6 Overlooked Real Estate Risks
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Sure, insurtech sounds great – who doesn’t want to modernize labor-intensive and time-consuming insurance processes, from underwriting and distribution to claims and customer service? But the truth is, this naturally risk -averse industry will adopt changes only cautiously and strategically, and very few new technologies have been road-tested enough to demonstrate lasting impact.
And of course, regulators will have a significant say on what is permissible.
But while the trend unfolds, automation has been proven to cut inefficiencies and streamline workflows. The industry’s administrative functions are undeniably laden with overhead costs associated with paper-based processes that demand copious time, labor and materials.
Why not pick one essential process – reconciliation – where automation can make a significant impact on the bottom line and reduce the risk of compliance misses and mistakes.
“In the insurance industry, every fraction of a cent that can be saved in time, resources, processing and operations goes directly to the bottom line,” said Renata Sheyner, senior product manager of Frontier™ Reconciliation, the end-to-end reconciliation and certification solution offered by Fiserv.
“Additionally, the more data that insurers add to their business and analyze through relatively untested insurtech innovations, the greater the need for automated, reliable transaction-level operational and balance sheet reconciliation.”
Most companies currently reconcile their books with two tools — a highlighter and a spreadsheet.
“I have seen conference rooms filled with filing cabinets to be sorted through,” Sheyner said. “Sometimes I ask potential clients, ‘How many different colored highlighters are in your desk drawer?’ Because that’s how it’s done without automation – highlighting items on printed reports, or using Excel spreadsheets to keep track of everything.”
Without automation, reconciliation at the transaction level can be a time- and labor-intensive process that leaves more room for human error. And errors increase the risk of running afoul of regulations. Reducing the risk of error in the books can save companies thousands in non-compliance fines when it’s time for an audit.
“A lot of CFOs are now personally liable for misrepresentation of financial statements. There are some pretty significant implications of non-compliance and not having your books complete,” Sheyner said. “There’s a huge benefit in incorporating all of your documentation into a system with built-in internal and external audit controls.”
In an intensely regulated industry, the importance of accuracy and transparency can’t be overstated.
Integration of data and matching transactions using an automated solution can cut the risk of error by as much as 50 percent, while allowing a more holistic and transparent view into the financial close process. An automated system with built-in audit controls can also ensure that standards dictated by Dodd-Frank and Sarbanes-Oxley Act are met.
A centralized view of transactions and the overall reconciliation lifecycle also makes it easier to mitigate the risks of fraud and write-offs related to unexplained exceptions. End-to-end reconciliation automation, combined with data agnosticism, identifies and resolves more exceptions. This can lead to an overall 75 percent reduction in write-offs.
“Insurers need a data-agnostic tool that can pull in massive amounts of disparate data around claims, policyholder details, equity fund balances, payment and disbursement statuses and more, and funnel it through an automated matching system to pair the right data with the right transaction,” Sheyner said.
Frontier Reconciliation provides that very detailed transaction matching, and can match data fields on a one-to-one, one-to-many, or many-to-many basis. Transaction-level matching with multiple fields reduces the need for manual intervention, “which allows employees to spend their time on value-added tasks like managing or investigating exceptions,” Sheyner said.
Among Frontier Reconciliation users, reducing manual tasks and implementing automated reconciliation can experience a 60 – 80 percent gain in efficiency.
The cost savings are also hard to ignore. On average, financial companies using an automated reconciliation solution save 25 percent on audits by providing electronic access to accounts and required approvals.
Taking paper out of the equation also saves the costs of buying paper and printing materials, reduces the manpower and hours needed to process records, and can speed up financial close by two to four days, on average.
“We frequently help accounting and finance teams build a strong internal business case for automated reconciliation and certification to present to senior management,” Sheyner said.
In addition to mitigating risks from non-compliance, fraud, and write-offs, an automated reconciliation process can also head off reputation risk.
“The reputational risk from restatement may not be monetary initially, but over time can certainly hurt an organization pretty severely within the market among their policyholders, peers and regulators,” Sheyner said.
Several large multi-line insurers in the U.S. rely on Frontier Reconciliation, including a top 10 multi-line carrier with over $43 billion in direct premiums written (DPW) who has trusted Frontier Reconciliation for the past 10 years.
“When they implemented Frontier Reconciliation a decade ago, they had a team of 40 people working on 300 reconciliations a day using Excel worksheets. Since automating the process, they’ve been able to refocus the team to eight who now manage more than 3,000 reconciliations a day,” Sheyner said. “And those other employees have been able to focus on other valuable strategic projects – ones they were hired to manage.”
Frontier Reconciliation also helps this leading Fortune 100 carrier match policyholders with premium payment data —like what type of payment was received, who received it and in what form (check, ACH, direct debit) — and track other information like claims data, coverage and payout limits, and outstanding disbursements.
“They can see in real time exactly how many outstanding payments there are and how many disbursements have been made. They can check on aging claims, which is important because the longer the claim sits open, typically the more expensive it gets,” Sheyner said. “If something is outstanding for 30 days, they can ensure processes are in place to bring those files to a close.”
Stronger compliance, reduced costs, and potentially faster claims closing … these are the insurtech promises that an automated reconciliation solution can bring to the industry today.
To learn more, visit: Frontier Reconciliation for Insurers.
This article was produced by the R&I Brand Studio, a unit of the advertising department of Risk & Insurance, in collaboration with Fiserv. The editorial staff of Risk & Insurance had no role in its preparation.
Recent hacks on the likes of Sony, HBO and Netflix highlight the vulnerability entertainment companies have to cyber attack. The threat can take many forms, from the destruction or early release of stolen content to the sabotage of broadcast, production or streaming feeds.
“Cyber attacks are becoming the biggest emerging threat for entertainment companies, bringing risk to reputations, bottom lines and the product itself,” said Brian Taliaferro, entertainment and hospitality specialist, JLT Specialty USA.
For most entertainment firms, intellectual property (IP) is the crown jewel that must be protected at all costs, though risk profiles vary by sub-sector. Maintaining an uninterrupted service may be the biggest single concern for live broadcasters and online streaming providers, for example.
In the case of Sony, North Korea was allegedly behind the leak of stolen private information in 2014 in response to a film casting leader Kim Jong Un in what it considered an unfavorable light.
This year, Netflix and HBO both faced pre-broadcast leaks of popular TV series, and Netflix last year also had its systems interrupted by a hack.
Online video game platforms are also ripe for attack, with Steam admitting that 77,000 of its gamer accounts are hacked every month.
The list goes on and will only get more extensive over time.
Regardless of the platform, any cyber attack that prevents companies from producing or distributing content as planned can have huge financial implications, particularly when it comes to major releases and marquee content, which can make or break a financial year.
“People and culture are the biggest challenges but also the keys to success.” — David Legassick, head of life science, technology and cyber, CNA Hardy
The bottom line, said David Legassick, head of life science, technology and cyber, CNA Hardy, is that these firms have a combination of both assets and business models that are inherently open to attack.
“Vulnerabilities exist at every point in the supply chain because it’s all tech-dependent,” he said, adding that projects often run on public schedules, allowing criminals to time their attacks to maximize impact.
“The combination of IP, revenue and reputation risk make entertainment a hot sector for cyber criminals.”
Film, TV, literary and music projects invariably involve numerous collaborators and third-party vendors at every stage, from development to distribution. This creates multiple touchpoints through which hackers could gain access to materials or systems.
According to Kyle Bryant, regional cyber manager, Europe, for Chubb, there is nothing unique about the type of attack media companies suffer — usually non-targeted ransomware attacks with a demand built in.
He added targeted attacks can be more damaging, however. Some sophisticated types of ransomware attack, for example, are tailored to detect certain file types to extract or destroy.
“NotPetya was designed to be non-recoverable. For a media company, it could be critical if intellectual property is destroyed.”
As entertainment companies have large consumer bases, they are also attractive targets for ideological attackers wishing to spread messages by hijacking websites and other media, he added.
They also have vast quantities of personal information on cast and crew, including celebrities, which may also have monetary value for hackers.
“It is essential to identify the most critical information assets and then put a value on them. After that, it is all about putting protection in place that matches the level of concern,” Bryant advised.
As with any cyber risk, humans are almost always the biggest point of vulnerability, so training staff to identify risks such as suspicious messages and phishing scams, as well as security and crisis response protocols, is essential. Sources also agree it is vital for entertainment companies to give responsibility for cyber security to a C-suite executive.
“People and culture are the biggest challenges but also the keys to success,” said Legassick.
“Managing the cyber threat is not a job that can just be left to the IT team. It must come from the top and pervade every aspect of how a company works.”
Joe DePaul, head of cyber, North America, Willis Towers Watson, suggested entertainment companies adopt a “holistic, integrated approach to cyber risk management,” which includes clearly defining processes and conducting background checks on the cyber security of any third party that touches the IP.
This includes establishing that the third parties understand the importance of the media they are handling and have appropriate physical and non-physical security at least equal to the IP owner in place. These requirements should also be written into contracts with vendors, he added.
“The touchpoints in creating content used to be much more open and collaborative, but following the events of the last few years, entertainment firms have rapidly introduced cyber and physical security to create a more secure environment,” said Ryan Griffin, cyber specialist, JLT Specialty USA.
“These companies are dealing with all the issues large data aggregators have dealt with for years. Some use secure third-party vendors, while others build their own infrastructure. Those who do business securely and avoid leaks can gain an advantage over their competitors.”
If IP is leaked or destroyed, there is little that can be done to reverse the damage. Insurance can cushion the financial blow, though full recovery is very difficult to achieve in the entertainment space, as quantifying the financial impact is so speculative.
As Bill Boeck, insurance and claims counsel, Lockton, pointed out, there are only “a handful of underwriters in the world that would even consider writing this risk,” and sources agreed that even entertainment firms themselves struggle to put a monetary value on this type of exposure.
“The actual value of the IP taken isn’t generally going to be covered unless you have negotiated a bespoke policy,” said Boeck.
“If you’re in season five of a series with a track record and associated income stream, that is much easier, but putting a value on a new script, series or novel is difficult.”
Companies for whom live feeds or streaming are the primary source of revenue may find it easier to recoup losses. Determining the cost of a hack of that sort of service is a more easily quantifiable business interruption loss based on minutes, hours, ad dollars and subscription fees.
Brokers and insurers agree that while the cyber insurance market has not to date developed specific entertainment products, underwriters are open for negotiation when it comes to covering IP. The ball is therefore in the insured’s court to bring the most accurate projections to the table.
“Clients can get out of the insurance market what they bring to the equation. If you identify your concerns and what you want to get from insurance, the market will respond,” said Bryant.And according to Griffin, entertainment companies are working with their brokers to improve forecasts for the impact of interruptions and IP hacks and to proactively agree to terms with underwriters in advance.
However, Legassick noted that many entertainment firms still add cyber extensions to their standard property policies to cover non-physical damage business interruption, and many may not have the extent of coverage they need.
Having a well-planned and practiced crisis response plan is critical to minimizing financial and reputational costs. This should involve the input of experienced, specialist third parties, as well as numerous internal departments.
“The more business operation leaders can get involved the better,” said Griffin.
Given the entertainment industry’s highly public nature, “it is critically important that the victim of a hack brings in a PR firm to communicate statements both outside and within the organization,” said Boeck, while DePaul added that given that most cyber attacks are not detected for 200-plus days, bringing in a forensic investigator to determine what happened is also essential.
Indeed, said Griffin, knowing who perpetrated the attack could help bring the event to a swifter and cheaper conclusion.
“Is it a nation state upset about the way it’s been portrayed or criminals after a quick buck? Understanding your enemy’s motivation is important in mitigating the damage.”
Some hackers, he noted, have in the past lived up to their word and released encryption keys to unlock stolen data if ransoms are paid. Inevitably, entertainment firms won’t always get so lucky.
Given the potentially catastrophic stakes, it is little surprise these firms are now waking up to the need for robust crisis plans and Fort Knox-level security for valuable projects going forward. &