RISK 2000: PORTRAITS OF CHANGE.Risk managers in this new millennium will face emerging risks and expanding challenges. Here's a look at how four of the Top 50 companies in the US.--AT&T, Compaq, Sears, and Texaco--are meeting those challenges. Risk managers saw it all in the last years of the 20th century. Insurers pulling in and out of markets. Brokers merging. Premiums running up and down like an endless roller roller, common name for brightly colored Old World birds noted for performing somersaults in flight. They include the rollers proper (subfamily Coraciinae) and ground rollers (subfamily Brachypteraciinae coaster What a bad CD-R disc is often called. See CD-R and underrun. . New coverages such as employment practices liability. Innovative risk financing. Hurricanes to the east. Earthquakes to the west. Tornadoes running rampant up and down the middle. Downsizing (1) Converting mainframe and mini-based systems to client/server LANs. (2) To reduce equipment and associated costs by switching to a less-expensive system. (jargon) downsizing , budget cutting, the Internet Internet Publicly accessible computer network connecting many smaller networks from around the world. It grew out of a U.S. Defense Department program called ARPANET (Advanced Research Projects Agency Network), established in 1969 with connections between computers at the and then--to cap it all off--Y2K. But what does the future hold as the 21st century begins? What are the biggest challenges and emerging trends that risk managers will face in the next 12 months to 10 years? To know where you're going, you have to know where you've been. Take a look at four companies from diverse industries--telecommunications, retail, petroleum, and high tech--to find out what risk managers at the nation's leading companies are thinking about. "We're actually walking the talk," says Paul Riley
With a background in mechanical engineering and an MBA MBA abbr. Master of Business Administration Noun 1. MBA - a master's degree in business Master in Business, Master in Business Administration in finance, Riley is one of the new breed of risk managers who cut their teeth in the financial arena. In his case, he was named head of risk management two years ago after working for the corporate finance area's capital markets group. "(As a corporate strategy,) we wanted to get away from the old model of an insurance buyer who's been with the company for 20 to 30 years and plays a lot of golf games," says Riley, who operates out of Basking Ridge, N.J. "Insurance purchasing is important but it's secondary to building internal relationships as well as outside relationships, such as working with the capital markets. We're looking to cross-pollinate between risk management and finance--such as catastrophe bonds catastrophe bond A debt security with a payoff tied to the relative severity of a natural disaster such as a hurricane or earthquake. Bondholders are paid with insurance premiums but may have to accept reduced principal repayment in the event the specified ." In the old world, the organization was 20 people strong, with insurance analysts, corporate underwriters, and claims and litigation An action brought in court to enforce a particular right. The act or process of bringing a lawsuit in and of itself; a judicial contest; any dispute. When a person begins a civil lawsuit, the person enters into a process called litigation. managers. "Now we're down to four--there's myself with the finance background, two insurance analysts, and a claims manager," he says. "There's a sharp focus on cost--we do a lot with a lot less," he adds. "We've been moving as much as possible to third-party vendors. If they want to be a service provider to a company like AT&T, they're going to have to work very hard and be good team players--and that means insurance companies, brokers, TPAs, and lawyers." At Sears Roebuck & Co. (#15), with its thousands of locations and one-on-one contact with customers, risk management duties are spread around from the top officers to the checkout clerk. Pamela G. Rogers, director of risk management, says the challenge is to combine the management and financing of traditional risk with a philosophy that looks at key risks throughout the company that drive shareholder value. "I'm more of an educator and developer," says Rogers, who has a 17-year risk management background that includes heavy manufacturing, high-tech industries, and food processors before joining Sears two years ago. "The people on the line every day are the risk managers. We educate them and provide a framework to identify risk, assess it, and determine how they're going to handle it, hand it off, retain it or avoid it. "It's the basic scientific risk management approach for those of us born with one of those warped minds," jokes Rogers, who is based in the corporate headquarters in Hoffman Estates Hoffman Estates A village of northeast Illinois, a suburb of Chicago. Population: 49,700. , Ill. "Our chairman has been clear in comments that people need to take more risk. But you can't tell them to take risk and not give them tools. We deal more with process risk." Meanwhile, Texaco (#24) has been undergoing a sea change in the way it approaches risk management. Claims underwriting Underwriting 1. The process by which investment bankers raise investment capital from investors on behalf of corporations and governments that are issuing securities (both equity and debt). 2. The process of issuing insurance policies. and brokering are handled out of Texaco's captive insurance Captive insurance companies are limited purpose insurance companies established with the specific objective of financing risks emanating from their parent group or groups, they sometimes also insure risks of the parent company's customers. group in Bermuda, while traditional risk management is done from Houston and London. After 18 years as a tax planner, controller and fiscal director, Thomas (language) Thomas - A language compatible with the language Dylan(TM). Thomas is NOT Dylan(TM). The first public release of a translator to Scheme by Matt Birkholz, Jim Miller, and Ron Weiss, written at Digital Equipment Corporation's Cambridge Research Laboratory runs P. Dougherty Jr., general manager of Texaco Risk Management, was named to head the risk management operation a year ago. His job is to take an enterprise risk management approach. "We recognize that things happening out there on the horizon were financially driven and we saw an opportunity to do internal analysis of managing risk in general," says Dougherty, who is based in Houston. "The only sensible way from the shareholders' standpoint The Standpoint is a newspaper published in the British Virgin Islands. It was originally published under the name Pennysaver, largely as a shopping-coupon promotional newspaper, but since emerged as one of the most influential sources of journalism in the is to combine all categories of risk. The shareholder doesn't care if your building burnt down or your foreign exchange turned against you. Dollars are dollars are dollars." Dougherty has assembled as·sem·ble v. as·sem·bled, as·sem·bling, as·sem·bles v.tr. 1. To bring or call together into a group or whole: assembled the jury. 2. a multiple disciplinary team of treasury, tax, controllers, hazard risk managers, and oil trading and gas trading operations managers See datacenter manager. to analyze the company's overall philosophy of risk and come to a consensus for risk tolerance Risk Tolerance The degree of uncertainty that an investor can handle in regards to a negative change in the value of their portfolio. Notes: An investor's risk tolerance varies according to age, income requirements, financial goals, etc. levels. They're also looking at best practices for managing risk to make more sense of that risk for the shareholder. Although Compaq (#28) is searching for a new chief financial officer, the risk management philosophy is expected to remain the same. "As of today, there are seven of us in my department, handling traditional property and casualty, excluding workers comp comp See comparison. , which is handled through our environmental health, safety, and security operation under human resources The fancy word for "people." The human resources department within an organization, years ago known as the "personnel department," manages the administrative aspects of the employees. ," says Bates Bates , Katherine Lee 1859-1929. American educator and writer best known for her poem "America the Beautiful," written in 1893 and revised in 1904 and 1911. Richmond, corporate risk manager. "We work closely with a capital markets group, foreign exchange and banking." All insurance is managed from the company's Houston headquarters. They also monitor the separate loss-control operations and help assess risk from the financial side. "We view insurance as nothing more than an alternative source of financing," Richmond says. Emerging Risks So what are the risks these diverse risk philosophies will be tested against in the next decade? Among the biggest will be e-commerce, says Rogers of Sears. The company took its fabled catalog catalog, descriptive list, on cards or in a book, of the contents of a library. Assurbanipal's library at Nineveh was cataloged on shelves of slate. The first known subject catalog was compiled by Callimachus at the Alexandrian Library in the 3d cent. B.C. online last year--after paying careful attention to credit card fraud Credit card fraud is a wide-ranging term for theft and fraud committed using a credit card or any similar payment mechanism as a fraudulent source of funds in a transaction. The purpose may be to obtain goods without paying, or to obtain unauthorized funds from an account. and forgery forgery, in art forgery, in art, the false claim to authenticity for a work of art. The Nature of Forgery Because the provenance of works of art is seldom clear and because their origin is often judged by means of subtle factors, art prevention. "The rate at which you can transact An earlier e-commerce system for the Web from Open Market that included order capture and secure order fulfillment using credit cards, ecash and other payment systems. It included customer service and subscription administration capabilities as well as an integrated database for reporting is far faster," she says, "taking the risks that we're used to facing and exacerbating ex·ac·er·bate tr.v. ex·ac·er·bat·ed, ex·ac·er·bat·ing, ex·ac·er·bates To increase the severity, violence, or bitterness of; aggravate: them." There's also the supply-side risk. With the paper catalog, purchasing had to be done two years in advance. By going online, Sears cut out the year's lead time for printing. Now prices can be changed daily, if necessary. Rogers says. A continuing trend, says Dougherty of Texaco, is the development of a true enterprise risk philosophy. But the jury is still out on whether the market is ready to sell a product that meets a specific industry's needs. "The market is very immature immature /im·ma·ture/ (im?ah-chldbomacr´) unripe or not fully developed. im·ma·ture adj. Not fully grown or developed. immature unripe or not fully developed. and needs some successes and some value. The only question in my mind is how long is it going to take." The financial services The examples and perspective in this article or section may not represent a worldwide view of the subject. Please [ improve this article] or discuss the issue on the talk page. reform act (see sidebar (1) A Windows Vista desktop panel that holds mini applications (gadgets) such as a calendar, calculator, stock ticker and Vonage phone dialer. It is the Windows counterpart to the Dashboard in the Mac. See Windows Vista and gadget. at left) may help. "We've been talking about the convergence of the insurance and financial services markets for a long time but we've seen precious little, other than cat bonds and innovative structures. They are first baby steps being taken toward that goal," Dougherty concludes. Companies are also looking inside as well to carve out to make or get by cutting, or as if by cutting; to cut out. - Shak. See also: Carve a better risk management approach. At Sears, developing models using risk management information systems is a long-term but emerging goal. "It will take us about three years to get our arms around what are our key risks, how are they being managed and how should they be managed," says Rogers. "Then we can begin to look at modeling. But until we define it, it's hard to model it and hedge it appropriately. "We have to look at the direction management is heading, do a lot of interviewing and have discussions with management and lower levels. To say that we could plunk plunk also plonk v. plunked also plonked, plunk·ing also plonk·ing, plunks also plonks v.tr. 1. our risks into a model is very premature," she adds. For Richmond of Compaq, risk managers of the future will have to carve out the difference between fortuitous and business risk. "If we're going to create enterprise solutions, I have to decide, do I want to include foreign exchange? Can an insurance company provide what we could provide internally?" he asks. The wild card of emerging risks is the ubiquitous Found in large quantities everywhere. This English word means "all over the place." Y2K problem Y2K problem or Y2K bug: see Year 2000 problem. (Year 2000 problem) The inability of older hardware and software to recognize the century change in a date. . Although the calendar hadn't yet turned at press time, it's a safe bet that we'll know pretty soon the full impact of the fixes and the flubs of the work done during the last several years. "We rely to a greater extent on systems," says Dougherty of Texaco. "Having Y2K See Y2K problem and Y2K compliant. Y2K - Year 2000 visit us all has provoked pro·voke tr.v. pro·voked, pro·vok·ing, pro·vokes 1. To incite to anger or resentment. 2. To stir to action or feeling. 3. To give rise to; evoke: provoke laughter. a great deal of looking at the way we do things. When you look at a noncompliant system and realize it's cheaper to replace, that, opens the door to business process reengineering See reengineering. , where systems are driven by business processes rather than by the reverse." That means the fixes companies such as Texaco chose to make to deal with Y2K may have actually helped improve the risk horizon. Expanding Skill Sets Companies are asking risk managers to do more with less, so two areas formerly relegated to other specialists--finance and technology--are moving into the risk management purview The part of a statute or a law that delineates its purpose and scope. Purview refers to the enacting part of a statute. It generally begins with the words be it enacted and continues as far as the repealing clause. . "As risk manager, I knew I had to find better and cheaper ways of delivering the product," says Dougherty. "That's becoming increasingly difficult but exciting. When you do process analysis and strip away some of the old low-value tasks, you discover ... that you can kill a report and do something productive for a change. "If there ever existed a risk manager whose job was merely to buy insurance and be cognizant cog·ni·zant adj. Fully informed; conscious. See Synonyms at aware. [From cognizance.] Adj. 1. of insurance markets, that job description is now dead," he says. "I expect to see more fully qualified financial professionals who have the scope to understand risk in all of its iterations and people who bring a full tool kit of financial skills. These will be the risk managers of the future. "You also need very good fundamental financial skills and an acute awareness of accounting issues (for example, the impact of the new Financial Accounting Standards Board Financial Accounting Standards Board (FASB) Board composed of independent members who create and interpret Generally Accepted Accounting Principles (GAAP). standards), a reasonable working knowledge of international tax issues, plus the fundamental skills of insurance, risk transfer and risk finance," he says. And, while some skills may not be a risk manager's job requirement, some have become necessary for meeting the corporate strategy and bottom line. "For example, we have our own Web site, which saves us a lot of time on the phone," says Riley of AT&T. "If someone internally wants our certificate of insurance or surety bonds surety bond An insurance fee required before a duplicate security is issued to replace one that has been lost. The fee is approximately 4% of the market value of the security to be replaced. verification, that person can manage the process by logging into the corporate intranet." The time saver was built in a moneysaving way. Riley, who did programming early in his 9 1/2 year career at AT&T, designed the Web site himself. "You've almost got to be a jack of all trades," he says. "I could have hired somebody else to do it, but that costs money." Compaq's Richmond sees an increasing role for technology to assist the risk manager as educator. To conduct business continuity training with Compaq employees worldwide, the company uses its intranet for visual, audio, and data screens, or provides training courses on CDs. "You no longer need a large room," he says. "You can provide hands-on training anywhere in the world without leaving the office." Richmond also used the intranet to work with fire engineers who were modifying a location in Singapore. "We got the plans electronically, changed them and got them back within 24 hours," he says. Finally, even as risk managers get involved in nontraditional projects--such as teaming up with others to launch e-commerce operations--there'll be a call for the more traditional skills of a risk manager who takes a holistic approach holistic approach A term used in alternative health for a philosophical approach to health care, in which the entire Pt is evaluated and treated. See Alternative medicine, Holistic medicine. . "We don't need to be e-commerce experts," says Sears' Rogers. "We'll rely on the technical experts. But we do need good financial, teambuilding and communication skills." Even in a new millennium, sometimes the oldest skills are the most important.
The Nation's Leading Companies [*] and Their
Captives
Company Name Captive, Domicile
AT&T Corp. American Ridge Insurance Co., Vermont;
Ridge Ltd., Dublin
Bank America Corp. Tyron Assurance Co. Ltd., Bermuda
Bell Atlantic Corp. Exchange Indemnity Co., Vermont
The Chase Manhattan Corp. Hatherley Insurance Ltd., Bermuda
Chevron Corp. Bermaco Insurance Co. Ltd., Bermuda
Citigroup Citicorp Insurance U.S.A. Inc.,
Vermont
Compaq Computer Corp. Computer Insurance Co., Rhode Island;
Computer
Insurance Co. Ltd., Bermuda
ConAgra Inc. Risk Resources Ltd., Bermuda; Weld
Insurance Co.
Inc., Colorado
E.I. Du Pont De Nemours & Co. Inc. Christiana Insurance Ltd., Bermuda
Exxon Corp. Ancon Insurance Co.
Enron Corp. Gulf Company Ltd., Vermont
Ford Motor Co. Transcon Insurance Ltd., Bermuda;
Gentlewinds
Reinsurance Ltd., Caymans
General Electric Co. Electron Insurance Ltd., Bermuda
General Motors Corp. General International Ltd., Bermuda
GTE Corp. GTE Hawaiian Insurance Co., Hawaii;
GTE
Reinsurance Inc., Vermont; British
Columbia
Telephone Insurance Co., British
Columbia
Hewlett-Packard Co. HP Tall Tree Insurance Co., Vermont;
HP Re Ltd.,
Dublin
The Home Depot Inc. THD Bermuda Ltd., Bermuda
IBM Corp. Marsh & McLennan Mgmt. Services,
Bermuda;
Marsh & McLennan Mgmt. Services,
Dublin
Intel Corp. EIL, Ireland
Lucent Technologies First Beacon Insurance Co., Vermont
Merck & Co. Inc. IIL, Bermuda
Merrill Lynch & Co. Inc. Investor Protection Insurance Co.,
Vermont
Metropolitan Life Insurance Co. Sargasso Ltd., Bermuda
Mobil Corp. Bluefield International Insurance
Inc., Vermont
Philip Morris Cos. Inc. Philip Morris Ltd., Dublin
The Procter & Gamble Co. Celtic Insurance Co. Ltd., Bermuda
Safeway Inc. Milford Insurance Co., Bermuda
SBC Communications Inc. Gateway Rivers Insurance Co., Vermont
Texaco Inc. Heddington Insurance Ltd., Bermuda
United Technologies Corp. UT Insurance Vermont Inc., Vermont; UT
Insurance
Ltd., Dublin
USX Grant Assurance Corp., Vermont
(*.)Thirty one of the top 50 U.S. companies
ranked by Fortune report owning captives,
according to a survey by Risk & Insurance.
The Nation's Top 50 [*]
And Their Risk Managers
Rank Company Name location
1 General Motors Corp. Detroit
2 Ford Motor Co. Dearborn, Mich
3 Wal-Mart Stores Inc. Bentonville, Ark.
4 Exxon Corp. Irving, Texas
5 General Electirc Co. Fairfield, Conn.
6 IBM Corp. Armonk, N.Y.
7 Citigroup New York
8 Philip Morris Cos. Inc. New York
9 The Boeing Co. Seattle
10 AT&T Corp. Basking Ridge, N.J.
11 Bank America Corp. Charlotte N.C.
12 State Farm Insurance Cos. Bloomington, III.
13 Mobil Corp. Fairfax, Va.
14 Hewlett-Packard Co. Palo Alto Calif.
15 Sears, Roebuck & Co. Hoffman Estates, III.
16 E.I. Du Pont De Nemours & Co. Inc. Wilmington, Del.
17 The Procter & Gamble Co. Cincinnati
18 TIAA-CREF New York
19 Merrill Lynch & Co. Inc. New York
20 Prudential insurance Co. of America Newark, N.J.
21 Kmart Corp. Troy, Mich.
22 American International Group Inc. New York
23 The Chase Manhattan Corp. New York
24 Texaco Inc. White Plains, N.Y.
25 Bell Atlantic Crop. New York
26 Fannie Mae Washington
27 Enron Corp. Houston
28 Compaq Computer Corp. Houston
29 Morgan Stanley Dean Witter Discover New York
30 Dayton Hudson Corp. Minneapolis
31 J. C. Penney Co. Inc. Plano, Texas
32 The Home Depot Inc. Atlanta
33 Lucent Technologies Murray Hill, N.J.
34 Motorola Inc. Schaumburg, III.
35 SBC Communications Inc. San Antonio
36 The Kroger Co. Cincinnati
37 Merck & Co. Inc. Whitehouse Station, N.J.
38 Chevron Corp. San Francisco
39 Metropolitan Life Insurance Co. New York
40 Intel Corp. Santa Clara, Calif.
41 Lockhead Martin Corp. Bethesda Md.
42 The Allstate Corp. Northbrook, III.
43 United Technologies Corp. Hartford, Conn.
44 Bank One Corp. Chicago
45 GTE Corp. Chicago
46 United Parcel Service Atlanta
47 USX Pittsburgh
48 Safeway Inc. Pleasanton, Calif.
49 Costco Issaquah, Wash.
50 ConAgra Inc. Omaha, Neb.
Rank Primary Business
1 Motor vehicles and parts
2 Motor vehicles and parts
3 General merchandise
4 Petroleum refining
5 Electronics, electrical equipment
6 Computers, office equipment
7 Commercial banks, insurance
8 Tobacco
9 Aerospace
10 Telecommunications
11 Commerical banks
12 Property/casualty insurance
13 Petroleum refining
14 Computers, office equipment
15 General merchandise
16 Chemicals
17 Soaps, cosmetics
18 Life/health insurance
19 Securities
20 Life/health insurance
21 General merchandise
22 Property/casualty insurance
23 Commercial banks
24 Petroleum refining
25 Telecommunications
26 Diversified financials
27 Pipelines
28 Computers
29 Securities
30 General merchandise
31 General merchandise
32 Specialist retailers
33 Electronics, electrical eqiupment
34 Electronics, electrical equipment
35 Telecommunications
36 Food and drug stores
37 Pharmaceuticals
38 Petroleum refining
39 Life/health insurance
40 Electronics, semiconductors
41 Aerospace
42 Property/casualty insurance
43 Aerospace
44 Commercial banks
45 Telecommunications
46 Mail, packaging, and
freight delivery
47 Petroleum Refining
48 Food stores
49 Specialty retailers
50 Food
Rank Risk Manager, title
1 R. Paul Maddock, general dir.,
corp. risk mgmt. and insurance
2 Daniel Sobozynski, dir.,
corporate insurance
3 William E. Newberg, v.p., risk mgmt.
4 J.D. Whitelaw, president, risk mgmt.
5 Andrea T. Pearson, deputy treas.,
insurance
6 David Blake, manager,
risk and insurance
7 Raymond C. Olsen, v.p.
8 Tom Avers, dir., global risk mgmt.
and insurance
9 Dennis Crispin, v.p. insurance
and taxes
10 Paul Riley, treasury dir.,
global risk mgmt.
11 Reggie Dickens, dir., corp.
insurance
12 Sheila Meiner, director, risk mgmt.
13 Alvin A. Da Costa, manager, corp.
insurnace
14 Cedric A. Hughes, dir. risk mgmt.
15 Pamela G. Rogers, dir., risk mgmt.
16 Bruce R. Evancho, global risk mngr.
17 Harold L. Maxson, director of
insurance
18 Richard Adamski v.p., treasurer
19 John A. Fromholtz, v.p., global
insurance and risk services
20 Timothy J. Bunt, v.p.,
21 William J. Szykula, dir., risk mgmt.
22 Merritt Fabel, director of corp.
risk mgmt. and insurance
23 Stephen Krol, senior v.p.
24 Thomas P, Dougherty Jr., gen. mngr.,
risk mgmt. dept.
25 Sheila Small, exec. dir., risk mgmt.
26 David R. Menn, dir., insurance risk
mgmt.
27 James L. Bouillion, senior dir.
28 Bates C. Richmond, corp. risk mngr.
29 Marilyn Needleman, principal and dir.
of risk and insurance mgmt.
30 Karen M. Doolittle, dir, risk mgmt.
31 William H. Baxley, grp. mngr.,
risk mgmt. and insurance
32 Bart Canon Jr., dir., risk mgmt.
33 Paul F. Buckley, corp, risk manager
34 Joseph J. Wojdula, insurance mngr.
35 Julie K. Long, director of risk mgmt.
36 Not available
37 Philip Adams, director of insurance
and risk mgmt.
38 James D. Lyness, asst treasurer,
insurance
39 Richard J. Barquist, v.p.
40 Diane Labrador, asst. treasurer, risk
and insurance
41 Dennis L. Bronco, dir., risk mgmt.
42 Kimberly J. Sioane, dir., risk mgmt.
43 Leon D. Palmer, dir., risk mgmt.
44 Not available
45 Raymond J. Alletto dir., of risk mgmt.
46 Robert Markmann, risk manager, v.p.
47 William Smith, director and corp., risk mgr.
48 Terry L. Gilbreth, v.p.
49 Dellanie Fragnoli v.p., risk mgmt.
50 Archie Meairs, mngr property/
casualty risk
(*.)Ranked by 1998 revenue by Fortune magazine.
Risk manager names were gathered by Risk & Insurance.
High Anxieties Risk managers' top concerns for the coming year once again reflect industry trends and market changes, according to according to prep. 1. As stated or indicated by; on the authority of: according to historians. 2. In keeping with: according to instructions. 3. Risk & Insurance's annual survey of the nation's leading companies. Topping this year's list of risk manager concerns is increasing litigation costs, with 69 percent of respondents In the context of marketing research, a representative sample drawn from a larger population of people from whom information is collected and used to develop or confirm marketing strategy. indicating this is a top issue in the coming year (see chart). Jury awards continue to increase, especially in cases of discrimination and sexual harassment sexual harassment, in law, verbal or physical behavior of a sexual nature, aimed at a particular person or group of people, especially in the workplace or in academic or other institutional settings, that is actionable, as in tort or under equal-opportunity statutes. . And punitive damages Monetary compensation awarded to an injured party that goes beyond that which is necessary to compensate the individual for losses and that is intended to punish the wrongdoer. are being awarded more often in these types of cases than any other type of lawsuit lawsuit: see procedure; tort. . Workers' comp costs also ranked high on the list of risk managers' worries. In fact, 65.5 percent of those surveyed ranked workers' comp costs as one of their top concerns for the coming year. Risk managers have good reason to be worried. Industry watchers are expecting a gradual upturn in the workers' comp market. Rates are bottoming out in areas such as workers' compensation--and are even rising in some cases, especially for those with poor injury rates. Insurers are starting to become more selective with their risks, passing by accounts with higher loss experience or deciding not to renew existing accounts with worsening wors·en tr. & intr.v. wors·ened, wors·en·ing, wors·ens To make or become worse. Noun 1. worsening - process of changing to an inferior state decline in quality, deterioration, declension loss experience. At least one insurer An individual or company who, through a contractual agreement, undertakes to compensate specified losses, liability, or damages incurred by another individual. An insurer is frequently an insurance company and is also known as an underwriter. has raised rates for this segment. The impact of insurance company and brokers mergers is another concern among risk managers, although there are indications that insurance mergers and acquisitions may be slowing down. In the survey, 58.6 percent of respondents say this was among their issues. Three years ago, just 5 percent of respondents worried about the effect of mergers and acquisitions. Alternative risk transfer mechanisms are also among risk managers' issues for the coming year. Issues surrounding sur·round tr.v. sur·round·ed, sur·round·ing, sur·rounds 1. To extend on all sides of simultaneously; encircle. 2. To enclose or confine on all sides so as to bar escape or outside communication. n. financing risk through the capital markets, cited by almost half of the respondents, are now on risk mangers' radar screens. And more risk mangers are interested in derivatives derivatives In finance, contracts whose value is derived from another asset, which can include stocks, bonds, currencies, interest rates, commodities, and related indexes. Purchasers of derivatives are essentially wagering on the future performance of that asset. and fronting arrangements. As financial services reform comes closer to reality, there will be more--and more creative--uses of financial and other alternative mechanisms to manage risks, especially if rumors For other uses, see Rumor (disambiguation). Rumors is a farcical play by Neil Simon. At its start, several affluent couples gather in the posh suburban residence of a couple for a dinner party celebrating their tenth anniversary. of a coming hard market come to pass. This year, in fact, saw the first corporate catastrophe bonds and the first corporate use of derivatives to manage risks associated with the weather. And not surprisingly, nearly half of the respondents expressed concern about how risk and insurance services would be handled on the Internet. Risk & Insurance asked risk managers at the nation's leading companies to rate the importance of various issue. Respondents were asked to rank, on a scale of 1 to 5, the importance of 17 issues, ranging from workers' comp costs, disability management, OSHA OSHA n. Occupational Safety and Health Administration, a branch of the US Department of Labor responsible for establishing and enforcing safety and health standards in the workplace. regulations, regulatory changes, and alternative risk transfer methods.
Top Risk Management Concerns
Increasing litigation and tort reform 69.0%
Workers' compensation costs 65.5
Effect of insurer/broker consolidation 58.6
Using the Internet for risk/insurance services 48.3
Financing risk through the capital markets 48.3
Increasing health care costs 44.8
Fronting regulations and other controls
on alternative risk financing mechanisms 41.4
Product liability legislation/reform 41.4
Insurance/reinsurance carrier solvency 41.4
Using derivatives as a risk financing tool 37.9
Environmental liability 37.9
Increasing repetitive motion claims 37.9
Regulatory changes 34.5
Disability mangement/ADA 34.5
Availability/high cost of insurance/reinsurance 31.0
OSHA regulations 27.6
Retirement benefit rule changes 13.8
Source: Risk & Insurance, Horsham, Pa.
Short-Term Hype, Long-Term Change For all the hype, hope; and hand-wringling about the Financial Services Modernization modernization Transformation of a society from a rural and agrarian condition to a secular, urban, and industrial one. It is closely linked with industrialization. As societies modernize, the individual becomes increasingly important, gradually replacing the family, Act of 1999, the impact on risk managers is likely to show up only in the long run. The law that knocks down Depression-era legal barriers to mergers of insurance companies, investment firms, and banks primarily targets retail customers. Mr. and Mrs. America Mr. and Mrs. America was a propaganda short produced by the US Department of Treasury in 1945 to urge citizens to buy and keep war bonds. Mr. and Mrs. America contains a series of pre-taped messages from leading figures in American life, including Franklin D. will go to their "financial supermarket's" automated teller machine automated teller machine (ATM), device used by bank customers to process account transactions. Typically, a user inserts into the ATM a special plastic card that is encoded with information on a magnetic strip. and withdraw cash from checking, choose an auto insurance program, and check their investment performance. Moving innovation to the commercial market is a different story, says Harold Skipper skipper: see butterfly. skipper Any of some 3,000 lepidopteran species (family Hesperiidae) named for their fast (up to 20 mph, or 30 kph), darting flight. , professor of risk management and insurance at Georgia State University's College of Business Administration in Atlanta. "With risk management, you're dealing with a sophisticated customer who wants to deal with a sophisticated supplier," he says. "[Merged operations] are not likely to be able to offer a better deal just because they can offer a range of financial services." In the future, financial services conglomerates A Conglomerate is the term used to describe a large corporation that consists of diverse divisions. Conglomerate companies tend to be large multinational corporations with operations in multiple regions of the world. could mean the development of risk products that cover a wide range of exposures for a corporation. "I say in the long run because insurers and securities firms can already get together and develop products such as catastrophe bonds, insurance derivatives, multi-trigger products that key off of various events, and contingent capital arrangements," adds Skipper. "But if you embed em·bed also im·bed v. em·bed·ded, em·bed·ding, em·beds v.tr. 1. To fix firmly in a surrounding mass: embed a post in concrete; fossils embedded in shale. within a product traditional hazard risk, foreign exchange risk, and commodity risk, that becomes a difficult product to price." From the risk manager's standpoint, there are concerns about the mergers causing a shrinking of risk portfolios diversification Diversification A risk management technique that mixes a wide variety of investments within a portfolio. It is designed to minimize the impact of any one security on overall portfolio performance. Notes: Diversification is possibly the greatest way to reduce the risk. and lower service from the merged operations. Risk managers have similar concerns on the brokerage side, but say it could mean increased availability of technology and services to the mid-market. "It's unclear how it's going to ploy ploy n. An action calculated to frustrate an opponent or gain an advantage indirectly or deviously; a maneuver: "A typical ploy is to feign illness, procure medicine, then sell it on the black market" out, with banks-maybe buying insurance brokerages, not that there are that many around any more," says Paul Riley, treasury director, global risk management for AT&T. For Pamela G. Rogers, director of Sears' risk management, mergers may mean a new vocabulary, new players, and new relationships. "There's so much capacity with-new reinsurance The contract made between an insurance company and a third party to protect the insurance company from losses. The contract provides for the third party to pay for the loss sustained by the insurance company when the company makes a payment on the original contract. that when you add the capitol Capitol, seat of the U.S. Congress Capitol, seat of the U.S. government at Washington, D.C. It is the city's dominating monument, built on an elevated site that was chosen by George Washington in consultation with Major Pierre L'Enfant. markets, that makes it an unlimited capacity, making it uncertain if there will ever be a hard market again," she says. |
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