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Brokers

Can Brokers Keep Pace?

The rapid rate of change in our ever-more-connected world challenges brokers to anticipate new risks.
By: | October 15, 2016 • 6 min read

Technology and globalization offer opportunities for innovation, expansion, increased efficiency and improved customer service. But they also involve a rapid pace of change — and evolving risks — that keep every company on its toes.

“Changing global landscape, economy, regulatory environments, technology … this is changing the way companies manage both their financial and human resources,” said Tim DeSett, executive vice president of risk practices, Lockton.

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“For brokers, this is really a transformational opportunity.”

The traditional role of the broker is transactional. A company hires a broker to buy insurance. But that model has been changing for years, with brokers becoming consultants and risk advisers in addition to procurers of policies.

“The traditional ways are shattered,” said Mary Ann Cook, senior vice president, risk and insurance knowledge group at The Institutes, a leading education provider for the industry.

“Those brokers that come to terms with that more quickly will be the ones out in front.”

But if brokers are to be effective risk consultants, they have to be a half-step ahead of the pace of change, anticipating the challenges their clients will face and understanding what mitigation strategies best fit their long-term goals and capabilities.

That takes a mix of forming key relationships and expertise within a client’s industry, and gaining a deep understanding of data.

Broker as Expert Consultant

“The best brokers are businesspeople,” said Brian Elowe, managing director, global risk management, Marsh.

“In a fast-paced world, I don’t see how you can be an effective adviser to a client without specializing in their industry. Client organizations have higher expectations that they won’t have to train their broker, but that the broker will bring insights to the table.”

To best understand a client’s risk, it is incumbent upon brokers to familiarize themselves with every aspect of the client’s business, from macro industry trends, to the regulatory environment, to the strength of its competitors in the market, and down to the nuts and bolts of their operations and financial standing.

Mary Ann Cook, senior vice president, Risk and Insurance Knowledge Center, The Institutes

Mary Ann Cook, senior vice president, Risk and Insurance Knowledge Center, The Institutes

Today, brokers also have to take into consideration a broad range of issues like the impact of increasingly unpredictable weather, migration patterns and political climate, impending local regulatory changes, and the now eternal question of data security. Conversations with experts are often the easiest and most reliable way to stay updated on broad trends.

The Institutes, in the course of assembling its seminars and educational materials, seeks input from policymakers and legislators, regulatory bodies, the NAIC, various conference attendees, social media platforms and multiple advisory groups.

Additionally, “belonging to industry associations is a great way to ensure you’re around the conversation of what those businesses are facing, and what strategies they’re developing in response,” Elowe said. “Our account executives are really experts in health care, technology, real estate or whatever sector they’re serving.”

Marsh works with several organizations to put together its annual global risk report, which is presented at the World Economic Forum each year.
Elowe described the process of consulting with leading economists, often working with the world’s top universities, as “an opportunity to challenge our thinking and get a better idea of the conversations we should be having with our clients.”

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That in-depth understanding is critical if brokers want to get the attention of the C-suite.

“To have a conversation at that level, we need to translate our risk management initiatives into language that relates to the company’s goals and objectives, and what global resources are available,” DeSett said.

“To do that, we have to know what they’re saying to Wall Street and to their shareholders.”

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The broker’s role as a consultant also involves adjusting to greater demand for alternative risk transfer strategies that don’t involve insurance. Emerging exposures like cyber, climate, political and reputational risks are often difficult to insure in the traditional market, pushing more risk managers to look for creative ways to retain it themselves.

“As a broker, it’s about ensuring capital efficiency and helping clients set up internal finance mechanisms to prepare for risks that may not be insurable,” Elowe said.

“Pooled risks and captives are situations where a broker wouldn’t be involved in a transaction, but would fill a role providing guidance to clients on how to utilize those models,” said Cook of The Institutes.

Leveraging Analytics

Big Data and predictive analytics also are useful tools in identifying emerging risks and vulnerabilities, but could also be a stumbling point for brokers as technology continues to evolve.

“Big Data is an incredible asset and opportunity to leverage, but takes a lot of energy to manage and can also be a distractor,” DeSett of Lockton said.

“Predictive analytics is a tool that should be a part of a broader strategy of measuring potential outcomes of potential risks.”

Tim DeSett, EVP, Risk Practices, Lockton

Tim DeSett, EVP, Risk Practices, Lockton

To paint a picture of just how rapidly data has grown as an asset for businesses, the McKinsey Global Institute (MGI) estimated that U.S. retailer Wal-Mart’s data warehouse in 1999 held about 100 terabytes of stored data; by 2009, nearly every sector in the U.S. economy was gathering and storing at least twice that amount.
Fifteen of 17 U.S. sectors have more data stored per company than the U.S. Library of Congress, it said.

McKinsey also projected 40 percent growth in global data per year, although with only 5 percent global growth in IT spending, according to its 2011 report, “Big Data: The Next Frontier for Innovation, Competition and Productivity.”
The insurance industry in particular not only has access to large amounts of data gathered from policyholders, but also the analytical talent to process it in its field of actuaries.

The study by MGI analyzed nine occupations that require the skills needed to execute big data analytics and in what industries they could be found, based on reporting by the U.S. Bureau of Labor Statistics.

Insurance carriers employed more of these individuals than any other segment included in the study, which also included telecommunications and internet service providers. In 2009, insurance carriers employed about 18,400 people considered to have “deep analytical talent;” the runner-up, scientific research and development, employed 13,000.

The report concluded that the financial services and insurance industry is “positioned to benefit very strongly from big data as long as barriers to its use can be overcome.”

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Brokers have the opportunity — the obligation, even — to tap into carriers’ wealth of data and analytical talent.

“It will be critical to partner with a carrier willing to work with brokers on the analytics side,” Cook said.

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“The data wars are coming. Brokers have to be able to capture it and work with it better; don’t defer an obligation to help clients build out an insurance program today that is comprehensive, flexible and integrated with data analytics.”
DeSett said, however, that barriers to effective use of data analytics are significant. The ability to store large amounts of data and run analytical software requires heavy investment in technology updates and training.

Aggregating large amounts of data is a useful tool for spotting trends, Elowe said, but it remains difficult to “get out in front” of emerging issues. Even those organizations with access to data and the talent to utilize it will struggle to keep up with new analytical tools and techniques.

For now, brokers’ predictive capabilities may be behind the pace. But this may be an even stronger reason for brokers to, as Elowe advocated, “Get a higher level of understanding of the business first, risks second.” &

Katie Dwyer is an associate editor at Risk & Insurance®. She can be reached at [email protected]

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]