Sessions: Are You Passionate?

The light went off in Robert Pastore’s head when he analyzed 10 years of Wal-Mart Stores Inc’s pay-outs and pay-ins on its insurance program. You know what the difference was? 1 percent.

That’s right ladies and gentlemen, 1 percent.

That’s just one more occasion when it hit Pastore, the director of global risk management for the mammoth retailer that hit $375 billion in revenue in its most recent fiscal year; why was he paying for insurance when he could use his company’s massive financial strength to self-insure in at least some cases?

Pastore was laying down this creed in a RIMS session on self-insurance on Tuesday morning, but when you think about the financing of insurance in this respect, it’s really no different than what financial consultants and sages remind you about your own money management.

For after all, what do they say about taxes? It is far better to hold onto as much of your tax payment money throughout the year as you can and realize the benefits of investing it in a money market account or some other instrument, than have the U.S. government hold your money for the year and issue you their patronizing tax rebate at some point every spring.

Warren Buffet and others have been very clear on this concept for years, haven’t they? It’s not the profits on the underwriting, they say, it’s the fact that they get to hold onto other people’s money for them and profit by investing it: profit greatly by investing it, we might add.

But how was Pastore, who has only been in risk management for a few years, to get to that holy place where he could put his theories about self-insurance into practice?

For one, he had to overcome, or at least engage, to be fair, a corporate culture at the Arkansas-based retailer that tended to look at risk management as a dyed-in-the-wool budget item, not the fluid hybrid of art and science that some practitioners believe it to be.

“We were looked at for the longest time as a budget item,” Pastore explains. The degree to which Wal-Mart’s corporate culture took that approach was a little shocking. Employees in Wal-Mart’s garden centers would leave plants outside in heat waves, with the expectation that they company had insurance for some losses, so why not use it?

Pastore has changed all of that line item thinking, and boy are the petunias happier.

“We haven’t had a plant loss in three years,” he said. And he said insurers are welcoming his new approach.

“They don’t want to be swapping dollars anymore than you want to be,” Pastore said.

In getting to the place that Pastore has arrived at, one needs to take a much more active role in assessing the financial strength and corporate culture of one’s company, according to David North, the president and CEO of Sedgwick Claims Management Services Inc., who shared some podium time with Pastore on Tuesday in San Diego.

That means, according to North, that you need to be able to assess management’s appetite for risk, understand the financial strength of the company, its administrative competence, and what North called executives' “emotional readiness” to take on risk.

It’s not something you do in your sleep. It means being active about what you are doing, and in fact being passionate about what you are doing.

“The concept of self-insurance and retaining risk is not easy,” is the way North puts it.
But just look at those numbers that Pastore unearthed: 1 percent, over 10 years, at the biggest company anyone can think of.

So now we just have one question for you gentle readers. To quote from the album title by Neil Young, “Are You Passionate?”