How — and Why — to Blow up an Insurance Program
How do you blow up an insurance program? In a word … very carefully.
In many circumstances, a risk transfer program overhaul is required as a result of external events, such as M&A activity or a divestiture. Sometimes, as in my case, it had to do with growth and service evolution.
Since I joined Sodexo, Inc., about eight years ago, corporate top line has grown by over $2 billion. This growth happened during a period of significant financial instability and happened in food and non-food related business. The traditional breakdown was 95 percent food and the balance non-food. Corporate strategy and growth has resulted in a ratio change to 75 percent food and 25 percent non-food, with a goal of an even split: 50 percent food, 50 percent non-food.
The reality is our risk profile has changed. We and our insurance partners saw new risks. The “one size fits all” insurance coverage approach based on a food service profile no longer applied. Our challenge was further complicated by the type of non-food activities being developed. Sodexo has a large health care services market and some new services were creating or experiencing loss exposures close to health care liability and potentially medical malpractice. In some cases this was the result of vicarious liability. In others, our health care services employees were being asked to do more by clients. The tipping point proved to be Sodexo’s decision to begin a construction group and the purchase of a commercial roofing/HVAC company.
So what’s a risk manager to do? First we spent a few months discussing the risk profile change reality with our broker partners. When we finished up our 2013 renewals, we immediately started working on how we wanted to structure and communicate the changes to underwriters for 2014. With the divergent services and activities, a change in insurance program structure was necessary. We had simply outgrown our old program.
In hindsight, what we built was not an insurance program for the present, but rather a sustainable insurance program for what Sodexo will be in five years.
An obstacle was a lack of claim information. Sodexo was venturing into new services and there was no Sodexo claim data to rely on. Another obstacle was getting exposure information for services that were only in their infancy. We met with both existing underwriters and new markets specializing in our emerging services. Everyone now understood the strategy and the need for alteration.
We succeeded and our new structure went into effect earlier this year. In hindsight, what we built was not an insurance program for the present, but rather a sustainable insurance program for what Sodexo will be in five years.
The risk management lesson is to make sure the risk transfer program is aligned with corporate strategy, especially if a significant amount of change or growth is anticipated. If possible, make sure the program is aligned with what corporate strategy will be in five years. The alignment will support budgeting and forecasts, the strategic alignment of various underwriters, improve insurer capacity usage, and enable the risk manager to make structure changes before claims dominate the annual renewal conversations.
Read all of Peter Rosiere’s Risk Insider contributions.