RIMS 2017

The Tools to Face Uncertainty

Speakers at this year’s RIMS conference in Philadelphia will address political and economic uncertainties, and how risk managers can transform them into opportunities.
By: | March 3, 2017 • 7 min read

The theme for this year’s annual RIMS conference, “Risk Revolution,” calls on attendees to “disrupt the status quo” in their organizations.

This year in particular will challenge risk managers to change the way they think about the future. Around the world, political upheaval has wrought economic uncertainty. Brexit, Donald Trump’s surprise presidential win, and other populist movements are shattering the very idea of a status quo.

These topics will be the subject of both session presentations and informal discussions among the roughly 10,000 attendees converging on the Pennsylvania Convention Center in Philadelphia from April 23-26.

“We have evolved in an ever-changing business environment so that the status quo is no longer acceptable. It needs to be constantly revisited,” said RIMS CEO Mary Roth. “In every industry, what we did in the past may not be the best way to proceed in the future.”

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Patrick Harker, president and CEO of the Federal Reserve Bank of Philadelphia, said in an early January segment on Wharton Business Radio that “my biggest concern is concern. The biggest risk we face is uncertainty.”

Uncertainty is so ominous because unlike a defined risk, it is not necessarily manageable.

“The risk manager is in the midst of a ‘risk revolution,’ evolving into a risk strategist who is required to have plans to deal with both controllable and uncontrollable matters.”  — Scott Addis, president and founder, Beyond Insurance

“Risk is best defined as an ‘unknown’ that has a measurable probability of outcome. Uncertainty, on the other hand, involves an unknown with no measurable probability of outcome,” said Scott Addis, president and founder of Beyond Insurance and a speaker at the conference.

“Uncertainty is not quantifiable because future events are too unpredictable and information is insufficient.”

Unanswered Questions

Uncertainty will affect U.S. businesses on multiple fronts. Corporate tax changes and international trade policies are two examples.

Import tariffs and potential trade restrictions imposed with the intention of boosting American manufacturing and job creation could also limit free competition globally and drive up operating costs.

“This can happen in any country that adopts nationalistic policies. From a management perspective, we have to produce at a higher cost,” said Roger Kashlak, professor of international business at Loyola University Maryland and another presenter at RIMS this year.

Scott Addis, president and founder, Beyond Insurance

Restrictive trade policies could also compound the negative impact of a strong U.S. dollar, which makes American exports more expensive and less desirable around the world. With a diminished standing in the global marketplace, it may be hard for businesses to recoup the higher cost of labor that comes with manufacturing at home.

“There’s a cost to this political churn if you play it out. In the short term, you will create jobs that come with tax breaks for businesses, and that’s a good thing. But long term it’s very risky because we’ll miss out on competitive benefits and have higher costs,” Kashlak said.

Regulatory changes also come with a set of pros and cons. In general, less regulatory oversight means more freedom and fewer costs of compliance, which attracts foreign investment and stimulates economic activity. But over the long term, relaxed regulations could be detrimental.

The current administration’s stance on energy regulation offers a good example. If corporations are not held to standards that call for them to reduce emissions of greenhouse gases, and if subsidies for “green” companies are done away with, it provides greater freedom for businesses in every sector to choose how they produce and consume energy. More choices and fewer compliance hurdles are unquestionably good for business.

But without environmental regulation, the long term effects of climate change could also elevate risk for every sector over the long term. And as other countries invest in clean energy resources, the U.S. could lose competitive standing in that industry.

“You have to play it out from both sides,” Kashlak said. “What will we gain, and what will we be missing?”

Unfortunately for risk managers, confusion among the political ranks and strong influence exerted by the general populace on both sides of these issues make it difficult to know just which way the winds will blow.

Planning for the Unknown

Balancing short and long term goals against potential risks in the face of so much uncertainty will be a key challenge for risk managers.

“One of the biggest challenges facing any decision-maker  is developing long-term strategies while still recognizing the need to deal with the short term,” said Howard Kunreuther, James G. Dinan professor of decision sciences and business and public policy at the Wharton School and co-director of the Wharton Risk Management and Decision Processes Center at the University of Pennsylvania.

Howard Kunreuther, co-director, Wharton Risk Management and Decision Processes Center, University of Pennsylvania

“We all tend to be myopic by focusing on short term impacts. But corporations, more so than individuals, also recognize the need to develop short term and long term strategies. There is thus a need to build in short term incentives to enable long term planning,” he said.

Short term impacts include end-of-year balance sheets and bonuses. But Kunreuther suggested that insurers should change their way of thinking to broaden what “short term” means. They can, for example, move away from annual property policies and toward three- to five-year terms, which would promote longer term thinking in a way that is still manageable.

Darin Goodwiler, chief compliance, risk and ethics officer at CFA Institute, said that reliable information and intelligence monitoring is the key to being prepared to react to change over the long term.

“One of the biggest challenges in any decision is developing long-term strategies while still recognizing the need to deal with the short term.”  — Howard Kunreuther, co-director, Wharton Risk Management and Decision Processes Center, University of Pennsylvania

“Risk managers need trusted and defendable information, and the faster you get it, the better equipped you are to respond to any event,” said Goodwiler, who will also be presenting a session at RIMS.

The challenge, though, lies in the vast amount of information to be gathered, and the question of where to get the best quality, most dependable facts.

“Today, the risk manager is expected to have a keen awareness of a host of issues that range from international trade policies, regulatory updates, immigration laws and import/export tax changes,” Addis of Beyond Insurance said. Risk managers will have to expand their own understanding of political and economic issues, and identify both internal and external resources and experts to fill in the gaps when necessary.

Goodwiler suggested that the best way to start planning for the future is to look back. Examine your organization’s past 20 years; what events made a significant impact, either positive or negative? How did your company respond? Are these repeatable events?

That analysis tips off risk managers to pre-event indicators. In the face of uncertainty, it’s important to be able to tell when an event or change is coming and start a proactive response to mitigate the full negative impact — or in the best case scenario, leverage it to create a positive impact. Know who the decision-makers in your organization are, and have a plan to get information into their hands as fast as possible.

Opportunities for Risk Managers

On the upside, this level of uncertainty opens an opportunity for risk managers to become strategic partners in their organizations. They can take a leading role in data and intelligence gathering, in formulating plans to identify critical upcoming changes and response plans, and in educating senior executives and boards of directors on long term risks.

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“The risk manager is in the midst of a ‘risk revolution,’ evolving into a risk strategist who is required to have plans to deal with both controllable and uncontrollable matters,” Addis said.

Recognizing that trend, this year’s RIMS conference features a new Executive Leadership track, which Roth said, “is positioned for senior professionals that are engaged in driving strategy throughout their organization.” Sessions in this track will examine “international strategic planning and ERM, the threats and opportunities of Brexit, and risk and resiliency in the changing world.”

“As leaders in risk management and representatives of the risk management community, we feel it’s imperative to engage our members and attendees in that dialogue and look at ways that others are addressing these changes and challenges,” she said. “We have to provide a forum for individuals to find out what best practices are out there and how other risk professionals are addressing the challenges they’re facing.” &

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

More from Risk & Insurance

More from Risk & Insurance

Lead Story

Improving the Claims Experience

Insureds and carriers agree that more communication can address common claims complaints.
By: | January 10, 2018 • 7 min read

Carriers today often argue that buying their insurance product is about much more than financial indemnity and peace of mind.

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Many insurers include a variety of risk management services and resources in their packages to position themselves as true risk partners who help clients build resiliency and prevent losses in the first place.

That’s all well and good. No company wants to experience a loss, after all. But even with the added value of all those services, the core purpose of insurance is to reimburse loss, and policyholders pay premiums because they expect delivery on that promise.

At the end of the day, nothing else matters if your insurer can’t or won’t pay your claim, and the quality of the claims experience is ultimately the barometer by which insureds will judge their insurer.

Why, then, is the process not smoother? Insureds want more transparency and faster claims payment, but claims examiners are often overburdened and disconnected from the original policy. Where does the disconnect come from, and how can it be bridged?

Both sides of the insurer-insured equation may be responsible.

Susan Hiteshew, senior manager of global insurance and risk management, Under Armor Inc.

“One of the difficult things in our industry is that oftentimes insureds don’t call their insurer until they have a claim,” said Susan Hiteshew, senior manager of global insurance and risk management for Under Armour Inc.

“It’s important to leverage all of the other value that insurers offer through mid-term touchpoints and open communication. This can help build the insurer-insured partnership so that when a claim materializes, the relationships are already established and the claim can be resolved quickly and fairly.”

“My experience has been that claims executives are often in the background until there is an issue that needs addressing with the policyholder,” said Dan Holden, manager of corporate risk and insurance for Daimler Trucks North America.

“This is unfortunate because the claims department essentially writes the checks and they should certainly be involved in the day to day operations of the policyholders in designing polices that mitigate claims.

“By being in the shadows they often miss the opportunity to strengthen the relationship with policyholders.”

Communication Breakdown

Communication barriers may stem from internal separation between claims and underwriting teams. Prior to signing a contract and throughout a policy cycle, underwriters are often in contact with insureds to keep tabs on any changes in their risk profile and to help connect clients with risk engineering resources. Claims professionals are often left out of the loop, as if they have no proactive role to play in the insured-insurer relationship.

“Claims operates on their side of the house, ready to jump in, assist and manage when the loss occurs, and underwriting operates in their silo assessing the risk story,” Hiteshew said.
“Claims and underwriting need to be in lock-step to collectively provide maximum value to insureds, whether or not losses occur.”

Both insureds and claims professionals agree that most disputes could be solved faster or avoided completely if claims decision-makers interacted with policyholders early and often — not just when a loss occurs.

“Claims and underwriting need to be in lock-step to collectively provide maximum value to insureds, whether or not losses occur.” – Susan Hiteshew, senior manager of global insurance and risk management for Under Armour Inc.

“Communication is critically important and in my opinion, should take place prior to binding business and well before a claim comes in the door,” said David Crowe, senior vice president, claims, Berkshire Hathaway Specialty Insurance.

“In my experience, the vast majority of disputes boil down to lack of communication and most disputes ultimately are resolved when the claim decision-maker gets involved directly.”

Talent and Resource Shortage

Another contributing factor to fractured communication could be claims adjuster workload and turnover. Claims adjusting is stressful work to begin with.

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Adjusters normally deal with a high volume of cases, and each case can be emotionally draining. The customer on the other side is, after all, dealing with a loss and struggling to return to business as usual. At some TPAs, adjuster turnover can exceed 25 percent.

“This is a difficult time for claims organizations to find talent who want to be in this business long-term, and claims organizations need to invest in their employees if they’re going to have any success in retaining them,” said Patrick Walsh, executive vice president of York Risk Services Group.

The claims field — like the insurance industry as a whole — is also strained by a talent crunch. There may not be enough qualified candidates to take the place of examiners looking to retire in the next ten years.

“One of the biggest challenges facing the claims industry is a growing shortage of talent,” said Scott Rogers, president, National Accounts, Sedgwick. “This shortage is due to a combination of the number of claims professionals expected to retire in the coming years and an underdeveloped pipeline of talent in our marketplace.

“The lack of investment in ensuring a positive work environment, training, and technology for claims professionals is finally catching up to the industry.”

The pool of adjusters gets stretched even thinner in the aftermath of catastrophes — especially when a string of catastrophes occurs, as they did in the U.S in the third quarter of 2017.

“From an industry perspective, Harvey, Irma and Maria reminded us of the limitations on resources available when multiple catastrophes occur in close succession,” said Crowe.

“From independent and/or CAT adjusters to building consultants, restoration companies and contractors, resources became thin once Irma made landfall.”

Is Tech the Solution?

This is where Insurtech may help things. Automation of some processes could free up time for claims professionals, resulting in faster deployment of adjusters where they’re needed most and, ultimately, speedier claims payment.

“There is some really exciting work being done with artificial intelligence and blockchain technologies that could yield a meaningful ROI to both insureds and insurers,” Hiteshew said.

“The claim set-up process and coverage validation on some claims could be automated, which could allow adjusters to focus their work on more complex losses, expedite claim resolution and payment as well.”

Dan Holden, manager, Corporate Risk & Insurance, Daimler Trucks North America

Predictive modeling and analytics can also help claims examiners prioritize tasks and maximize productivity by flagging high-risk claims.

“We use our data to identify claims with the possibility of exceeding a specified high dollar amount in total incurred costs,” Rogers said. “If the model predicts that a claim will become a large loss, the claim is redirected to our complex claims unit. This allows us to focus appropriate resources that impact key areas like return to work.”

“York has implemented a number of models that are focused on helping the claims professional take action when it’s really required and that will have a positive impact on the claim experience,” Walsh said.

“We’ve implemented centers of excellence where our experts provide additional support and direction so claim professionals aren’t getting deluged with a bunch of predictive model alerts that they don’t understand.”

“Technology can certainly expedite the claims process, but that could also lead to even more cases being heaped on examiners.” — Dan Holden, manager, Corporate Risk & Insurance, Daimler Trucks North America

Many technology platforms focused on claims management include client portals meant to improve the customer experience by facilitating claim submission and communication with examiners.

“With convenient, easy-to-use applications, claimants can send important documents and photos to their claims professionals, thereby accelerating the claims process. They can designate their communication preferences, whether it’s email, text message, etc.,” Sedgwick’s Rogers said. “Additionally, rules can be established that direct workflow and send real time notifications when triggered by specific claim events.”

However, many in the industry don’t expect technology to revolutionize claims management any time soon, and are quick to point out its downsides. Those include even less personal interaction and deteriorating customer service.

While they acknowledge that Insurtech has the potential to simplify and speed up the claims workflow, they emphasize that insurance is a “people business” and the key to improving the claims process lies in better, more proactive communication and strengthening of the insurer-insured relationship.

Additionally, automation is often a double-edged sword in terms of making work easier for the claims examiner.

“Technology can certainly expedite the claims process, but that could also lead to even more cases being heaped on examiners,” Holden said.

“So while the intent is to make things more streamlined for claims staff, the byproduct is that management assumes that examiners can now handle more files. If management carries that assumption too far, you risk diminishing returns and examiner burnout.”

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By further taking real people out of the equation and reducing personal interaction, Holden says technology also contributes to deteriorating customer service.

“When I started more than 30 years ago as a claims examiner, I asked a few of the seasoned examiners what they felt had changed since they began their own careers 30 year earlier. Their answer was unanimous: a decline in customer service,” Holden said.

“It fell to the wayside to be replaced by faster, more impersonal methodologies.”

Insurtech may improve customer satisfaction for simpler claims, allowing policyholders to upload images with the click of a button, automating claim valuation and fast-tracking payment. But for complex claims, where the value of an insurance policy really comes into play, tech may do more harm than good.

“Technology is an important tool and allows for more timely payment and processing of claims, but it is not THE answer,” BHSI’s Crowe said. “Behind all of the technology is people.” &

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