Raising the bar: brokers are deploying analytics and subject matter experts as they respond to increasingly demanding risk managers.
"They simply have to," said Peter Rosiere, an experienced risk manager for a large services company. Today, new tools, technologies and specialization are "givens," he noted, "and they're things that now have to be offered in order to work with me and my team."
Specialized global experts and analytics are among some of the latest offerings. "They're particularly helpful as risk managers contend with new and emerging threats facing their companies," Rosiere said. "Some of the current risks we're particularly concerned about are the ones that aren't the traditional general liability-type exposures. So that's getting more into professional exposures like cyber, data breaches, reputation-type covers--many risks that don't show up on a balance sheet or an income statement. And we're now having to work harder to first identify them and then put together coverages to address those particular risks. Our brokers and underwriters spend a lot of time customizing our coverages to fit this evolution that's occurring."
That's a task certainly not going unnoticed. "Our brokers are one of the most vital partners we as risk managers now have," Rosiere said.
Gone are the days when brokers were simply transaction partners to risk managers, noted George Haitsch, whose two-decade-long career includes posts such as the former risk manager for inter-enterprise software company SAP and currently the chief operating officer for Willis'
North American Global and Risk Solutions. "While insurance is one piece of the puzzle, it's not the only piece. We're now seeing a very significant evolution where brokers are much more a consultative business partner, someone who risk managers can bounce ideas off of to help them drive and execute the strategy and do what they're expected to bring to bear for their firm, such as balance sheet retention, protection, expense management, culture change and risk reduction."
Paul Kim, co-chief broking officer for Aon Risk Solutions, said today's commercial enterprise risk managers are looking for a "true insurance partner who is there for the long term and has the global footprint to address international placement needs."
"Shocks around the world are amplified and small things happening somewhere else can have a ripple effect," added Terry Campbell, co-managing director of Arthur J. Gallagher & Co.'s global risk management practice. Brokers can help risk managers break the confines of domestic borders by "becoming global organizations with global resources," he said.
Risk managers looking for commercial lines coverages must contend with a growing array of risks, including cyber liability, supply chain, product recall, mergers and acquisitions integration and terrorism.
"The temporary lapse of the Terrorism Risk Insurance Act at the end of 2014 focused many risk managers on the inherent limitations around TRIA," said Vince Gaffigan, Lockton Cos.' executive vice president of risk management."The Boston Marathon bombing, for example, wasn't designated a terroristic event for TRIA purposes. As companies become more global, they are faced with an ever-expanding terrorism risk and must determine whether a stand-alone policy might be a better fit."
Cyber risk remains the No. 1 liability weighing heavily on commercial enterprise risk managers' minds, he noted. Companies of all sizes are vulnerable to privacy threats or network security breaches.
"Just look at current headlines, such as the recent Anthem breach. We're having a lot of conversations with clients about cyber liability, and questions are going beyond just the breach and getting into issues like, 'How does a traditional GL or umbrella policy respond to property damage from one of my products being hacked?'" Gaffigan said.
The key for risk managers, Rosiere says, is to talk with brokers about crises and issues before they arise. "The trick is figuring out what we'll talk about today, a hurricane, a food-borne event. What we do is explain what our processes are and what the company philosophy is so underwriters can make a judgment on the quality of our risk and hopefully give us a better price."
A Lending Hand
A cloud of challenges hovers over today's risk managers' heads, including having to do more with less, said Campbell.
"Beginning during the credit crunch in 2008, companies of all sizes went through significant internal downsizing. Risk management departments are often looked at as non-revenue-generating cost centers, so they suffered staff cuts but still had to get things done," he added."Now that the economy has improved they're still being asked to operate that way and accomplish more with less."
Campbell says that's where brokers can step in to help. "At Gallagher, we created a boots-on-the-ground team available round-the-clock to help risk managers adapt to those new needs, from simple blocking and tackling to contract reviews. We used to get an occasional call if they had a question but now we get contract reviews daily. Our response time has increased tenfold, and we can review a contract and get back to clients the same day We 've created tools and checklists with insurance and indemnification language already in them to help risk managers with that process."
Brokers are also "specializing" more to deliver improved expertise to risk managers, Gaffigan added. "The days of being a generalist who handles everything are behind us. We've created new verticals and shared resources that we can tap into and bring to the table for our clients."
Among those offerings is Lockton Advantage, which Lockton executive vice president Mark Moreland describes as a "very simple philosophy that aligns risks and insurance strategies with clients' overall corporate business objectives. If a company is trying to increase revenue, for example, Lockton Advantage can help us drill down into that objective and figure out how they can do it with new products, new geographic areas, mergers and acquisitions. We look for how we can support the overall strategy at the most basic level and what risk management tactics we can develop to align with those corporate goals."
In addition, brokers are creating units and subject matter experts to meet specialized industry risks. In 2014, Lockton created a Gaming, Entertainment and Sports Practice to provide creative and cost-effective risk management strategies to integrate clients' risk requirements across multiple industries.
Brokers are also ramping up technology to meet risk managers' needs. "For us, predictive modeling analytics helps figure out what story is in the data," Rosiere said.
Over the past 18 months, Willis has made significant investments in analytics, noted Haitsch. "In fact, our theme for this year's RIMS conference is 'Willis, the analytical broker' where we will be emphasizing the utilization of data in risk decision-making, whether it's risk financing, risk mitigation or risk strategy. Each day we will be launching a new product or enhancement to our suite of analytical tools, including an upgrade to our PRISM [Privacy Risk Insurance Strategy Model] model that helps organizations quantify the impact and likelihood of a data breach."
"There's an increasing demand for data, and the industry is struggling to keep up," he said. "Clients are challenging us to be more innovative and quicker in how we respond to their evolving needs and risks. Risk managers are working hard to represent internal alternatives that are sufficient to their firm's needs. Brokers and insurers have a huge opportunity to tap into that need and create more innovative platforms focused on thought leadership and product development. And rather than being reactive, they need to be more proactive in terms of assessing the landscape, creating innovative solutions and delivering them to clients, often before they even know they need them."
Social technologies are beginning to factor into the mix. "The rapidness with which information is disseminated has created a need for risk managers and their partners to maintain as much perspective on current events and crisis management to respond as quickly as possible," said Haitsch. "Risk managers are very much part of the solution for many companies and have to maintain that cutting edge. So they're looking at blogs and streams of information, like social media, from carriers and brokers and are relying on aggregation of that information."
The challenge with technology, says Campbell, is balancing it with people.
"Nothing replaces human interaction. Oftentimes it's easier to leave a message or send an email, but we need to make sure our teams don't rely on that as a replacement for sitting and communicating with risk managers."
Brokers like Kim are excited about the evolution of the broker-risk manager dynamic.
"Risk managers will continue to need a highly knowledgeable consultant with specialized understanding of the industry and product solutions. And because of emerging risks, they'll continue to search for solutions and brokers with a tremendous focus on innovation," he said. "It's a great time to be in the risk business. Every day brings more discussion about risks, whether they are geopolitical, civil commotion, instability, cyber ... and we need to stay on top of our game."
However, are risk managers equally as enthusiastic about their broker partnerships? Results from the J.D. Power 2014 Large Business Commercial Insurance Study, which provides an independent and objective measure of overall satisfaction among large business insurance risk professionals in the United States and Canada, seem to think so, especially when the relationship also involves carriers.
The inaugural study, based on five factors--interaction, program offerings, price, billing and payment and claims--also found critical to satisfaction with brokers is their ability to understand customers' business needs. The ease of contacting brokers--the most important factor in determining satisfaction with a broker--had the highest score in the overall customer experience with a broker.
"The risk management philosophy will become increasingly important for successful companies and that's because there are more and more risks," Rosiere said. "The most successful companies have very good
risk awareness and that's not necessarily something that resides solely in the risk management department. We can be a supporter of it or the people who help bring tools and ideas, but there needs to be, and it's different at every company, an awareness of what the risks are."
However, you can't do it overnight, he said. "This is a long-term process. The term we use is 'the long game,' a three-to-five-year event horizon."
In the meantime, risk managers and brokers each will have to rise to the challenge. "There are increasing demands on risk professionals to have financial acumen, business skills and an ability to speak to every area of the company. So risk managers are becoming more skilled global business persons," Gaffigan said.
"The same holds true on the broker side. We're being pushed to develop new skill sets. It's not enough to have an array of products; we also need to know what are the critical risks, company strategies, risk tolerance and capacity, and then deliver solutions rather than just products."
Technology will help with that, Haitsch added. "Brokers will be able to quickly aggregate data, immediately understand issues and make recommendations and decisions in the same real-time way that technology companies enable decisions in other areas. I envision risk management will become a central cockpit of the data that is coming at them from all angles in partnership with brokers who are delivering a suite of solutions to effectively help them manage their portion of responsibility to their organizations."
As for Gafflgan's take on the future, "I expect the relationship between risk managers and brokers will only continue to strengthen and become more of a true partnership. While there are some companies that still take a transactional approach, transformational risk managers recognize they don't have all the resources or information and look to their brokers to help them round out knowledge gaps and/or bring them a better tool box."
Setting the Scene: Risk managers are increasingly relying on their brokers for % more than just insurance needs.
An Evolution: Brokers are becoming consultative business partners who help risk managers drive and execute their company strategies.
The Road Ahead:
Analytics and specialization are just a few tools brokers will continue using to connect with their risk manager clients.
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|Title Annotation:||New Risk: Brokers & Risk Managers|
|Date:||Apr 1, 2015|
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