Risk Management

The Noticeable Ones

Successful risk managers share their strategies for getting results and getting noticed.  
By: | March 2, 2015 • 14 min read
Topics: ERM | March 2015 Issue

Corporate executives don’t want to hear about risk management problems. They want solutions. Solutions such as instituting a program that significantly reduces the cost of liability claims or making changes that decrease an organization’s workers’ compensation costs to a tiny fraction of its competitors.

These are the types of successes that build credibility with the C-suite and leaders throughout the organization. But in a Catch-22 situation, it often takes credibility to get the go-ahead to push initiatives through.

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That may be difficult for risk managers who have difficulty selling themselves or their ideas, or those who wait for potential problems to come to them instead of stepping out to find possible exposures and offer solutions.

To get a better handle on strategies that really work, Risk & Insurance® talked to successful risk managers who shared how they got top management’s attention and built credibility within the organization, and some of the programs that helped make them respected leaders.

We learned in these conversations that getting the risk management message out is more difficult in larger organizations, with all of the layers and silos. Plus, all companies have politics to accommodate, and often, departmental goals and strategies compete for attention — and budget — with other departments’ priorities.

When effective risk managers get the ear of top leaders, though, they ask probing questions, and offer insights and solutions that impact their organization’s strategic decision-making. They have the answers at hand to questions that are posed. They don’t ask for invitations to meetings without knowing they can contribute.

When personal interaction is challenging, they use email or go-betweens as the channels for transmitting opinions and solutions, while working to establish relationships with the next tier of leaders, who carry out the organization’s strategy.

And when a natural disaster occurs or the latest cyber theft is announced, great risk executives take that opportunity to educate their senior leadership on how their own organization’s coverage would work in such a situation.

To be credible, our sources told us, risk management departments must add value to their companies by instituting programs that increase savings, reduce costs, educate the workforce or mitigate the risks that create the most exposure.

Focus on “yes”

One challenge for risk management, said Hala Helm, chief risk officer at the Palo Alto Foundation Medical Group, is that it is “one of those weird wastebasket categories that a lot of things get thrown into.”

“It’s difficult,” she said. “You have to explain it to people. You have to start from a position of assuming that people don’t know what you do. They don’t understand it or understand how you can help.”

Jeff Driver, chief risk officer, Stanford University Medical Center

Jeff Driver, chief risk officer, Stanford University Medical Center

In addition, too often, the risk management department is known as the “department of no,” which limits the reach and influence of risk executives. Operational and corporate leaders tend to tune out constant negativity.

“To have influence, you have to be a person of ‘yes, we can’ versus ‘no, we can’t,’ ” said Jeff Driver, chief risk officer at Stanford University Medical Center and the CEO of The Risk Authority LLC.

“I train all of my risk management professionals that it’s not their role to say, ‘You can’t do that.’ You have to find a way to do things and you have to be creative.”

One of the controversial systems Driver instituted at Stanford — which, he said, “turns risk upside down” — has been PEARL, a Process for Early Assessment and Resolution of Loss. It involves proactively disclosing adverse medical events to patients, apologizing and offering compensation, when appropriate.

“To have influence, you have to be a person of ‘yes, we can’ versus ‘no, we can’t,’ ” — Jeff Driver, chief risk officer, Stanford University Medical Center; CEO, The Risk Authority LLC

“We don’t wait around for a claim to come in,” he said. That differs from the traditional practice of waiting for an adverse incident to be filed and ultimately opting to deny, litigate or settle.

Stanford advertises the process to patients so they know they have direct access to the risk management department to discuss what Driver calls “a concerning act.”

“The fear was that by managing claims and matters in that way, it would increase frequency, potentially increase the costs,” Driver said. “The fact of the matter is we have not seen that.”

Instead, frequency declined, with annual reported claims over a five-year period, as of 2013, dropping from 23 to 15, and overall costs down by 38 percent.

In addition, PEARL, which was officially launched in 2007 and enhanced in 2012, saves Stanford $3.2 million annually off their insurance premium for medical malpractice, Driver said.

Those kinds of results build influence and credibility.

Listen more than talk

It also helps when risk managers listen more than talk, Palo Alto’s Helm said.

“I like for the organization to tell me what their strategy is,” she said. “What their tolerance is, what worries them, what keeps them up at night. You get much better buy-in if they tell you, rather than you dictating to them what it should be.

One solution Helm instituted was creating a physician-owned captive, which not only “moved a lot of money off the corporate books,” but helped drive the importance of risk management to physicians. Previously, the physicians were self-insured but the money resided with the corporate entity rather than the physicians.

“It wasn’t a good alignment of risk and incentives,” she said. “The physicians thought corporate would take care of losses.”

“Everything doesn’t necessarily have to revolve around what I think is right and how to influence the C-suite. I view my role as making sure they are truly educated about the risk and know how the company is impacted based on the risk.” — Ryan McGuinness, senior director, risk management, Rite Aid

The change required buy-in from the VP of finance as well as a lot of education for the physicians about the advantages and downsides of the captive, how it differed from the current arrangement, and what the impact would be on them.

“They are so much more engaged in the risk management function because they know the burden has shifted to them,” she said.

Often, building credibility comes down to finding the organization’s “pain points” — and devising solutions to mitigate those risks, said Bill Zachry, group vice president of risk management for Safeway, which recently merged with Albertsons.

“What’s your exposure?” he asked. “What’s your risk? What are your cost drivers? And then focus in on those so you are bringing down the exposure, and communicate, communicate, communicate to your senior executives.”

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For Safeway, it was workers’ compensation costs. “It was so bad when I started, there was nowhere to go but up,” Zachry said.

After he joined the company in 2001, one of the first things he discovered was that the financial incentive structure encouraged managers to think more about workers’ comp charge-back costs than preventing accidents. With his boss’ OK, Zachry had an in-depth discussion with the CFO and got approval to change the incentive program.

“I found out later that the CFO had put that particular program in place and nobody had dared change it,” Zachry said.

But that was the beginning. “I started with the message: ‘Do the right thing for injured workers. Get them well and get them back to work.’ That was the primary focus.”

He also used evidence-based medicine, revamped the company’s settlement philosophy, and began lobbying for a change in California workers’ comp law, among other adjustments.

For the 10 years ended 2014, the industry saw a 112 percent increase in medical costs, he said. Safeway’s increase was 12 percent.

“That gives you credibility with the C-suite,” Zachry said. “That is a competitive advantage because we are paying so much less for the same potential exposure.”

Being able to communicate on the CFO’s level instead of trying to get them to understand risk management terms is necessary as well, he said. Put costs into the organizational framework — such as relating the cost of a claim to the gallons of milk that have to be sold to pay for it, he suggested.

“Money drives behavior,” Zachry said, noting that incentives and analytics are crucial as well.

It’s more involved than just data, though, said Ryan McGuinness, senior director, risk management, Rite Aid.

“Having data is one dimensional,” he said. “You have to know how the company operates. You have to understand how your decisions would impact the company’s operations. It’s not just data necessarily.

“Gaining credibility requires knowing how your decision-making process will affect the company’s operations,” he said.

“Everything doesn’t necessarily have to revolve around what I think is right and how to influence the C-suite,” he said. “I view my role as making sure they are truly educated about the risk and know how the company is impacted based on the risk.”

Priorities among departments are not always going to mesh, he said.

Business needs vary within an organization, noted Stanford’s Driver. Leadership is not always going to agree with risk management.

“You just have to chip away at it,” he said. But sometimes the risk is such that “you may have to put on your storm trooper boots and speak clearly and loudly about the problems with a strategy.”

Get out from behind the desk

The multifaceted demands of risk management require that risk managers sell their skills — in effect, sell themselves — throughout the organization. They must get the word out to every department manager and project manager that help is available to analyze potential risks and exposures.

 “I never want to wait for someone to come to me. … If you wait, they will never come to you. If you wait behind a desk, spiderwebs will grow on you.” — Emily Cummins, director of tax and risk management, National Rifle Association

“You cannot sit behind your desk and do risk management,” said Carolyn Snow, director of risk management, Humana. “You can look at figures and look at trends but you can’t really do effective risk management from behind a desk. Being engaged at every level of the organization is really important.”

Snow has seen a lot of changes in senior management, including the CFO, and her immediate boss, since she joined the company 15 years ago.

As “people lined up outside his door for attention,” when a new CFO joined Humana in June, Snow emailed him some of the important risk management issues at the organization, and asked for a meeting.

“To his credit, he had a meeting right away. He was very receptive,” she said, noting that she now meets regularly with the CFO and that he attends meetings with underwriters as well.

But when the C-suite or other leaders are not responsive, it’s important to be “politely persistent.” If you can’t get an invite to the meeting, send an “informed” email about the issue, she said. “Sometimes you need to court other areas of influence and find a champion when you are trying to bring attention to an important issue.

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“Don’t come with problems,” she said. “Come with what you think are solutions. … You have to be informed. You have to be credible.”

Rico Ferrarese, senior strategic risk manager at The Lego Group, noted that “credibility is built over the years and influence is something you are given due to the fact that you have experience. The C-suite is not giving you access just because they believe in risk. They believe everything is risky. You must support them in making better decisions or you have absolutely no credibility.”

Rico Ferrarese, senior strategic risk manager, The Lego Group

Rico Ferrarese, senior strategic risk manager, The Lego Group

Ferrarese is involved with between 40 to 60 strategic projects each year, helping the company decide, for example, whether to enter a new country, build a new factory or invest in a new product line.

“Our focus and approach is a little different [than traditional risk management],” he said. “We have to be focused on the opportunities, but we need to be the balance or the devil’s advocate. It’s not always happy faces.”

His role is to ask project managers the right questions to help “drive the conscious choice agenda around risk appetite,” since executives tend to focus more on their gut feelings than analytics, processes and research when making decisions.

“Sometimes I believe decisions are made because things are under pressure. … The closer the deadlines are, it is possible to neglect some downsides,” Ferrarese said.

It’s not just insurance

He is not involved in insurance placement at all, and in fact, several of the risk managers interviewed for this story said that insurance is the least significant part of their job.

Of course, noted Bill Getreuer, director, corporate insurance group, Pfizer, the risk manager’s “visibility and your influence in the C-suite become very, very evident when a claim occurs. … We become the go-to people.”

The C-suite also always takes an interest, he said, in directors and officers insurance because it affects them directly.

But, he notes, for larger companies like his, acting in an advisory role, reviewing contracts and managing claims take higher precedence than placing insurance, he said.

“I think in the normal course of our business, the importance of risk management becomes very evident. Very quickly your customers, your co-workers, your superiors and subordinates discover that you’ve got the knowledge and you have the specific answers to their questions,” Getreuer said.

“As a risk manager or risk management department, your role is never to prevent the business from doing what it has to do,” he said. “Your role is to assist the business by identifying all the exposures you possibly can and transferring as much of the risk to third parties as you possibly can.”

Emily Cummins, director of tax and risk management,  National Rifle Association

Emily Cummins, director of tax and risk management, National Rifle Association

For Emily Cummins, director of tax and risk management for the National Rifle Association, the best way to “accomplish buy-in, cooperation and consideration is when everybody is on the same page.”

For her, that page is spelled out in the organization’s mission of providing safety education and training programs.

To gain insight into the potential exposures, she has traveled across the country to meet hunters and shooters. She has gone onto shooting ranges so she can understand the culture from the inside out.

“I never want to wait for someone to come to me,” Cummins said. “I want to go to where they are. If you wait, they will never come to you. If you wait behind a desk, spiderwebs will grow on you.”

Recently, the NRA expanded the use of technology to educate members, creating three television shows, digital magazines and podcasts on top of its traditional print magazines. With technology comes “new [cyber risk] exposures along with compliance with existing laws,” Cummins said.

She’s been with the NRA for eight years, and wasn’t always included in strategic discussions. “It takes patience and time to earn it,” she said. “The opportunity to be making decisions didn’t come with my title. It came with the respect I earned over time.”

Credibility and respect are crucial because it can be easy for top leadership to overlook the contributions of risk managers.

Don’t wait to be asked

“So much of risk management is proactive planning and soft dollar savings, and that’s difficult for the financial C-suite people to hold that in their hands. To them, it’s an intangible,” said Dan Holden, manager, corporate risk and insurance at Daimler Trucks North America.

Dan Holden, manager, corporate risk and insurance, Daimler Trucks North America

Dan Holden, manager, corporate risk and insurance, Daimler Trucks North America

“Credibility is probably the single biggest issue that myself and my peers wrestle with because we tend to be invisible,” he said. “And that’s really the death knell to being a successful risk manager — having nobody know who you are, where you sit and what you do.”

Recently, Holden invited himself to a meeting on the design and construction of a new corporate headquarters that is targeted for completion in 2016.

If he hadn’t, the committee members would have gone on erroneously thinking that the company’s existing property and general liability coverage would protect the construction project against exposures, he said.

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“Unless you do it every day, you are not going to know,” Holden said.

That situation with the construction project was a bit of an outlier, he said. When he started at the company eight years ago, it was not unusual for Holden to find out after the fact about a potential risk or exposure. That happens rarely these days.

“… That’s really the death knell to being a successful risk manager — having nobody know who you are, where you sit and what you do.” — Dan Holden, manager, corporate risk and insurance, Daimler Trucks North America

And when it does happen? Palo Alto’s Helm said such an event is rare, but sometimes it may be advantageous to let the situation play out “rather than always banging my own drum to be included. It’s always a bit more effective if you have a little bit of a fail and people say, ‘Maybe we should have listened.’ ”

Once risk management does outline the risks, the risk executives agreed that the final decision is up to the business leaders.

“My job,” Helm said, “is to help them make those decisions in an informed way so they are taking a calculated risk. I don’t tell [leadership] you can or you can’t do something unless it’s clearly illegal or just so incredibly stupid.

“I might disagree with their decision sometimes. I might strongly ask them to consider the potential downside, but if they hear that and make their decision in an informed way, I have done my job and I feel fine with it,” she said.03012015_01_CS_sidebar

Anne Freedman is managing editor of Risk & Insurance. She can be reached at afreedman@lrp.com.

More from Risk & Insurance

More from Risk & Insurance

Insurtech

Kiss Your Annual Renewal Goodbye; On-Demand Insurance Challenges the Traditional Policy

Gig workers' unique insurance needs drive delivery of on-demand coverage.
By: | September 14, 2018 • 6 min read

The gig economy is growing. Nearly six million Americans, or 3.8 percent of the U.S. workforce, now have “contingent” work arrangements, with a further 10.6 million in categories such as independent contractors, on-call workers or temporary help agency staff and for-contract firms, often with well-known names such as Uber, Lyft and Airbnb.

Scott Walchek, founding chairman and CEO, Trōv

The number of Americans owning a drone is also increasing — one recent survey suggested as much as one in 12 of the population — sparking vigorous debate on how regulation should apply to where and when the devices operate.

Add to this other 21st century societal changes, such as consumers’ appetite for other electronic gadgets and the advent of autonomous vehicles. It’s clear that the cover offered by the annually renewable traditional insurance policy is often not fit for purpose. Helped by the sophistication of insurance technology, the response has been an expanding range of ‘on-demand’ covers.

The term ‘on-demand’ is open to various interpretations. For Scott Walchek, founding chairman and CEO of pioneering on-demand insurance platform Trōv, it’s about “giving people agency over the items they own and enabling them to turn on insurance cover whenever they want for whatever they want — often for just a single item.”

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“On-demand represents a whole new behavior and attitude towards insurance, which for years has very much been a case of ‘get it and forget it,’ ” said Walchek.

Trōv’s mobile app enables users to insure just a single item, such as a laptop, whenever they wish and to also select the period of cover required. When ready to buy insurance, they then snap a picture of the sales receipt or product code of the item they want covered.

Welcoming Trōv: A New On-Demand Arrival

While Walchek, who set up Trōv in 2012, stressed it’s a technology company and not an insurance company, it has attracted industry giants such as AXA and Munich Re as partners. Trōv began the U.S. roll-out of its on-demand personal property products this summer by launching in Arizona, having already established itself in Australia and the United Kingdom.

“Australia and the UK were great testing grounds, thanks to their single regulatory authorities,” said Walchek. “Trōv is already approved in 45 states, and we expect to complete the process in all by November.

“On-demand products have a particular appeal to millennials who love the idea of having control via their smart devices and have embraced the concept of an unbundling of experiences: 75 percent of our users are in the 18 to 35 age group.” – Scott Walchek, founding chairman and CEO, Trōv

“On-demand products have a particular appeal to millennials who love the idea of having control via their smart devices and have embraced the concept of an unbundling of experiences: 75 percent of our users are in the 18 to 35 age group,” he added.

“But a mass of tectonic societal shifts is also impacting older generations — on-demand cover fits the new ways in which they work, particularly the ‘untethered’ who aren’t always in the same workplace or using the same device. So we see on-demand going into societal lifestyle changes.”

Wooing Baby Boomers

In addition to its backing for Trōv, across the Atlantic, AXA has partnered with Insurtech start-up By Miles, launching a pay-as-you-go car insurance policy in the UK. The product is promoted as low-cost car insurance for drivers who travel no more than 140 miles per week, or 7,000 miles annually.

“Due to the growing need for these products, companies such as Marmalade — cover for learner drivers — and Cuvva — cover for part-time drivers — have also increased in popularity, and we expect to see more enter the market in the near future,” said AXA UK’s head of telematics, Katy Simpson.

Simpson confirmed that the new products’ initial appeal is to younger motorists, who are more regular users of new technology, while older drivers are warier about sharing too much personal information. However, she expects this to change as on-demand products become more prevalent.

“Looking at mileage-based insurance, such as By Miles specifically, it’s actually older generations who are most likely to save money, as the use of their vehicles tends to decline. Our job is therefore to not only create more customer-centric products but also highlight their benefits to everyone.”

Another Insurtech ready to partner with long-established names is New York-based Slice Labs, which in the UK is working with Legal & General to enter the homeshare insurance market, recently announcing that XL Catlin will use its insurance cloud services platform to create the world’s first on-demand cyber insurance solution.

“For our cyber product, we were looking for a partner on the fintech side, which dovetailed perfectly with what Slice was trying to do,” said John Coletti, head of XL Catlin’s cyber insurance team.

“The premise of selling cyber insurance to small businesses needs a platform such as that provided by Slice — we can get to customers in a discrete, seamless manner, and the partnership offers potential to open up other products.”

Slice Labs’ CEO Tim Attia added: “You can roll up on-demand cover in many different areas, ranging from contract workers to vacation rentals.

“The next leap forward will be provided by the new economy, which will create a range of new risks for on-demand insurance to respond to. McKinsey forecasts that by 2025, ecosystems will account for 30 percent of global premium revenue.

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“When you’re a start-up, you can innovate and question long-held assumptions, but you don’t have the scale that an insurer can provide,” said Attia. “Our platform works well in getting new products out to the market and is scalable.”

Slice Labs is now reviewing the emerging markets, which aren’t hampered by “old, outdated infrastructures,” and plans to test the water via a hackathon in southeast Asia.

Collaboration Vs Competition

Insurtech-insurer collaborations suggest that the industry noted the banking sector’s experience, which names the tech disruptors before deciding partnerships, made greater sense commercially.

“It’s an interesting correlation,” said Slice’s managing director for marketing, Emily Kosick.

“I believe the trend worth calling out is that the window for insurers to innovate is much shorter, thanks to the banking sector’s efforts to offer omni-channel banking, incorporating mobile devices and, more recently, intelligent assistants like Alexa for personal banking.

“Banks have bought into the value of these technology partnerships but had the benefit of consumer expectations changing slowly with them. This compares to insurers who are in an ever-increasing on-demand world where the risk is high for laggards to be left behind.”

As with fintechs in banking, Insurtechs initially focused on the retail segment, with 75 percent of business in personal lines and the remainder in the commercial segment.

“Banks have bought into the value of these technology partnerships but had the benefit of consumer expectations changing slowly with them. This compares to insurers who are in an ever-increasing on-demand world where the risk is high for laggards to be left behind.” — Emily Kosick, managing director, marketing, Slice

Those proportions may be set to change, with innovations such as digital commercial insurance brokerage Embroker’s recent launch of the first digital D&O liability insurance policy, designed for venture capital-backed tech start-ups and reinsured by Munich Re.

Embroker said coverage that formerly took weeks to obtain is now available instantly.

“We focus on three main issues in developing new digital business — what is the customer’s pain point, what is the expense ratio and does it lend itself to algorithmic underwriting?” said CEO Matt Miller. “Workers’ compensation is another obvious class of insurance that can benefit from this approach.”

Jason Griswold, co-founder and chief operating officer of Insurtech REIN, highlighted further opportunities: “I’d add a third category to personal and business lines and that’s business-to-business-to-consumer. It’s there we see the biggest opportunities for partnering with major ecosystems generating large numbers of insureds and also big volumes of data.”

For now, insurers are accommodating Insurtech disruption. Will that change?

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“Insurtechs have focused on products that regulators can understand easily and for which there is clear existing legislation, with consumer protection and insurer solvency the two issues of paramount importance,” noted Shawn Hanson, litigation partner at law firm Akin Gump.

“In time, we could see the disruptors partner with reinsurers rather than primary carriers. Another possibility is the likes of Amazon, Alphabet, Facebook and Apple, with their massive balance sheets, deciding to link up with a reinsurer,” he said.

“You can imagine one of them finding a good Insurtech and buying it, much as Amazon’s purchase of Whole Foods gave it entry into the retail sector.” &

Graham Buck is a UK-based writer and has contributed to Risk & Insurance® since 1998. He can be reached at riskletters.com.