessmentsofprivacyandnetworksecurityrisks. CNAcontinuallycommunicatesaboutemergingissuesandlegaltrendsforthetelecommunication industry.

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SchoolofRiskControlExcellence
CoursesapplicablefortheTelecommunicationsIndustry:

BuildingYourBusinessContinuityPlan(BCP)CoverselementsnecessaryinaBCPstrategic
plantohelprestoreandkeepcriticalbusinessfunctionsgoingwithinthefirst72hoursofadisaster CaseManagementAPartnerwithWorkersCompensationAddressestechniquesto maximizethedeliveryofhealthcareandreturntoworkoutcomes ConceptsofBusinessContinuityPlanning(BCP)OverviewAddresseshowtocreatean effectiveBCPthatcanhelpensureyourbusinesssurvivestheimpactofadisaster ContractorUtilityDisruptionOffersprecautionarypracticestofollowpriortothestartofany undergroundwork FallPROOutlinesstepsforimplementingacomprehensivefallprotectionprocessfortheleading causeoffatalitiesintheconstructionindustry FireProtection,Inspection,TestingandMaintenanceDiscussesNFPA25requirementsfor inspection,testingandmaintenanceoffireprotectionsystems Infrared(IR)ThermographyExplainsthesciencebehindIR,potentialbenefitsthatcanhelp reducecostsbyreducinglosses PrivacyandComputerNetworkSecurityRisksProvidesparticipantstoolsandresourcesto effectivelyrecognizeandmanagecomputernetworkrisks ReturntoWork(RTW)ProcessExplorestheelementsoftheRTWprocessandworkers compensationrequirements TelecommunicationsBootCampAddressesindustrylossdriversfromasafetyandindustrial practiceviewpoint

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Footnotes
1

January1,2004toDecember31,2007.DATALOSSdb.OpenSecurityFoundation.October16,2008. http://datalossdb.org/exports/dataloss.csv

FirstResearch.QuarterlyUpdate.TelecommunicationServices.August4,2008.

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TolearnmoreabouthowCNARiskControlcanworkwithyoutohelpyoumitigaterisks, pleasespeakwithyourlocalindependentagent,callustollfreeat8662620540,orviewour RiskControltoolsonlineatwww.cna.com/riskcontrol.

Theinformation,examplesandsuggestionspresentedinthismaterialhavebeendevelopedfrom sourcesbelievedtobereliable,buttheyshouldnotbeconstruedaslegalorotherprofessionaladvice. CNAacceptsnoresponsibilityfortheaccuracyorcompletenessofthismaterialandrecommendsthe consultationwithcompetentlegalcounseland/orotherprofessionaladvisorsbeforeapplyingthis materialinanyparticularfactualsituations.Thismaterialisforillustrativepurposesandisnotintended toconstituteacontract.Pleaserememberthatonlytherelevantinsurancepolicycanprovidethe actualterms,coverages,amounts,conditionsandexclusionsforaninsured.Allproductsandservices maynotbeavailableinallstatesandmaybesubjecttochangewithoutnotice.Anyreferencestonon CNAWebsitesareprovidedsolelyforconvenienceandCNAdisclaimsanyresponsibilitywithrespect thereto.CNAisaservicemarkregisteredwiththeUnitedStatesPatentandTrademarkOffice. Copyright2008CNA.Allrightsreserved.

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