December 17, 2018 Was a Bad Day for Risk Management

By: | December 19, 2018 • 5 min read
John (Jack) Hampton is a Professor of Business at St. Peter’s University, a core faculty member at the International School of Management (Paris), and a Risk Insider at Risk and Insurance magazine where he was named a 2018 All Star. He was Executive Director of the Risk and Insurance Management Society (RIMS), dean of the schools of business at Seton Hall and Connecticut State universities, and provost of the College of Insurance and SUNY Maritime College in New York City.

Bitcoin hit an annual low of $3,125.

Newbury College in Boston announced it will close its doors.

The U.S. stock market dropped by two percent, bringing the market to its worst December since the depths of the Great Depression.

These events highlight risk in three areas — cyber risk, higher education and money management.

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In a 2017 Risk and Insurance® Risk Insider piece, I described 17-year old Dominik, the prodigy son of close friends. He owned a bitcoin worth, at the time, $2,650. I described the complexity of his investment, including the password on his “wallet.” As best I remember it, the code was 2BF46KW3EM539QZG46NX93. I could be wrong.

When the bitcoin reached its historic high exactly one year ago on December 17, 2017, his investment was worth $20,000. I hope he sold it, but I’m cautious about asking. Maybe he still has it. Who knows what it will be worth by the time you read this?

On May 17, I described the abrupt closing of Mount Ida College located 4.6 miles away from Newbury College. Last summer, the admissions office at Newbury aggressively recruited Mount Ida students and some transferred to Newbury. Now they will have to transfer again if they do not graduate by May 2019.

On December 18, financial analysts reported that U.S. stocks had their worst month of December since the year 1931. In December 2018, General Electric cut its celebrated annual dividend from just under a dollar down to exactly four cents.

Cryptocurrencies, higher education and stock markets offer lessons in risk management.

Cryptocurrencies are a mechanism for gambling. Bitcoins and the 1,700 other artificial currencies suffer massive swings in value. Who knows what will happen next?

Choosing a college resembles purchasing an automobile. It starts with a list price. The dealer tells you the car costs $36,000 but, for you, a special deal. $32,500 if you sign immediately on the dotted line.

If you resist, the dealer might provide an invoice showing he paid $33,000 for the car. The dealership is losing $500 on the sale. If it’s losing money on cars that are sold, how can the dealer stay in business? Don’t ask.

The same marketing behavior occurs with colleges and universities. First, we start with the list price. Is Hobart and William Smith College worth $65,000 a year? Or, if your family will move to a remote area of upstate New York, is it worth commuting from home so you pay only $51,000 for tuition?

Would it be better to attend Brigham Young University where annual tuition is $12,000? Not to mention the opportunity to convert to the Mormon religion, a status that reduces annual tuition to $6,000.

Cryptocurrencies, college tuition, and common stock may seem like odd subjects to link together in a single discussion. Not at all. The common thread is the need for people to recognize rising uncertainty in their lives.

If you are a New York resident from a low-income family, you can do pretty well without moving to Utah or changing religion. Public colleges in New York state are tuition-free if your family’s annual income is $110,000 or less.

Read the fine print. Fees and ancillary expenses cost thousands of dollars a year. If you graduate from college and immediately move out of New York state, the “free-tuition” scholarship converts into a student loan.

Now for the risk management part of the story. Forget about the list price. Many schools discount with the mentality of a fire-sale. It is commonplace for private colleges and universities to offer a 50 percent reduction in tuition through “scholarships” or other aid.

The $36,000 car costs $32,000. The $50,000 tuition costs $25,000. Even public colleges may offer discounts to attract out-of-state or international students.

Volatility in stock prices completes the picture. It highlights broader and more consequential risks that pose increasing uncertainty for all of us.

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Cryptocurrencies, college tuition and common stock may seem like odd subjects to link together in a single discussion. Not at all. The common thread is the need for people to recognize rising uncertainty in their lives. Negative consequences affect investors as well as borrowers, organizations as well as individuals, pundits as well as the naïve or innocent.

The difficulty arises from deciding how we approach risk. When bitcoins were rising, people were excited about the upside. When student loans offset rising tuition costs, parents and students were sucked into borrow-now, pay-later schemes. When stocks reached unsustainable levels based on fundamental factors, people bid them up further.

  • At their peak, bitcoins had a total value of $340 billion. Today, the number is $50 billion. Somebody lost a lot of money.
  • At the current time, student debt is $1.48 trillion. A lot of young people hocked their future to pay off student loans.
  • Volatility in the stock market is undermining long-term assumptions about the risk of running out of money in retirement planning.

Risk managers, and the people who want to behave like them, need to remember the canary in the underground coal mine. Hung in a cage deep in the earth, the bird died if oxygen levels started to run low. The death of the bird was a sign that it was time to get out of the mine.

Were the events of December 17, 2018 a canary in the risk management world? Time will tell. &

4 Companies That Rocked It by Treating Injured Workers as Equals; Not Adversaries

The 2018 Teddy Award winners built their programs around people, not claims, and offer proof that a worker-centric approach is a smarter way to operate.
By: | October 30, 2018 • 3 min read

Across the workers’ compensation industry, the concept of a worker advocacy model has been around for a while, but has only seen notable adoption in recent years.

Even among those not adopting a formal advocacy approach, mindsets are shifting. Formerly claims-centric programs are becoming worker-centric and it’s a win all around: better outcomes; greater productivity; safer, healthier employees and a stronger bottom line.

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That’s what you’ll see in this month’s issue of Risk & Insurance® when you read the profiles of the four recipients of the 2018 Theodore Roosevelt Workers’ Compensation and Disability Management Award, sponsored by PMA Companies. These four programs put workers front and center in everything they do.

“We were focused on building up a program with an eye on our partner experience. Cost was at the bottom of the list. Doing a better job by our partners was at the top,” said Steve Legg, director of risk management for Starbucks.

Starbucks put claims reporting in the hands of its partners, an exemplary act of trust. The coffee company also put itself in workers’ shoes to identify and remove points of friction.

That led to a call center run by Starbucks’ TPA and a dedicated telephonic case management team so that partners can speak to a live person without the frustration of ‘phone tag’ and unanswered questions.

“We were focused on building up a program with an eye on our partner experience. Cost was at the bottom of the list. Doing a better job by our partners was at the top.” — Steve Legg, director of risk management, Starbucks

Starbucks also implemented direct deposit for lost-time pay, eliminating stressful wait times for injured partners, and allowing them to focus on healing.

For Starbucks, as for all of the 2018 Teddy Award winners, the approach is netting measurable results. With higher partner satisfaction, it has seen a 50 percent decrease in litigation.

Teddy winner Main Line Health (MLH) adopted worker advocacy in a way that goes far beyond claims.

Employees who identify and report safety hazards can take credit for their actions by sending out a formal “Employee Safety Message” to nearly 11,000 mailboxes across the organization.

“The recognition is pretty cool,” said Steve Besack, system director, claims management and workers’ compensation for the health system.

MLH also takes a non-adversarial approach to workers with repeat injuries, seeing them as a resource for identifying areas of improvement.

“When you look at ‘repeat offenders’ in an unconventional way, they’re a great asset to the program, not a liability,” said Mike Miller, manager, workers’ compensation and employee safety for MLH.

Teddy winner Monmouth County, N.J. utilizes high-tech motion capture technology to reduce the chance of placing new hires in jobs that are likely to hurt them.

Monmouth County also adopted numerous wellness initiatives that help workers manage their weight and improve their wellbeing overall.

“You should see the looks on their faces when their cholesterol is down, they’ve lost weight and their blood sugar is better. We’ve had people lose 30 and 40 pounds,” said William McGuane, the county’s manager of benefits and workers’ compensation.

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Do these sound like minor program elements? The math says otherwise: Claims severity has plunged from $5.5 million in 2009 to $1.3 million in 2017.

At the University of Pennsylvania, putting workers first means getting out from behind the desk and finding out what each one of them is tasked with, day in, day out — and looking for ways to make each of those tasks safer.

Regular observations across the sprawling campus have resulted in a phenomenal number of process and equipment changes that seem simple on their own, but in combination have created a substantially safer, healthier campus and improved employee morale.

UPenn’s workers’ comp costs, in the seven-digit figures in 2009, have been virtually cut in half.

Risk & Insurance® is proud to honor the work of these four organizations. We hope their stories inspire other organizations to be true partners with the employees they depend on. &

Michelle Kerr is associate editor of Risk & Insurance. She can be reached at [email protected]