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Brokers

Brokerage Study Finds Need for Risk Managers

By: | September 15, 2013 • 3 min read
Caroline McDonald reports on risk management and the insurance industry. She can be reached at [email protected]

R9-15-13p12_BrokerPg.inddU.S. nonprofit organizations, hampered by the economic downturn and tight budgets, often lack dedicated risk managers and appear to be under-buying insurance. But boards of directors frequently pick up the slack, questioning limits, coverage amounts and vulnerabilities.

Entities also are thinking more strategically and, like their publicly-traded partners, are investing in enterprise risk management.

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In a survey released in June, Nonprofit Risk Management, Crystal & Co., an insurance brokerage firm, found that only 22 percent of nonprofit organizations surveyed have a dedicated risk manager.

The study was conducted among senior executives of U.S. nonprofit organizations with revenues of more than $20 million, and included human services, educational, religious foundations and community services organizations.

The study revealed that, for the majority of organizations surveyed, responsibility for corporate risk and insurance was handled by the entity’s finance team, human resources, operations or legal departments.

The study also found that organizations are buying the minimum coverage and may not be adequately protecting themselves. The majority of respondents noted that annually they spend less than 0.25 percent of revenue on corporate insurance. For adequate coverage, the percentage should be closer to 1 percent, the survey said.

Jason Tharpe, Aon Affinity vice president in Washington, D.C., who works exclusively with nonprofits across the country, said that larger nonprofits, along the lines of the YMCA, are organizations that would be most likely to have a risk manager. Larger health-focused programs, such as nursing homes, he added, also typically employ risk managers.

The vast majority of nonprofits, however, are smaller than the $20 million threshold. “We deal with a lot of small and medium nonprofits and there’s no doubt about it, none of them have [dedicated] risk managers,” said Tharpe.

The risk manager of a nonprofit, if there is one, functions as the insurance buyer. Otherwise, the chief financial officer or even the chief executive officer handles insurance buying decisions, Tharpe said.

That puts boards of directors of nonprofits in a key role in insurance buying. CEOs and CFOs are often asked about insurance coverage by their boards, who want to know if the entity is insured to adequate limits.

“The board is pushing down on them to ask the proper questions in those smaller organizations without risk managers.”
— Jason Tharpe, vice president, Aon Affinity 

As for whether these organizations are, indeed, adequately covered, “there are levels where some may be underinsured, but in terms of D&O, we write a lot of that,” he said. “We write over 12,000 organizations throughout the country,” which generally have broad policies.

Smaller organizations with more liability exposure, “are buying professional liability, which is usually wrapped up with their general liability insurance — and that they are pretty cognizant of,” Tharpe said.

He added that recent headlines have caused organizations to look more carefully at what they may and may not be covered for. “For example, the Sandusky issue at Penn State obviously brought to light the need for sexual molestation coverage, so that was on a lot of nonprofits’ minds for a while.”

Carol Fox, director of Strategic and Enterprise Risk Practice for the Risk and Insurance Management Society is optimistic about nonprofits: They are becoming more mindful of their reputations and are thinking strategically about their organizations.

With economic recovery in progress, many nonprofits are shifting from survival mode to long-term sustainability and growth she said, citing findings from a study by Grant Thornton, the 2012 National Board Governance Survey for Not-for-Profit Organizations, based on online responses from 706 board members and senior executives of nonprofit entities.

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She also noted that regulations in some industries are dictating that nonprofits take their organizational risks more seriously.

“Enterprise risk management (ERM) is just beginning to ‘get legs’ at nonprofits,” which are beginning to “play catch-up to publicly traded companies,” she said.

Fox said that boards of larger organizations are also becoming more supportive of hiring risk professionals, “because they have more than just insurance to worry about.”

“From those I’ve talked to,” she said, “their reputation drives whether or not they will get funding from their donor base and whether they are able to reach out to the communities they are trying to serve.”

More from Risk & Insurance

More from Risk & Insurance

2018 Risk All Stars

Stop Mitigating Risk. Start Conquering It Like These 2018 Risk All Stars

The concept of risk mastery and ownership, as displayed by the 2018 Risk All Stars, includes not simply seeking to control outcomes but taking full responsibility for them.
By: | September 14, 2018 • 3 min read

People talk a lot about how risk managers can get a seat at the table. The discussion implies that the risk manager is an outsider, striving to get the ear or the attention of an insider, the CEO or CFO.

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But there are risk managers who go about things in a different way. And the 2018 Risk All Stars are prime examples of that.

These risk managers put in gear their passion, creativity and perseverance to become masters of a situation, pushing aside any notion that they are anything other than key players.

Goodyear’s Craig Melnick had only been with the global tire maker a few months when Hurricane Harvey dumped a record amount of rainfall on Houston.

Brilliant communication between Melnick and his new teammates gave him timely and valuable updates on the condition of manufacturing locations. Melnick remained in Akron, mastering the situation by moving inventory out of the storm’s path and making sure remediation crews were lined up ahead of time to give Goodyear its best leg up once the storm passed and the flood waters receded.

Goodyear’s resiliency in the face of the storm gave it credibility when it went to the insurance markets later that year for renewals. And here is where we hear a key phrase, produced by Kevin Garvey, one of Goodyear’s brokers at Aon.

“The markets always appreciate a risk manager who demonstrates ownership,” Garvey said, in what may be something of an understatement.

These risk managers put in gear their passion, creativity and perseverance to become masters of a situation, pushing aside any notion that they are anything other than key players.

Dianne Howard, a 2018 Risk All Star and the director of benefits and risk management for the Palm Beach County School District, achieved ownership of $50 million in property storm exposures for the district.

With FEMA saying it wouldn’t pay again for district storm losses it had already paid for, Howard went to the London markets and was successful in getting coverage. She also hammered out a deal in London that would partially reimburse the district if it suffered a mass shooting and needed to demolish a building, like what happened at Sandy Hook in Connecticut.

2018 Risk All Star Jim Cunningham was well-versed enough to know what traditional risk management theories would say when hospitality workers were suffering too many kitchen cuts. “Put a cut-prevention plan in place,” is the traditional wisdom.

But Cunningham, the vice president of risk management for the gaming company Pinnacle Entertainment, wasn’t satisfied with what looked to him like a Band-Aid approach.

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Instead, he used predictive analytics, depending on his own team to assemble company-specific data, to determine which safety measures should be used company wide. The result? Claims frequency at the company dropped 60 percent in the first year of his program.

Alumine Bellone, a 2018 Risk All Star and the vice president of risk management for Ardent Health Services, faced an overwhelming task: Create a uniform risk management program when her hospital group grew from 14 hospitals in three states to 31 hospitals in seven.

Bellone owned the situation by visiting each facility right before the acquisition and again right after, to make sure each caregiving population was ready to integrate into a standardized risk management system.

After consolidating insurance policies, Bellone achieved $893,000 in synergies.

In each of these cases, and in more on the following pages, we see examples of risk managers who weren’t just knocking on the door; they were owning the room. &

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Risk All Stars stand out from their peers by overcoming challenges through exceptional problem solving, creativity, clarity of vision and passion.

See the complete list of 2018 Risk All Stars.

Dan Reynolds is editor-in-chief of Risk & Insurance. He can be reached at [email protected]