Friday, May 2, 2008

Hot Topics: The Best Risk Manager Who Ever Lived (What a Croc)

The best risk manager in the entire animal kingdom isn’t Advocate Health Care’s Scott H. Beckman, recently anointed as the risk manager of the year by one industry publication.

Nor is it former Risk and Insurance Management Society Inc. president Lance Ewing, vice president of risk management for Harrah’s Entertainment Inc. Neither is it RIMS president Janice Ochenkowski, managing director at Chicago real estate and investment powerhouse Jones Lang, LaSalle.

In fact, the best risk manager who ever lived isn’t a member of RIMS, or the Federation of European Risk Management Associations, or any risk management organization at all – never has been and never will be.

This über-risk manager shuns the stoplight, and you won’t find this superstar sitting at RIMS video booths holding court on enterprise risk management. The world’s best risk manager scoffs at lifetime achievement awards, keynote addresses and Powerpoint presentations. In fact, the world’s No. 1 risk manager’s never even been to school, can't even read.

That’s because the best risk manager who ever lived is an ugly beast that goes by the name Crocodylus Niloticus, otherwise known as the Nile crocodile, according to South African author and naturalist Gert Cruyagen, the keynote speaker on the closing day of the annual RIMS convention.

Crocodylus Niloticus is the complete risk management package, in the eyes of Cruyagen. He, or she, has camouflage, speed and agility, knows how to fight back, works well with others, is armed to the teeth in thick, tough body armor, overwhelms adversaries, knows when to retreat to safe havens, and sits at the top of the food chain with no predator to worry about.

Crocodylus, who was around during the time of dinosaurs, can weigh more than a ton. They can live to more than 100 years old.

Now what risk manager wouldn’t want Crocodylus as a mentor? Forget bestowing risk manager of the year titles to the industry's usual suspects. Crocodylus Niloticus deserves to be the only risk manager of the year, every year, forever.

Session: INS Private Equity. HCR ManorCare, Claims and the Carlyle Group

General liability and workers’ compensation claims have not increased since the private equity firm Carlyle Group took over HCR ManorCare, according to Bruce Helberg, risk management director of HCR ManorCare.

“We’re early in the process but I’ve not seen an increase in incident reports from a general liability or workers’ compensation standpoint at all,” said Helberg.

Carlyle took over the 60,000-employee hospital chain in July 2007 for $6.3 billion. It borrowed heavily to do so, and Carlyle ordered a review of the HCA ManorCare’s insurance programs.

The transaction serves as a cautionary tale for other private equity deals and their implications for risk management.

Now that HCR ManorCare, an operator of nursing homes and rehabilitation centers, is a private company, it is still not clear what kind of risk compliance documentation, for example, the company is responsible for releasing.

“No one had a clue as to what could be released and when, so we had to work with the underwriters and keep them at a comfort level. and we’re still not comfortable as to what we can release to underwrites,” said Helberg. “That causes issues with self-insured workers’ comp states.”

Helberg also said that HCR ManorCare, which is self-insured in nine states, has had high self-insured retentions for about eight years. The company was likely to stick with that strategy for the moment,” he said.

“Where the captive came into play on the excess layers, we did go out and buy reinsurance for those layers, and we’ll continue the captive this year but we’ll probably lay off more (risk).”

Whether the HCR ManorCare deal deserves more or less attention from risk managers remains to be seen. But one trend is clear, and it is that private equity deals are more popular than they used to be because they are very profitable for investors, said James R. Lash, executive risk practice leader for Hylant Group Inc.

In the first quarter of this year, there were a total of 221 completed buyouts in the United States and a total of 355 completed buyouts worldwide. Last year, there were a total of 1,162 completed private equity buyouts in the United States and 2,155 buyouts worldwide in 2007.

Not all private equity takeovers succeed, of course, and the landscape is littered with the remains of busted deals: Alliance Data, Harmon International, Advanced Semiconductor, Clear Channel, Sallie Mae and United Rentals.

When that happens, it’s up to the broker to help sort out the insurance programs, the experts said. “If you’re a broker, you’ve got your work cut out for you when these deals happen,” said Lash. “There are a whole bunch of things that affect the broker side.”

Lash said most of the private equity takeovers are friendly, as was the case with HCR ManorCare.

There are more than 1,700 private equity firms operating in the United States. Among the best known are Blackstone Group, Carlyle Group, KKR, Bain Capital and Cerberus, which took over Chrysler last year.

Thursday, May 1, 2008

Tradeshow Floor: Onward and upward, risk managers

Risk managers, from the sounds of it, you'll need sunglasses for your future. The insurance market is as soft as the bed in my hotel room that I haven't slept in for a week. It's a "responsible" softness, said James Swanke Jr., a managing principal with Towers Perrin, whom I spoke with a couple days ago in the narrow meeting room in the bowels of their showroom booth.

Whether you buy into the insurers saying that they're not cutting prices willy-nilly (like they've done every soft market before), the opportunities are such that risk managers are coming to Swanke asking how they should take advantage of them while they are here.

But possibly the most important point from Swanke: risk managers need to know how to take advantage of these opportunities. How? By being able to communicate their advantages to their bosses. Speak, in other words, in the language of finance instead of insurance.

Part of the reason that Swanke brought up the topic was to promote a new tool from his firm that will help risk managers crunch numbers on cost of capital and produce figures that CFOs can really chew on.

Whether or not you need a mathematical tool to do this is up to you. Whether not Towers Perrin folks now read our blog because I mentioned their new tool is up to them. But what caught me about what Swanke was saying was that I was hearing the same thing everywhere in San Diego. Over a cold beer and an NBA playoff game, the leaders of the Towers Perrin insurance group told me much of the same.

Risk managers need to think, talk and act like business people.

Richard Meyers, in the RIMS special session on the job market on Wednesday afternoon, made the point of saying that 68 percent of risk managers report to finance, whether they work at private, public or nonprofit organizations.

To get the credit you think you deserve for this reporting -- and not just be considered a highly paid clerk or purchaser -- risk managers need to pick up business skills, especially the "soft" ones -- the ability to communicate, persuade, negotiate, collaborate, listen, act important, etc.

Throughout the week, I've heard people complain about the quality and depth of sessions at RIMS. About the traffic on the showroom floor. About their feet throbbing. I've heard people gush about San Diego and the restaurants, parties, weather and people. (The natives, by the way, seem a bit jerky to me. But I'm from the City of Brotherly Love.)

But what really caught my ear here, what really made me appreciate the value of an event like RIMS, was the message that seemed to be mixing with the oxygen in the air, risk managers breathing it in whether they knew it or not -- you are important. Act like it.

Sessions: INS208: The dangers of the last session

Speaking in the last session on the last day of RIMS is not for the faint of heart, or the boring. At the start of INS208 (about the perils of online advertising), the RIMS rep who introduced the speakers stressed just how important, cutting edge and interesting the session would be. He cited how only one in 10 session ideas submitted to the RIMS conference organizers gets chosen to be developed into an actual session. Being one in 10, INS208 just had to be good, he was implying, so please stick around until 1 p.m. and the end of the session, he was pleading.

Then he left.

As can be expected, not all of the audience listened to him. Some of us fled. Those of us who stuck it out appeared to be listening all the way through. Maybe my fellow audience members have the unique talent of sleeping with their eyes open. I have tried to learn this skill, and have attended workshops in India with a yoga master who possesses complete control over all his bodily functions, but I am a failure at it.

The speakers, Martin Myers of HellerEhrman LLP and Chad Milton of Marsh, did their best to battle through the audience's unavoidable last-day malaise, and through an Internet connection that was so slow that it could have been dial-up. Maybe it was.

That was probably one of the biggest downfalls of the session. It was, after all, about online adverts, so Myers' efforts to show some examples of said online ads -- streaming video of user-generated Pepto commercials, for instance, or even just the homepage for American Apparel -- were frustrated by the crapitude of the convention center IT system.

It's a shame. The session focus was something I'd never really seen discussed before anywhere else -- how the legal and liability vagaries of the Web can and are affecting advertising in blogs, social networking sites, user-generated video and other content, and other video games. Cool stuff. (Too bad if you left the conference a day or two early.)

It turns out, though, advertisers have much of the same exposures and lack of protections that online content generators have. For instance, when a corporate Web site allows its employees or visitors to blog or post comments, they might be liable for those contents. The ISP might even be liable. Same holds true for companies that create ads from user-generated content.

And the insurance situation is similar too. CGL does not touch this stuff. But E&O underwriters are trying to.

Or as Milton put it, "The E&O underwriters are crawling all over themselves to show they understand this."

Now that I'm rehashing the PowerPoint details of the session, it does seem like some pretty heavy slogging for the last session on the last day of RIMS. To those of you in the audience with me until 1 p.m., and especially to Martin and Chad, I salute you.

Wednesday, April 30, 2008

The RIMS Apprentice: Day 4

Hello Lucky People Who Are Still in San Diego,

It is 3:00 a.m. and I am finally home in Philadelphia, Pa. What an incredible journey. I will do a final recap later. For now, my final day at RIMS:

We all got up very early for a breakfast meeting at 8 a.m. Ed Troy, the CEO of GAB Robins, spoke at our school a few weeks ago, and we made plans to meet up for breakfast at the conference. All of our students and our professors met up with Ed and Andrew Miller, his co-worker, for an informal breakfast.

Ed talked a bit about his experiences in life, and offered advice to us students. He really had some inspirational messages. He told us to love what you do every single day, and to always act with integrity. He also encouraged us to network and meet as many people as we could and to never lose contact. It really is an amazing experience to have the CEO of a company take time out of his busy schedule to sit down and talk with you face to face, with no schedule or rushing.

After our breakfast meeting, we headed down to the exhibit hall. It was HUGE!!!! I saw the massage booth, and I was ecstatic! Mind you, we are college students, so we were sleeping 5 people to a hotel room at the Best Western. Read: Crammed. Plus, I had a 6+ hour flight still stuck in my neck, so the kind workers at Dubai made my day! I teamed up with 2 other students, and we checked out almost every single exhibit. There were a lot of neat giveaways, and a lot of ... interesting ... ones. My personal favorite was the zebra print bag from Vericlaim! I am using it for everything from now on!

It was interesting to see people's reactions when they heard I was a student. Some were very excited, and told me what a wonderful industry I was entering and how there were so many opportunities! Others were actually kind of rude; basically, they told me they had nothing of interest to me, weren't hiring, and to move along.

Mind you, I have already accepted an internship, and I am not job hunting! I was there to meet new people, network, and see what kind of companies are out there for my future. Those companies gave me the impression that they only cared about the bottom line and money, not their employees. So to all you companies out there who attend conventions: be careful how you treat the people who visit your booth ... they may be your future employees or customers some day, even if they are young now!

For the most part, the exhibit hall was amazing. There were some very interesting companies. I was running out of business cards, but I dropped mine in to try and win the spy kit! I'm assuming that I did not win :-(

Another neat idea was the magician, David. We hung out there for quite a while seeing all of his tricks. Some of them were amazing! I don't know how someone can read my mind, but he did it! Also, one of the companies had Rock Band, which was amazing. For those of you old heads out there, Rock Band is a new video game that comes with instruments, and you play them along with the music. I was on drums, and another student played guitar, and we rocked out! We actually had quite a crowd gathered by the end that was cheering and clapping! I was definitely a fan of that booth.

I was visiting the exhibit for more than free stuff! I met so many industry people from so many states and countries, it was such an incredible experience. As I was walking, a cardboard airplane zoomed past my head and I had to duck to avoid a collision. A lady who worked at the Alinter booth came over and apologized, and handed me an invite to their company party later that night. I went over to talk with the company, and met Francisco Xavier Casanueva Perez. I know, long name, but doesn't it just roll off of your tongue? As it turns out, Francisco works out of Mexico City, and hablo un poco español! (I speak a little spanish). He began telling be about possible internships in Mexico City, and recommended I come to the party later. Gracias, Francisco!

I stopped by the Risk & Insurance booth, and got my picture taken. I had a green sweater on under my suit, so my shirt looks like it is actually printed with part of the harbor! I love it! I am probably going to hang it up in a nice frame and trick my guests into thinking I was actually on the cover! My friend and I also got our Hawaiian-themed picture taken, complete with a surfboard!

After we finished visiting as many booths as we had time, all of the students met up for the educational round table. OK, as a blogger, I will give my honest opinion: I was not a fan. I missed an amazing speaker at 2:15 to play "imaginary broker" for 2+ hours. I skipped classes to come to the conference to meet people, see speakers, and hear about insurance issues. Instead, I ended up back in class. I guess it would be a good session to attend if you didn't have an insurance background, but oh well.

After the session, we rushed back to the hotel to pack up our suitcases and get ready. We were supposed to be at a party at 5:30, but by the time we got to the hotel in Old Town it was 5:15! We were rushing to get changed, showered, packed, etc. and FINALLY made it to the Omni hotel for the Bermuda party around 6:45. We ran into a few other students, as well as our friends RPost. We mingled around the party, but kept away from the rum drinks the wait staff was peddling ... they were SO STRONG! I guess that is how they do things in Bermuda! By the time we left that party, the Alinter party at the Ivy had started.

The Temple crew and the RPost crew headed over to the Rooftop at the Ivy and WOW is all I can say. Apparently, the hotel had just been built and it was incredible. The roof had a HUGE fire pit and plentiful heat lamps so I didn't regret my outfit choice! I quickly learned that we were pretty much the only Americans there. It was amazing to meet people who literally hailed from all over the world.

I accidental mistook a man named Richard Snow for someone I had met earlier, but he didn't mind. He ended up introducing me to his friends Stephan and Edoardo, who were brokers from Zurich (the actual city of Zurich, although they do business with the company Zurich).

After chatting with them for a bit, the RPost crew invited more of their RPost friends, bringing the American count up to about 10. We were about to leave and head over to the Aon party at the House of Blues, but I got a text from a student from another school saying it was packed and they weren't letting more people in until other guests left. Back to the Ivy we went! I ended up talking to a man named Graham who worked for Arthur J. Gallagher in London. Of course, he introduced me to all of his friends, who introduced me to their friends, and next thing I knew there was a huge group of us laughing and having a great time.

The party at the Ivy was by far the most fun I had at RIMS. It was a smaller party at a great location, so I really had the chance to meet almost everyone there. It was amazing to meet people from other countries and hear about how the insurance industry is different where they live.

After speaking with all of the British guys, I am definitely going to focus my efforts on getting an internship and full time job in London. They spoke of the industry with such passion and had made lasting relationships through their jobs. The way I see it, I am young and unattached. If there is ever a time to pack up and change my whole life, it is now. I would love to live in another country and change my life. I am young, I'm not married, I have no kids, and the only thing really tying my here is family and friends. I am ready to move on to bigger and better things. I was in London over Thanksgiving break, and absolutely loved it. Maybe I will be blogging from there next summer, who knows!

After the party, I went home and wrote last night's 3 a.m. blog. A cab came for us at 6 a.m., and I was flying pretty much all day. I finally got back to my house in Philadelphia around 9 p.m. I had A LOT of homework to catch up on, so it is now 3 a.m. and I am again finishing up a blog.

Tomorrow, I will post a final reflection on my whole RIMS experience. I am SO jealous of everyone who is still at the conference! It is cold in Philly, and it is supposed to rain tomorrow.

Until next time,


Exhibit Hall: On the Tchotchke Patrol

Really, now, who comes up with what carriers, brokers and vendors decide to purchase to draw attention to the booths in the RIMS exhibit hall? And how much do they spend … or look like they spend? (Not much, in many cases.)

The booth item selections are, at best, uneven. The need to police this part of the trade show has never been greater. It’s time these products come under some scrutiny. Thus, we at Risk & Insurance would like to introduce you, the reader, to the first self-appointed tchotchke patrolman.

Be warned. This cop’s packin’ …. pens, in both breast pockets.

Don’t care if your items are made of wood, or of plastic, aluminum, cardboard, leather, or nylon.

Don’t care if your paraphernalia contains a propylene glycol, a methylparaben or a fragrance.

Don’t care if your goodies are made cocoa, monosodium glutamate, or organic milk.

Don’t care if they’ve been “regifted” because they failed to move at CICA, or at LOMA or at IASA, or at PRIMA, or because nobody, absolutely nobody showed any interested in them – zip, zilch, nada.

The only criteria is how likely risk managers are to pick up your trinket – and we’re not talking about trade show hangers-on, trinket trolls, and card-carrying members of Freebie Nation.

We only care whether serious, professional risk mangers like Wayne Salen of Labor Finders Intl., Scott H. Beckman of Advocate Health Care and Robert A Meyerhoff of Boeing Co. might give these items half a thought.

Nor should anyone think, not for a second, that the trinkets business isn’t cut-throat. It thus deserves our attention.

“It’s always a competition,” said Heather L. Suttle, the Texas-based marketing manager for EFI Global. “It’s an unstated competition.”

Indeed it is, hence the need for the tchotchke patrolman, who’s unafraid to make a decision about which trinket deserves to go free, and which ones deserve to sink to the bottom of San Diego Bay.

We figured that now that the booths have all been taken down to clear the way for the convention center’s next trade group client, we won’t run the risk of getting beaned in the head with a stress reliever.

So here goes … We’re going to arrange this listing in a “hits and misses” format. But because we’re all in San Diego, and we’ve probably ordered fish at least once this week, we’re listing items based on whether they can swim or sink.

Trinkets that pass muster with the tchotchke patrol deserve to “swim.” Items that don’t we’ve left to “sink.”

Before we start, the obligatory disclaimer is in order. This is a most unscientific survey.

Some companies are mentioned in the SWIM and SINK category because the trade booth was hawking more than one product.

Here we go, now, hold your breath.

Sunscreens: We’re in San Diego, the earth is warming and a good number of attendees are on the golf course. Risk manages need sunscreen, even in April.

Luggage tags: Risk managers spend more time in airplanes and airports than they do with their significant others. Their luggage is at risk of being misplaced or lost.

Green bags: Bags are always good, just what you need to carry trinkets to bring home to tot. Kudos to one vendor for choosing reusable bags by Earthwise. Green is good … and we’re not talking about money, for a change.

Ice cream: Always a hit, particularly in Southern California’s hot climate. In fact, this tschotchke patrolman loves ice cream so much that if you’re desperate for your trinket to float to the top, he’s open to bribes – in the form of more ice cream, of course.

Cell phone/PDA accessories. Risk managers spend more time on their cell phones and Blackberries than with their spouses or children. A flashlight attachment would have come in handy for risk managers fumbling about for a phone number in a darkened alcove at Stingaree. Anti-slip pads to prevent cell phones from slipping off dashboards or tables are a good idea, though the tschotchke patrolman isn’t sure jut how long these would last. Still, we’re willing to give them the benefit of the doubt.

Stress Relievers: Risk managers don’t stress in a soft market because prices are flattening out or dropping. The only ones likely to panic are the brokers and the carriers. Stress relievers in the shape of Emperor penguins just don’t fly in San Diego. Couldn’t they’ve at least chosen a grey whale, or a shark? And the pink pigs with wings and shades … wassup wit’ dat?

Technology: The kind of minimal “giveaway” technology we’re talking about here is pretty basic and rudimentary. Often it doesn’t work as advertised, but it’s even more frustrating and self-serving when the technology is locked and key drive files with promotional material can’t be erased.

Coasters: Risk managers shouldn’t be drinking on the job. When they do, they’re usually drinking wine at white-linen restaurants.

Wallwalkers and other gooey gimmicks: A definite no-no. Cheesy, sticky, weird, infantile, and worst of all, in bad taste. The next time the trinket patrolman catches a vendors in such flagrant violation of the rules of decency, the vendor’s name will be made public!

Candy: The stuff’s for kids. Stay out of their cookie jars

Hot tchotchkes this year seemed to be the hand sanitizers.

But tchotchkes on the wane appeared to be golf equipment – ironic given San Diego is home to Torrey Pines. A couple of vendors saw fit to give away tees, and BDO decided chocolate golf balls were good enough to make the cut.

A veteran of the tchotchke circuit, speaking from a hidden location blocks away from the convention center and only under condition of anonymity, said that he couldn’t remember the last time he’d laid a finger on a tchotchke.

The items that are worth keeping, according to this source, those that risk managers really deserve, are part of the “private stock.” Brokers and carriers stash away the goods in the drawers or behind the trade booth curtains.

The tchotchke world spins on its own axis. There doesn’t seem to be much rhyme or reason to the trinkets that make it to the booths. Why is it, for example, that there are so many more tchotchkes at a society for risk managers than there are at trade shows for disability managers?

At the Disability Management Employers Coalition, for example, conventioneers rarely touch tchotchkes, according to Joseph A. Daee, national sales manager for Allsup, a firm that helps plans recover disability and workers’ compensation overpayment dollars.

At RIMS, tchotchkes help attract the curious like nectar attracts birds. “You need good stuff to attract people to your booth,” said Daee.

Well that’s just about it from the exhibit floor of this year’s RIMS conference. This patrolman’s pen has run out of ink … but there’s time to leave you all with one more thing. “Tchotchke” is Yiddish, and it means “a little piece of crap.”

Hot Topics: Hot Parcels

Now, doesn’t that just burn you up!

Last October, when the San Diego area sustained more than $1 billion in insured losses from seven deadly wildfires, managers with a Texas-based company by the name of The First American Corporation, called up one of its largest clients, Citibank, with an urgent bit of news.

Citibank, the First American managers said, had about 1,200 properties at risk from the fires that scorched parts of San Diego County, according to David Rogers, marketing director of First American.

The number, large as it was, wasn’t about to threaten the company’s quarterly earnings, not when the company had a subprime lending crisis on its hands and it’s former CEO, Chuck Prince, was about to step down.

But within weeks of the fires, said Rogers, Citi got another call, this time from its insurance carrier. The carrier, according to Rogers, told the bank it was holding mortgages of as many as 14,000 properties at risk of damage in the so-called burn polygon.

How was such a large discrepancy – about 12,800 properties – possible? “They were going by the zip codes in areas supposedly affected by fires,” said Rogers. The carrier simply didn’t have the granularity of First American, he said.

In itself the discrepancy may not have amounted to much. But the only way to check whether a house had suffered any damage was to send inspectors in a car, at the cost to Citibank of $50.00 per property.

Cost of inspections to Citi based on 1,200 properties: $60,000. Cost of inspections to Citi based on 14,000 properties: $700,000.

OK, we’ll admit that First American is getting good press in this blog post. But hear me out as to why First American deserves some attention here.

For decades, the company’s been supplying mortgage lenders with property data, down to the latitude and longitude of the location of a home. As a result, the company has what it believes is the most accurate property data in the nation because drills down to the very parcel on which the property stands.

But it’s only in the past two or three years that information at the parcel levels has been available, in part because of geospacial information systems. So now, looking to expand into new markets, First American will soon release what it calls its Riverine Flood Risk Score.

The tool, a sort of FICO score for homes and businesses, will help underwriters pinpoint how much a property is exposed to potential flooding.

The model applies hydrological principles to risk data, according to Kevin Madden, senior vice president of business development for First American, and provides a more accurate understanding of property risks faced by homes and businesses in and around flood zones.

Data quality has always been an issue among the carriers. Many use data supplied by the Federal Emergency Management Agency to determine the exposure of properties to flooding, but that data isn’t always up to date.

“With insurance carriers, you may not know how current the data is,” said Rogers. “So there’s billions of dollars in unrecognized exposure out there because tools have not existed.”

There are other data vendors who assess the risk of flooding, of course, and some of them buy the data from others like First American. But what makes First American different is that it has spent decades compiling data on individual properties. It will soon own data on more than 100 million of about 114 million land parcels in the U.S., Rogers said.